CIVIL LAW OBLIGATIONS & CONTRACTS

3.Juridical Tie or Vinculum Juris -- the efficient cause

O BLIG ATIONS
A juridical necessity to give, to do, or not to do (Art. 1156).
A legal relation established between one party and
another whereby the latter is bound to the fulfillment of a
prestation which the former may demand of him (8
Manresa 13).
which creates the relation between the obligor/debtor
and obligee/creditor and is established by:
a. Law
b. Bilateral Acts (Contracts giving rise to the obligations
stipulated therein)
c. Unilateral Acts (Crimes & Quasi-Delicts)
4. Prestation/ Object see above definition

Juridical necessity Kinds:

In case of noncompliance, there will be legal sanctions.
(Pineda, Ernesto L., Obligations & Contracts, 2000 ed.,
p.1]).
Prestation
Not the thing or object, but the particular conduct of the
debtor which may consist in giving, doing, or not doing
something.
Elements of Obligation:
1.Active Subject -- one who can demand the fulfillment of
the prestation; he who in his favor, the obligation is
constituted or created. He is called the obligee/creditor.
Note: The active subject may be TEMPORARILY
indefinite, as in the case of a negotiable instrument
payable to bearer (Tolentino, Arturo M., Commentaries
and Jurisprudence on the Civil Code of the Philippines,
1991 ed., Vol. 4, p. 57).
2.Passive Subject -- one bound to perform the
prestation. He is called the obligor/debtor.
a. To give -- obligation to deliver a movable or an
immovable thing in order to create a real right, or for
the use of the recipient or for its simple possession
(e.g. sale, deposit, pledge, donation)
b. To do -- covers all kinds of works or services whether
physical or mental. It may involve some work on the
part of the debtor such as in contracts of employment
or professional services, but in other cases, it may be
merely the necessity of concluding a juridical
operation, such as, when a person promises to give a
bond.
c. Not to do -- consists in abstaining from doing some
act. This obligation includes the obligation not to
give.
Requisites of Prestation:
a. Physically and Juridically possible;
b. Determinate or at least determinable according to
pre-established elements or criteria;
c. Must be within the commerce of man;
d. Must be licit; and
e. Possible equivalent in money.

Note: Subjects pertain to both natural and juridical
persons. They need not be determined in the act
constituting the obligation, but they MUST be
determinable in some manner. When either subject
cannot be determined the obligatory tie can have no
effect.
Note: Pecuniary interest need not be for the benefit of
one of the parties, it maybe for the benefit of a 3rd
person.
It is a generally established principle that the prestation
should be susceptible of pecuniary appreciation.
However, it need not be of an economic character to
have pecuniary value, because all interests, even moral
ones in view of the protection given to them by law,

EXECUTIVE COMMITTEE SUBJECT COMMITTEE MEMBERS

IAN MICHEL GEONANGA overall JHOY PALLONES subject chair, MICAELA Phoebe Alhambra, Diana
chairperson, JOSE ANGELO DAVID KRISTINA GALVEZ assistant subject chair, PIA Bartolome, Jesus Paolo
chairperson for academics, RUTH ISABEL CO edp, FRANCIA ROMLINA Borlagdan, Darniel Bustamante,
ABIGAIL ACERO chairperson for RODRIGUEZ persons and family relations, Jamela Jane Caringal, Ma.
hotel operations, ALBERTO JENNETH CAE CAINDAY property, IRENE Criselda Correa, Reynaldo
RECALDE, JR. vice-chairperson for ALCOBILLA wills and succession, JOSE Dalisay, Kristine Lara Defensor,
Carel Brendth Dela Cruz, Regine
operations, MARIA CARMELA AMELITO BELARMINO II and ROWNEYLIN SIA
Estillore, Anne Clarisse Guzman,
HAUTEA vice-chairperson for obligations and contracts, SAMANTHA
Aziel Guzman, Martin Michael
secretariat, MARK EMMANUEL GRACE MANALO sales and lease, LAUREN
Hatol, Maria Emma Gille
ABILO vice-chairperson for finance, GAIL DIVINO partnership, agency and Mercado, Richmond
RYAN LIGGAYU vice-chairperson trusts, MABEL BUTED credit transactions, Montevirgen, Astrid Ong, Ruth
for electronic data processing, JULIUS CEASAR BALBUENA torts and Ann Ong, Rodel James Pulma,
JOMARC PHILIP DIMAPILIS vice- damages, KATHLEEN VALERIO land titles Dan Bernard Sabilala, Jeth Lester
chairperson for logistics and deeds, ILLAC BOHOL conflict of laws Tan, Maria Anne Cyra Uy
 OBLIGATIONS & CONTRACTS
have some pecuniary value (Tolentino, Arturo M.,
Commentaries and Jurisprudence on the Civil Code of
the Philippines, 1991 ed., Vol. 4, p. 57).
Note: FORM is sometimes added as a sixth requisite but
as a general rule however, it cannot be considered as
essential. An obligation arising from law can be said to
have no form at all.
Primary Classifications under the New Civil Code:
1. Pure & Conditional (Arts. 1179-1192).
a. Pure -- demandable at once
b. Conditional -- fulfillment or extinguishment depends
upon a future and uncertain event
2. With a Period or Term (Arts. 1193-1198).
Its fulfillment or extinguishment depends upon a future
and certain event
3. Alternative & Facultative (Arts. 1199-1206).
a. Alternative -- involves multiple prestations but debtor
will only perform one or some but not all, depending
whose choice it is
b. Facultative -- multiple prestations with a principal
obligation and substitute prestations, choice is
generally given to the obligor
4. Joint & Solidary (Arts. 1207-1222).
a. Joint -- each can be made to pay only his share in the
obligation
b. Solidary -- one can be made to pay for the whole
obligation subject to reimbursement
5. Divisible & Indivisible (Arts. 1223-1225)
Performance of the prestation, not to thing, whether it
can be fulfilled in parts of not
6. With a penal clause (Arts. 1226-1230).
Accessory undertaking to assume greater liability in
case of a breach.
7. Individual and collective (Arts. 1207, 1223).
a. Individual -- involves only one subject
b. Collective -- involves several subjects
8. Accessory and principal (Arts. 1166, 1226).
a. Accessory -- existence depends upon a principal
obligation (e.g. pledge, mortgage)
b. Principal -- exist without depending upon another
obligation
Secondary Classifications under the New Civil Code:
1. Legal (Art. 1158) -- arises from Law
2. Conventional (Art. 1159) -- arises from Contracts
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3. Penal (Art. 1161) -- arises from commission of crime
4. Real and Personal (Art. 1163-1168).
5. Determinate and generic (Arts.1163-1166).
6. Positive and negative (Arts. 1167-1168).
7. Unilateral and bilateral (Arts. 1169-1191).
a. Unilateral -- only one party is bound to perform an
obligation (e.g. simple donation, to give support)
b. Bilateral -- also known as synallagmatic contracts
where two parties are reciprocally bound (e.g.
purchase and sale).
Kinds of Obligations: It may also be classified as
A. Viewpoint of Sanction
1. Civil Obligations -- an obligation, which if not fulfilled
when it becomes due and demandable, may be
enforced in court through an action.
2. Natural Obligations -- not 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
retention of what has been delivered or rendered by
reason thereof.
Civil Obligation Natural Obligation
Article 1156 Article 1423
Based on equity and
Based on positive law
natural law
Enforceable by court
Not enforceable by court
action or coercive
action
power/authority
3. Moral Obligations -- those that cannot be enforced
by action but which are binding on the party who
makes it in conscience and natural law.
B. Viewpoint of Performance
1. Positive Obligation -- to give; to do
2. Negative Obligation -- not to do
C. Viewpoint of Subject Matter
1. Personal Obligation -- to do or not to do
2. Real Obligation -- to give
a. Determinate or specific -- one that is
individualized and can be identified or
distinguished from others of its kind; its loss
extinguishes the obligation
b. Indeterminate or Generic -- indicated merely by
its class or genus without being designated or
distinguished from others of the same kind; its
loss does not extinguish the obligation for genus
never perishes (genus nunquam perit).
c. Limited generic thing -- when the generic objects
are confined to a particular class, e.g. an
obligation to deliver one of my horses (Tolentino,
 CIVIL LAW
Arturo M., Commentaries and Jurisprudence on
the Civil Code of the Philippines, 1991 e., Vol. 4,
p. 91).
D. Viewpoint of Person Obliged
1. Unilateral -- only one party is bound
2. Bilateral -- both parties are bound
Sources of Obligations (Art 1157):
1. Law
2. Contracts
3. Quasi-contracts
4. Delicts
5. Quasi-delicts
Note: The list of sources is EXCLUSIVE (Sagrado Orden
vs. Nacoco, G.R. No. L-3756, June 30, 1952).
HOWEVER, Tolentino gives another source: unilateral
promise. It may be based on (1) contract or (2) law. It
may be said that customs sanction its validity
1. LAW (Ex-Lege)
Obligations derived from law are NOT PRESUMED.
Only those EXPRESSLY DETERMINED in the New
Civil Code or in Special Laws are DEMANDABLE, and
shall be REGULATED by the PRECEPTS OF THE
LAW which establishes them (Art. 1158).
In case of conflict between NCC and a special law, the
latter prevails unless the contrary has been stipulated.
In obligations arising from law, the law creates
obligation and the act upon which it is based is nothing
more than a mere factor for determining the moment
when it becomes demandable. (Pineda, Ernesto L.,
Obligations & Contracts, 1991 ed., p.10).
Note: In the other sources of obligation, there is always
some individual act which gives rise to the obligation, the
law intervenes only to provide a sanction or to prevent
injustice.
To say that the law is an independent source of obligation,
it does not mean that law and human acts exclude each
other completely. Once such human acts exist, the
obligations arising therefrom by virtue of the express
provisions of the law are entirely independent of the will of
the parties.
2. CONTRACTS (Ex-Contractu)
Obligations arising from contracts have the FORCE OF
LAW between the contracting parties and should be
complied with in GOOD FAITH (Art. 1159).
OBLIGATIONS & CONTRACTS
Contract is the MEETING OF THE MINDS between
TWO PERSONS whereby one binds himself, with
respect to the other, to give something or to render
some service (Art. 1305).
Note: Compliance in good faith is performance in
accordance with the stipulation, clauses, terms and
conditions of the contract.
The terms of the contract determine the respective
obligations of the parties thereto. If the terms of a
contract are clear and leave no doubt upon the
contracting parties intention, such terms should be
applied in their literal meaning (Sps. Dumlao vs. Marlon
Realty Corp., G.R. No. 131491, August 17, 2007)
Pre-Contractual Obligations
Can damages suffered by a party during the period of
negotiations be recovered, if the contract is not finally
perfected?
Yes. Should the offer be clear and definite and leads the
offeree in good faith to incur expenses in the expectation
of entering into the contract; and the withdrawal of the
offer is without legitimate cause, if offeror:
a. Is guilty of fault or negligence, the liability would be
based on Quasi-Delict
b. Is not guilty of fault or negligence but the withdrawal
was based in abuse of right, the liability would be
based on Art. 19 of the NCC
3. QUASI-CONTRACTS (Quasi Ex-Contractual)
Juridical relations arising from LAWFUL, VOLUNTARY,
UNILATERAL ACTS, by virtue of which the parties
become bound to each other, based on the principle that
no one shall be unjustly enriched or benefited at the
expense of another (Art. 2142).
Kinds:
a. Negotiorum Gestio (Officious Management)
Whoever voluntarily takes charge of the agency or
management of the business of property of another,
WITHOUT ANY POWER from the latter, is OBLIGED
to CONTINUE the same until the TERMINATION of
the affair and its incidents, or to REQUIRE the person
concerned to SUBSTITUTE him, if the owner is in a
position to do so (Art. 2144).
Note: This juridical relation DOES NOT arise in either
of these instances:
i. when the property or business is not NEGLECTED
or ABANDONED.
ii. if in fact the manager has even TACITLY (implied
from actions or statements) authorized by the
owner.
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 OBLIGATIONS & CONTRACTS
b.Solutio Indebiti (Payment Not Due)
If something is RECEIVED when there is NO RIGHT
to DEMAND it, and it was UNDULY delivered through
MISTAKE, the OBLIGATION TO RETURN it arises
(Art. 2154).
c.Other Quasi-Contracts (also known as support
given by strangers)
Articles 2144, 2154, 2167, 2174, 2150, 2164, 2168,
2169, 2170, 2171, 2172, 2173, 2174, 2175
Note: A quasi-contract is a UNILATERAL contract
created by the sole act or acts of the gestor; no
express consent given by the other party. The consent
needed is provided by LAW through PRESUMPTION
(Pineda, Ernesto L., Obligations & Contracts,2000 ed.,
p.14).
This consent is referred to as presumptive consent. It
gives rise to multiple juridical relations which result in
obligations for the delivery of the thing or rendition of
service (Perez v. Pomar, 2 Phil. 682).
4. DELICT (Ex-Delictu, Culpa Criminal)
Civil obligations arising from CRIMINAL OFFENSE shall
be governed by the PENAL LAWS (Art. 1161).
Every person criminally liable for a felony is also civilly
liable (Art. 100, Revised Penal Code).
Civil liability may be in the form of Restitution,
Reparation of damage caused, or Indemnification for
consequential damages.
General rule: Civil liability is a NECESSARY
CONSEQUENCE of criminal liability.
Reason: The commission of a crime causes not only
moral evil but also material damage.
Exception: Treason, Rebellion, Gambling
Article 12 of the Revised Penal Code, provides for
exempting circumstances and as such the perpetrator
do not incur CRIMINAL LIABILITY but is NOT EXEMPT
from civil liability. These are:
1. Imbecile or insane person (unless acting in lucid
interval
2. Person below 18 years old
3. Acting under compulsion of an irresistible force
4. Acting under the impulse of an uncontrollable fear of
an equal or greater injury.
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Note: The civil liability for crimes is extinguished by the
same causes provided by the Civil Code for the
extinguishment of other obligations. Such liability
continues notwithstanding the fact that the offender has
served his sentence or has not been required to serve
the same by reason of amnesty, pardon etc.
Rule 111 of the Criminal Procedure provides that:
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 the offended party WAIVES
THE CIVIL ACTION, RESERVES THE RIGHT TO
INSTITUE IT SEPARATELY or INSTITUTES THE CIVIL
ACTION PRIOR THE criminal action.
5. QUASI-DELICT (Quasi Ex-Delicto)
Fault or negligence of a person who by his acts or
omissions, connected or unconnected with, but
independent from, any contractual relation, causes
damage to another person. The equivalent of the term
tort in Anglo-American law.
Whoever by act or omission causes damage to another,
there being FAULT or NEGLIGENCE, is OBLIGED to
pay for the damage done (Art. 2176).
Art. 2176, where it refers to fault or negligence, covers
not only acts not punished by law but also acts criminal
in character, whether intentional or voluntary or
negligent (Elcano vs. Hill, G.R.No. L-24303, May 26,
1977).
It is based on the undisputed principle of equity that fault
or negligence cannot prejudice anyone else besides its
author and in no case should its consequences be
borne by him who suffers the harm produced by such
fault or negligence.
Note: It has been ruled that tort liability can exist even if
there are already contractual relations, but this should
be interpreted to mean that the tort liability itself does
not arise because of the contract, but because of some
other fact (Paras, Edgardo L., Civil Code of the
Philippines Annotated V, 2008 ed., p.1102).
Fault or Negligence
Negligence is the failure to observe for the protection of
the interests of another person, that degree of care,
precaution and vigilance which the circumstances justly
demand (US vs. Barrias, 23 Phil. 434).
Test of Negligence: Would a prudent man, in the
position of the person to whom negligence is attributed,
Elements of Quasi-delicts?
 CIVIL LAW OBLIGATIONS & CONTRACTS

foresee harm to the person injured as a reasonable Distinction between delict & quasi-delict
consequence of the course about to be pursued? If so, Delict Quasi-delict
the law imposes a duty upon him to refrain from that
course or take precautions, and failure to do so Public Right: wrong Private Right: wrong
constitutes negligence. against the State against the individual
Criminal intent is not
Elements of Negligence: Criminal intent is
necessary for it is possible
1.The fault or negligence of the defendant; necessary for the
that there is NO criminal
2.The damage suffered or incurred by the plaintiff; and existence of liability
charge but only civil
3.The relation of cause and effect between the fault or liability for damages
negligence of the defendant and the damage incurred
by the plaintiff. Not as broad as quasi- Actionable in any act or
delict, can be punished omission wherein fault or
A single act or omission can give rise to different causes only when there is a penal negligence intervenes
of action, subject to the prohibition against double law clearly penalizing it
recovery under the Rules of Court. Form of redress is either Either by compensation or
fine or imprisonment or indemnification
Obligations arising from quasi-delict are demandable not both
only from the person directly responsible for the damage
incurred, but also against the persons mentioned in Art. Must be proven beyond Requires preponderance
2180. reasonable doubt of evidence
Can never be Can be compromised as
Kinds of Negligence:
compromised any other civil liability
1. Culpa Aquilana -- quasi-delict; negligence as a
source of obligation Employers liability is Employers liability is
2. Culpa Contractual -- negligence in the performance of subsidiary. The employee primary can be sued
a contract must have first been directly by the injured party
3. Culpa Criminal -- criminal negligence convicted and sentenced and may recover from his
to pay civil indemnity and it employee
Distinctions between Culpa Aquilana & Culpa must be shown that he is
Contractual insolvent.
Culpa Aquilana Culpa Contractual
Negligence as a source of Negligence in the Employer is liable only All employers whether they
obligation performance of a contract when he is engaged in are engaged in some
Fault or negligence which some kind of business or enterprise or not are liable,
Fault or negligence of the industry this includes house
constitutes an independent
debtor as an incident in helpers.
source of obligation
the fulfillment of an
between parties not
existing obligation
previously bound
N ATURE AND E FFECTS OF
Diesel construction case* O BLIG ATION
-1167? Does not apply when personal or special
qualifications is the principal motif of the creation of
the obligation I. OBLIGATION TO GIVE (REAL)
Chavez v. Gonzales case
DETERMINATE OR SPECIFIC THING DUTIES OF THE
OBLIGOR
Proximate v. Contributory negligence
1. Deliver the thing itself

General rule: The debtor of a thing CANNOT COMPEL

the creditor to RECEIVE A DIFFERENT ONE, although
the latter may be of the same value as, or more
valuable than which is due (Art. 1244 Par. 1).

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Exceptions: Difference between Accessions and Accessories

a. By agreement or consent, the debtor may deliver a Accessions/Accession Accessories
different thing or perform a different prestation in lieu Continua
of that stipulated (either a Dation in Payment or Destined for
Includes everything which
Objective Novation) embellishment, use or
is produced by a thing, or
b. Waiver of defect, the creditor with knowledge of preservation of another
which is incorporated or
defect accepts the thing without protest or disposes thing or have for their
attached thereto, either
it. object the completion of
naturally or artificially.
another thing
2. Preserve the thing with due care Includes:
General rule: Every person obliged to give something Fault or negligence of the
1. Accesion Natural- e.g.
debtor as an incident in
is also OBLIGED to TAKE CARE of it with the PROPER alluvion
DILIGENCE OF A GOOD FATHER OF A FAMILY (Art. the fulfillment of an
2. Accesion Industrial- e.g.
1163). existing obligation
building, planting

Exception: The LAW or the STIPULATION of the 4. Deliver the fruits

parties requires another standard of care (Art. 1163). The creditor has a RIGHT to the FRUITS of the thing
from the TIME the obligation to deliver it arises.
Basis: Absence of the duty of obligor to take care of the However, there is NO real right UNTIL the same has
thing, the obligation to deliver would be illusory. been delivered to him (Art. 1164 Par. 1).

Also, failure to preserve the specific thing would give Note: The ownership of things is transferred not only by
rise to liability for damages unless due to a mere agreements but by delivery (Non Nudis Pactis,
FORTUITOUS EVENTS/ FORCE MAJEURE. Sed Traditione Domina Rerum Transferentur).

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
(Art. 1173 Par 2).
Diligence
It is the attention and care required of a person in a
given situation and is the opposite of negligence.
Kinds:
a. Simple diligence
b. Extraordinary Diligence
c. Diligence of a good father of a family/Bonos Pater
Familia -- measure of prudence or activity as is properly
to be expected from, and ordinarily exercised by a
reasonable and prudent man under the particular
circumstances (Blacks Law Dictionary, 6th Ed., p.457).
3. Deliver the ACCESSIONS and ACCESSORIES
General rule: Obligation to give a determinate thing
includes that of DELIVERING ALL its ACCESSIONS &
ACCESSORIES, even though they may not have been
mentioned (Art. 1166).
Exceptions: By contrary intention of the parties
When does the obligors obligation to deliver arise?
a. If obligation is based on law, quasi-delict, quasi-
contract or crime, the specific provisions of applicable
law shall determine when the delivery shall be
effected.
b. If obligation is subject to a suspensive condition, it
arises from the happening of the condition.
c. If obligation is subject to a suspensive term or period,
it arises upon the lapse of the term.
d. If obligation is not subject to any of the foregoing, it
arises from the constitution or perfection of the
obligation.
Principle of Balancing of Equities as Applied in
Actions for Specific Performance
In specific performance, equity requires that the contract
be just and equitable in its provisions, and that the
consequences of specific performance likewise be
equitable and just. The general rule is that this equitable
relief will not be granted if the result of the specific
performance of the contract would be harsh, inequitable,
oppressive or result in an unconscionable advantage to
the plaintiff (Agcaoili vs. GSIS, G.R. No. 30056, August
30, 1988).
Kinds of Fruits
1. Natural -- spontaneous products of the soil, the young
without intervention of human labor.

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 CIVIL LAW
2. Industrial -- those produced by lands of any kind
through cultivation brought by intervention of human
labor.
3. Civil -- those derived by virtue of juridical relation (e.g.
rents of building)
CORRELATIVE RIGHTS OF THE OBLIGEE: / Remedies of
1. Right to specific performance obligee
2. Right to rescission or resolution Art 1191
3. Right to damages due to the following (DeDeNeFraCo):
a. failure to deliver
General rule: If due to fortuitous even, obligor is not
liable
Exceptions:
i. Law (e.g. Articles 1942, 2001,2147, 1993)
ii. Stipulation to the contrary
iii.Nature of the obligation requires assumption of
risk
iv.Fraud or malice (bad faith)- such as obligor
delivers to two or more persons having different
interest (Art. 1165 Par. 3).
v.Debtor was already in delay when the fortuitous
even took place
b. Delay or default
c. Negligence in the performance of the obligation
d. Fraud
e. Any manner in contravention of the tenor of obligation
Indeterminate/Generic Thing
When the obligation consists in the delivery of an
INDETERMINATE or GENERIC THING, whose QUALITY
and CIRCUMSTANCES have not been STATED, the
creditor cannot DEMAND a thing of SUPERIOR quality.
Neither can the debtor deliver a thing of INFERIOR
quality. The PURPOSE of the obligation and other
CIRCUMSTANCES shall be taken into consideration (Art.
1246).
Note: If the debtor can no longer perform the principal
obligation, the creditor may ask for compliance by a 3rd
person at the debtors expense (Art. 1165).
DUTIES OF THE OBLIGOR:
1. To deliver the thing of the quality intended by the
parties, taking into account the purpose of the
obligation, intent of the parties and other circumstances;
2. To be liable for damages in case of breach due to
delay, fraud, negligence or contravention of the tenor
thereof (Art. 1170).
CORRELATIVE RIGHTS OF THE OBLIGEE:
1. Right to ask for rescission
2. Right to damages due to:
a. failure to deliver
OBLIGATIONS & CONTRACTS
b. fraud
c. negligence
d. delay
e. any matter in contravention of the tenor of the
obligation
II. OBLIGATION TO DO (PERSONAL)
General rule: In obligations to do or not to do, an ACT or
FORBEARANCE CANNOT be SUBSTITUTED by another
act or forbearance AGAINST the obligees will (Art. 1244
Par. 2).
Exception: In facultative obligation where the debtor
reserves the right to substitute another prestation.
Note: If a person is obliged to do something and fails to
do it, the same shall be EXECUTED at his COST. The
same rule may be observed if he does it in
CONTRAVENTION of the tenor of the obligation.
Furthermore, it may be decreed that what has been poorly
done be undone (Art. 1167).
DUTIES OF THE OBLIGOR:
1. To do it (Art. 1167).
2. To shoulder the cost if someone else does it (Art.
1167).
3. To undo what has been poorly done (Art. 1167).
4. To pay damages (Arts. 1170-1172, 2201-2202).
III. OBLIGATIONS NOT TO DO
In obligations to do or not to do, an ACT or
FORBEARANCE CANNOT be SUBSTITUTED by another
act or forbearance AGAINST the obligees will (Art. 1244
Par. 2).
Note: Performance cannot be delegated or be performed
by an agent.
No legal accessory obligations arise as compared to
obligation to give.
When the obligation consists in not doing, and the obligor
does what has been forbidden him, it shall also be undone
at his expense (Art. 1268).
DUTIES OF THE OBLIGOR:
1. Not to do what should NOT be done
2. To shoulder the cost to UNDO what should not have
been done
3. To pay damages
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RIGHTS OF A CREDITOR IN PERSONAL BREACH OF OBLIGATION may be:

OBLIGATIONS: TO DO OR NOT TO DO (Arts. 1167- 1. Voluntary -- arises either by fraud, negligence, delay,
1168) and in any manner contravene to the tenor of the
Positive Personal Negative Personal obligation (Art. 1170).
Obligations Obligations 2. Involuntary -- arises due to fortuitous events
(Art. 1167) (Art. 1168)
The obligee can: If the obligor does what OR
1. Have the obligation has been forbidden him,
performed or executed the obligee shall have the 1. Substantial -- amount to non-performance which is the
at the expense of the following remedies: basis for rescission and payment of damages
obligor (EXCEPT when 1. Have it undone at the 2. Casual -- a part of the obligation has been performed
the prestation consists of expense of the obligor; and gives rise to liability for damages
an act where the and
personal and special 2. To ask for damages Note: Rescission will not be permitted for a slight or
qualification of the causal breach of the contract, but only for such breaches
obligor is the principal which are substantial as to defeat the intention of the
motive for the parties in making the agreement.
establishment of the
obligation. In such case The Supreme Court said that Hawaiian-Philippine Co.
the remedy is an action does not have the right to rescind the contract. It should
for damages under Art. be noted that the time of payment stipulated for in the
1170) contract should be treated as of the presence of the
2. Ask that what has been contract. There was only a slight breach of contract when
poorly done be undone the payment was delayed for 20 days after which
3. Recover damages Hawaiian-Philippine Co. accepted the payment of the
because of breach of the overdue accounts and continued with the contract,
obligation waiving its right to rescind the contract. The delay in the
payment of Song Fo & Co. was not such a violation for the
In negative obligations delay or mora is not possible unlike contract. (Song Fo v. Hawaiian Phils, 47 SCRA 821).
in positive obligations (Jurado, Desiderio, Comments and
Jurisprudence on Obligations and Contracts,2010 ed., Different Modes of Breach
p.55). Those who in the performance of their obligations are
guilty of FRAUD, NEGLIGENCE, or DELAY and those
Cases Where the Remedy Granted under Article 1168 who in any manner CONTRAVENE THE TENOR thereof,
is NOT available: are liable for damages (Art. 1170).
1. Where the effects of the act which is forbidden, are
definite in character - even if it is possible for the obligee 1. FRAUD (Dolo) -- is the voluntary execution of a
to ask that the act be undone at the expense of the wrongful act, or a willful omission which prevents the
obligor, consequences permanent in character and normal realization of the prestation, knowing, and
contrary to the object of the obligation will be produced intending the effects which naturally and necessarily
arise from such act or omission.
For instance, should a TV star be absolutely prohibited Implies some kind of malice or dishonesty and cannot
by his contract with his home station to appear in cover cases of mistake and errors in judgment made in
programs of other TV stations, the effects of the breach good faith. In such case obligor can be held liable for
thereof can no longer be undone. damages.
2. Where it is physically or legally impossible to undo what
has been undone because of the very nature of the act Test: The element of INTENT and not the HARM done.
itself or of a provision of law, or because of conflicting
rights of third persons Effect of Fraud: Liability for damages.

Note: In either case, the only feasible remedy is Waiver of Fraud

indemnification for damages. Responsibility arising from fraud is DEMANDABLE in
ALL OBLIGATIONS. Any waiver of action for FUTURE
FRAUD is VOID.

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Note: The law prohibits the renunciation of action Culpa Culpa Culpa
for damages on the ground of future fraud but it DOES contractual aquiliana criminal
NOT prohibit fraud ALREADY COMMITTED. Negligence is
merely
Kinds of Fraud: Negligence is Negligence
incidental to the
1. Fraud in the performance of the obligation (Art.1171). direct, is direct,
performance of
2. Fraud in the execution/ creation/ birth of contract substantive, substantive,
an obligation
a. Dolo Causante (Art. 1344). and and
already existing
b. Dolo Incidente (Art. 1338). independent independent
because of a
contract
2. NEGLIGENCE (Culpa) There may or
The fault or negligence of the obligor consists in the There is always No pre-
may not be a
OMISSION OF THAT DILIGENCE which is required by a pre-existing existing
pre-existing
the NATURE of obligation and corresponds with the contractual contractual
contractual
circumstances of the persons, of the time and place relation relation
relation
(Art. 1173 Par 1). Source of Source of
Source of
obligation: obligation:
In case of fraud, bad faith, malice or wanton attitude, obligation:
breach or defendants
the obligor shall be responsible for ALL DAMAGES defendants
nonfulfillment of negligent act
which may be REASONABLY ATTRIBUTED to the non- criminal act
contract or omission
performance of the obligation (Art. 2201 Par 2). Requires proof Requires proof Requires
by by proof beyond
Negligence preponderance preponderance reasonable
Any voluntary act or omission, there being no malice, of evidence of evidence doubt
which prevents the normal fulfillment of an obligation Defense of a
good father
Effects of Negligence: of a family in
a. Damages are demandable which the court may the selection
regulate according to circumstances; and Defense of a
and
b. Invalidates defense of fortuitous event. good father of a Defense of a
supervision
family in the good father of
of
Kinds of Negligence: selection and a family in the
employees is
a. Civil Negligence supervision of selection and
NOT proper.
i. Culpa contractual -- fault or negligence of obligor by employees is supervision of
The
virtue of which he is unable to perform his NOT a proper or employees is a
employees
obligation arising from a pre-existing contrac complete proper and
guilt is
ii. Culpa aquiliana/quasi-delict -- fault or negligence of defense, though complete
automatically
a person, whose failure to observe the required it may mitigate defense
the
diligence to the obligation causes damage to damages
employers
another guilt if the
former is
The negligence of the defendant in both cases is insolvent.
characterized by the omission of that diligence which Proof of
is required by the nature of the obligation and existence of a Accused is
corresponds with the circumstances of the persons, of Plaintiff has to
contract and presumed
the time and of the place. prove
breach thereof innocent until
negligence of
gives rise to a the contrary
b.Culpa Criminal -- fault or negligence which results in the defendant
presumption of is proved
the commission of a crime. fault

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Difference between fraud (dolo) and negligence 3. DELAY (Mora)

(culpa) Those obliged to DELIVER or TO DO something incur
DELAY from the time the obligee JUDICIALLY or
Fraud (dolo) Negligence (culpa) EXTRAJUDICIALLY DEMANDS from them the
fulfillment of their obligation (Art. 1169).
Mere want of care or
Willfulness or deliberate Delay
diligence and not the
intent to cause damage or Non-fulfillment of obligation with respect to time.
voluntariness of act or
injury to another
omission
Note: There is SIMPLE delay as one fails to perform the
Liability cannot be mitigated Liability may be mitigated by obligation and this delay is converted to a LEGAL
by courts courts DELAY which arises when the obligee judicially or
extrajudicially demands their fulfillment. The delay which
Waiver for future negligence the law speaks about is one that is LEGAL.
Waiver for future fraud is
VALID if SIMPLE
VOID
VOID if GROSS Delay in the performance of the obligation, however,
Presumed from the breach must be either malicious or negligent. If delay is only
Must be clearly proved due to inadvertence without any malice or negligence,
of a contractual obligation
the obligor cannot be liable under Art. 1170 (RCBC vs.
Standard of Diligence Required CA, G.R. No. 133107, March 25, 1999).
If law or contract does not state the diligence which is to
be observed in the performance, that which is expected General rule: There must be demand in order for the
of a GOOD FATHER OF A FAMILY is required. debtor to incur delay.

Note: When the negligence is so gross that it amounts Exceptions:

to wanton attitude on the part of the obligor, the laws in
case of fraud shall apply.
If the obligor acted in good faith, he shall be liable only
for natural and probable consequences of the breach of
obligation and which the parties have foreseen or could
have reasonably foreseen at the time the obligation was
constituted.
If the obligor acted in bad faith, the boundaries between
negligence and fraud disappear altogether. Obligor can
be held responsible for all damages which may be
reasonably attributed to the nonperformance of the
obligation. Any waiver or renunciation which is made in
anticipation of such liability is null and void.
If there was contributory negligence of the obligee, the
effect is to reduce or mitigate the damages which he can
recover.
a. When the obligation or law expressly so declares.
b. When from the nature and circumstances of the
obligation it appears that the DESIGNATION OF THE
TIME when the thing to be delivered or the service is
to be rendered was a controlling motive for the
establishment of the contract.
c. When demand would be USELESS:
i. Caused by some act or fault of the debtor
ii. Impossibility caused by fortuitous event
Purpose of the Demand: The presumption of good
faith.
Note: There can only be delay in obligations to give
and to do (positive obligations) and not in obligations
not to give or not to do (negative obligations)
(Tolentino, Arturo M., Commentaries and Jurisprudence
on the Civil Code of the Philippines, 1991 ed., Vol. 4,
p.101).

If the negligent act or omission of the obligee was the
proximate cause of the event which led to damage or
injury complained of, he cannot recover.
Robbery, per se, like carnapping, does NOT foreclose
the possibility of negligence. It is not a fortuitous event
(Sicam, et al. vs. Jorge, GR No. 159617, August 8,
2007).
In RECIPROCAL obligations, neither party incurs 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.

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Requisites in order to consider the obligor in
default: (SSS vs. Moonwalk Development and Housing
Corpoation, G.R. No. 73345, April 7, 1993)
1. Obligation is demandable and already liquidated
2. The obligor/debtor delays performance
3. The creditor requires performance judicially or extra-
judicially
A grace period is not an obligation of the debtor but a
right. It must not be likened to an obligation the non-
payment of which under Art. 1169 would generally still
require judicial or extrajudicial demand before default
can arise. When unconditionally conferred, it is effective
without need of demand either for the payment of the
obligation or for the honoring of the right (Bricktown
Devt. Corp. vs. Amor Tierra Devt. Corp., G.R. No.
112182, December 12, 1994).
KINDS OF DELAY:
1. Mora Solvendi -- delay on the part of the debtor and
may either be:
a. Ex Re -- obligations to give
b. Ex Persona -- obligations to do
Requisites:
i. Prestation is demandable and already liquidated
Note: There is no delay in natural obligations for
the performance of such is optional and voluntary.
ii. The debtor is in delay of the performance due to
causes imputable to him and not by acts such as
fortuitous events
iii. The creditor requires or demands the performance
judicially or extrajudicially.
If extrajudicial: date of demand
If uncertain: date of filing of complaint
Note: A mere reminder cannot be considered a
demand for performance, because it must appear that
the tolerance or benevolence of the creditor must
have ended (Tolentino, Arturo M., Commentaries and
Jurisprudence on the Civil Code of the Philippines,
1991 ed., Vol. 4, p 102).
Commencement of a suit is sufficient demand
(Palmares vs. CA, G.R. No. 126490, March 31, 1998)
But even without demand, debtor incurs delay if he
acknowledges his delay such as requesting for an
extension of time for payment.
OBLIGATIONS & CONTRACTS
Effects of Mora Solvendi
Debtor is liable for interest in obligations to pay
money, or damages. In the absence of extra-judicial
demand, the interest shall commence from the filing
of the complaint.
Interest to be paid as indemnity for damages is based
on what has been agreed upon by the parties, in the
absence thereof, the legal interest (Art. 2209).
Debtor is liable even for fortuitous event when the
obligation is to deliver a specific thing. But court may
equitably mitigate damages if debtor proves that the
loss would have still resulted even if he had not been
in default.
For generic things, debtor may still be compelled to
deliver a thing of the same kind or be held liable for
damages.
2. Mora Accipiendi -- delay in the performance based on
the omission by the creditor of the necessary
cooperation, especially acceptance on his part.
Requisites:
a. Offer of performance by the debtor who has the
required capacity;
b. Offer must be to comply with the prestation as it
should be performed;
c. Creditor refuses the performance without just
cause.
Effects of Mora Accipiendi:
a. Responsibility of the debtor for the thing is reduced
and limited to fraud and gross negligence.
b. Debtor is exempted from the risks of loss of the
thing, which automatically passes to the creditor.
c. All expenses incurred by the debtor for the
preservation of the thing after the delay shall be
chargeable to the creditor.
d. The creditor becomes liable for damages.
e. The debtor may relieve himself of the obligation by
consignation of the thing.
f. If the obligation bears interest, the debtor does not
have to pay from the moment of the mora;
Remedy:
a. Consign it in court
b. Keep it to himself (hes not liable for damages)
3. Compensation Morae -- delay of the parties in a
reciprocal obligation
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General rule: Parties in a bilateral contract can
REGULATE the ORDER in which they shall comply
with their reciprocal prestations. Otherwise, the
fulfillment must be SIMULTANEOUS and
RECIPROCAL.
Exception: Contrary stipulation (e.g. installment
basis)
Effects of Compensation Morae:
a. Delay of the obligor cancels delay of the obligee
and vice versa.
b. No actionable default on the part of both parties.
c. If delay of one party is followed by that of the other,
the liability of the first infractor shall be equitably
balanced by the courts. If it cannot be determined
which of the parties is guilty of delay, the contract
shall be deemed extinguished and each shall bear
his own damages (Art. 1192).
Cessation of the Effects of Delay (mora)
The benefits arising from default or delay may cease
upon (1) renunciation by the creditor, express or implied
and (2) prescription.
4. Contravention of Tenor
Under Art. 1170, the phrase in any manner contravene
the tenor of the obligation includes not only any illicit
act which impairs the strict and faithful fulfillment of the
obligation, but also every kind of defective
performance.
Unless excused in proper cases by fortuitous event
Note: The following do not excuse fulfillment:
a. Increase in cost of performance
b. Poverty
c. War between the subjects of a neutral country
REMEDIES OF CREDITOR IN CASE OF BREACH
Primary Remedies:
1. Action for Performance (Specific Performance or
Substituted Performance)
2. Action for Damages (exclusively or in addition to action
for performance)
3. Action for Rescission
Subsidiary Remedies:
1. Accion Subrogatoria
2. Accion Pauliana
3. Other Specific Remedies
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PRIMARY REMEDIES
1. ACTION FOR PERFORMANCE
a. Action for Specific Performance (in obligation to
give a determinate thing)
When what is to be delivered is a DETERMINATE
THING, the creditor, in addition to his right for
indemnification of damages, may COMPEL the
debtor to MAKE THE DELIVERY (Art. 1165 Par 1).
Note: This remedy implies that the basis is a
contractual relation between the creditor and debtor.
b. Action for Substituted Performance (in obligation
to given indeterminate thing)
If the thing is indeterminate or generic, he may ASK
the obligation be COMPLIED with at the EXPENSE
of the DEBTOR (Art. 1165 Par. 2).
Note: Debtor cannot avoid obligation by paying
damages if the creditor insists on the performance.
c. Action for Substituted Performance or Undoing of
Poor Work (in obligation to do)
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 de decreed that what
has been done poorly be UNDONE (Art. 1167).
d. Action for Undoing (in obligation not to do)
General rule: When the obligation consists in NOT
DOING, and the obligor does what has been
forbidden him, it shall be UNDONE at his EXPENSE
(Art. 1168).
Exceptions: When the only feasible remedy is
indemnification for the damages cause by reason
that:
i. it has become impossible to undo the thing
physically or legally.
ii. if the act is definite and will not cease even if
undone.
2. ACTION FOR DAMAGES
Recoverable damages include ANY and ALL damages
that a human being may suffer. Responsibility for
damages is INDIVISIBLE.
 CIVIL LAW
3. ACTION FOR RESCISSION
The POWER to RESCIND obligation is IMPLIED in
RECIPROCAL OBLIGATIONS, in case one of the
obligors should not comply with what is incumbent upon
him (Art. 1191).
The injured party may choose between FULFILLMENT
and RESCISSION of the obligation, with the payment of
damages in either case.
Should he choose fulfillment and the same should
become impossible, the injured party may still seek for
rescission.
Note: The court SHALL decree the rescission claimed
UNLESS there be a just cause authorizing the fixing of the
period.
BREACH BY BOTH PARTIES:
1. If first infractor can be determined, his liability shall be
EQUITABLY TEMPERED by the courts (Art. 1192).
2. If the first infractor cannot be determined, the obligation
shall be EXTINGUISHED and EACH shall bear his own
damages (Art. 1192).
Note: The remedy under Art. 1191 is ALTERNATIVE.
Party seeking rescission can only elect one between
fulfillment and rescission. There can be no partial
performance and partial rescission.
The remedy only applies to RECIPROCAL OBLIGATIONS
as when there is reciprocity between the parties.
Rescission required JUDICIAL APPROVAL to produce
LEGAL EFFECT
Effects of Rescission
1. Extinguishes obligatory relation as if it had never been
created; extinction has a retroactive effect.
2. Mutual restitution
SUBSIDIARY REMEDIES:
1. To exhaust the property in possession of the debtor
generally by attachment, subject to exemptions
provided by law
Note: Correlate with Art 2236 which states that the
debtor is liable with all his property, present and future,
for the fulfillment of his obligations subject to
exemptions provided by law.
2. Accion Subrogatoria (Subgratory Action)
Action which the creditor may exercise in place of the
negligent debtor in order to preserve or recover for the
OBLIGATIONS & CONTRACTS
patrimony of the debtor the product of such action, and
then obtain therefrom the satisfaction of his own credit.
Right to be subrogated to all the rights and actions of
the debtor save those which are inherent in his person.
Note: The creditor is entitled only to so much as is
needed to satisfy his credit and any balance shall
pertain to the debtor.
RIGHTS OF THE CREDITOR:
a. Levy by attachment and execution upon all the
property of the debtor, except such as exempt by law
from execution.
b. Exercise all the rights and action of the debtor, except
such as inherently personal to him.
c. To ask for rescission of the contracts made by the
debtor in fraud of their rights.
Requisites:
a. Debtor to whom the right of action properly pertains
must be indebted to the creditor
b. Creditor must be prejudiced by the inaction or failure
of the debtor to proceed against the third person
c. Creditor must have first pursued or exhausted all the
properties of the debtor which are not exempted for
execution.
There is no change of creditor in accion subrogatoria.
The creditor merely acts in the name and for the
account of the debtor after exhausting all of the assets
of the latter.
In order to exercise the accion subrogatoria, a previous
approval of the court is not necessary (Tolentino, Arturo
M., Commentaries and Jurisprudence on the Civil Code
of the Philippines,1991 ed., Vol. 4, p.138).
EXCEPTIONS TO ACCION SUBROGATORIA:
a. Inherent rights of the debtor
i. Right to existence
ii. Rights or relations of a public character
iii. Rights of an honorary character
iv. Rights consisting of powers which have not been
used (i.e., the power to carry out an agency or
deposit)
v. Non-patrimonial rights (i.e., the action for legal
separation or annulment of marriage)
vi. Patrimonial rights not subject to execution (i.e.,
right to a government gratuity or pension)
vii.Patrimonial rights inherent in the person of the
debtor (i.e., right to revoke a donation by reason of
ingratitude)
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b. Only those who at the time of the donors death have liabilities are not (4 Tolentino p. 140). Ruggiero, however,
a right to the legitime and their and successors in maintains that the accion pauliana covers also acts of the
interest may ask for the reduction or inofficious debtor which tend to make his economic condition more
donations (Art. 772). serious, such as when he contracts new obligations.

3. Accion Pauliana - creditors have the right to set aside Note: 2nd and 3rd remedies are subsidiary to the 1st. It can
or revoke acts which the debtor may have done to only be availed of in the absence of any other legal
drefaud them. remedy to obtain reparation for the injury.

Note: All acts of the debtor which reduce his patrimony Take note of the cases of accion directa under the Civil
in fraud of his creditors, whether by GRATUITOUS or Code in which a person may directly sue another even if
ONEROUS title, can be revoked by this action. there is no privity of contract between them (Arts. 1652,
1608, 1729, 1893)
BUT
Payments of PRE-EXISTING OBLIGATIONS which are TRANSMISSIBILITY OF RIGHTS
already DUE, whether NATURAL or CIVIL, cannot be
impugned by this action. Transmissibility of Rights Acquired by Virtue of an
Obligation (Art. 1178)
Requisites:
a. Creditor has a credit prior to the alienation by the General Rule: Rights acquired by virtue of an obligation
debtor, although demandable later. are transmissible in character.
b. Debtor has made a subsequent contract , giving
advantage to a 3rd person. Exceptions:
c. Creditor has no other remedy but to rescind the 1. When prohibited by LAW which are purely personal in
debtors contract to the 3rd person. character.
d. Act being impugned is fraudulent. 2. When prohibited by PERSONAL QUALIFICATION or
circumstances of the transferor which is material
Note: Presumption of fraud may be found in Art. ingredient attendant in the obligation.
1387 (gratuitous transfer without leaving sufficient 3. When prohibited by STIPULATION of the parties.
funds for obligations or gratuitous transfer by
judgment debtor). EXTINGUISHMENT OF LIABILITY IN CASE OF
BREACH DUE TO FORTUITOUS EVENT
4. Third person who received the property is an Except in cases EXPRESSLY specified by law, or when it
accomplice in the fraud. is otherwise declared by stipulation, or when the NATURE
of the obligation requires the ASSUMPTION OF RISK, NO
Difference between Accion Subrogatoria & Accion PERSON shall be RESPONSIBLE for those events which
Pauliana COULD NOT be FORESEEN or which, THOUGH
foreseen, were INEVITABLE (Art. 1174).
Accion Subrogatoria Accion Pauliana
Fortuitous Event (Force Majeure/Caso Fortuito)
1. By Nature or Acts of God (i.e., earthquakes, storms,
1.Credit must have existed floods etc.) -- absolutely independent of human
1.Not essential that credit
before debtors intervention.
is prior to the acquisition
fraudulent act. 2. By the act of man or force majeure (i.e., armed
of debtors right.
2. Intent to defraud creditor invasion, attack by bandits, robbery etc.) -- an event
2. Intent to defraud creditor
is required. which arises from legitimate or illegitimate acts of
is not required.
3. Action prescribes within persons other than the obligor.
3.No period of prescription.
four years from the
discovery of the fraud. Requisites:
1. Event must be independent of the will of the obligor;
New debts contracted by an insolvent debtor are NOT 2. It must be either unforeseeable or inevitable;
included within the scope of accion pauliana because only 3. Must be of such a character as to render it impossible
acts which impair the assets of the debtor are covered by for the obligor to fulfill his obligation in a normal manner;
the provision and those which merely increase his and

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4. Obligor must be free from any participation in the
aggravation of the injury resulting to the obligee.
Note: It must not only be the proximate cause but it must
be the ONLY and SOLE CAUSE.
Note: Fortuitous event includes unavoidable accidents,
even if there has been an intervention of human element,
provided fault or negligence cannot be imputed to the
debtor.
Contributory negligence of the debtor renders him liable
despite the fortuitous event; courts may equitably mitigate
damages.
If the negligence was the proximate cause, the obligation
is not extinguished. It is converted into a monetary
obligation for damages.
Liability in case of fortuitous event:
General Rule: No liability in case of fortuitous
event.
Exceptions:
1. When expressly declared by law
e.g. Article 552(2), 1165(3), 1268, 1942, 2147, 2148,
2001, 1198 and 2159 of the Civil Code.
2. When expressly declared by stipulation or contract
3. When the NATURE of the obligation requires the
assumption of risk
Note: The principle is based on social justice.
4. When the object of the prestation is generic
Note: Fluctuation of currencies is not considered as a
fortuitous event since the fluctuation rate is foreseeable.
If considered fortuitous, it will set a precedent such that
there will be a shift of burden to banks.
The general rule in Art. 1174 can be applied only to
obligations to give determinate things and not to generic
ones.
Where the contract stipulated that in case of a fortuitous
event, the period provided in the contract for delivery shall
be suspended, the period of time when the contract was
suspended CANNOT be deducted from the term of the
contract because to add the said years upon the
resumption of the contract would in effect be an extension
of the contract (Victorias Planters Assoc, Inc vs. Victorias
Milling Co, G.R. No. L-6648, July 25, 1955).
OBLIGATIONS & CONTRACTS
Principle of Assumed or Created Risk
Based on the doctrine of volenti non fit injuria -- no wrong
is done to one who consents.
As applied to obligations, it refers to situations in which
the obligor, with full knowledge of the risk enters into
some relation with the obligee (Jurado, Desiderio P.,
Comments and Jurisprudence on Obligations and
Contracts, 2010 ed., p.98).
The event which produces loss may be fortuitous event
typical of a particular kind of business, such as derailment
of a train; it is only just that those who are injured thereby
be indemnified by the transportation company. This
liability, however, cannot extend to dangers which are not
typical of the business such as lightning or earthquake
(Tolentino, Arturo M., Commentaries and Jurisprudence
on the Civil Code of the Philippines, Vol. 4, p 134 [1991]).
Extinguishment of Interest and Prior Installments (Art.
1176)
Receipt of the principal (or later installment) without
reservation as to the interest (or prior installment) shall
give rise to a disputable presumption that the interest (or
prior installment) has been paid.
The presumptions in Art.1176 do not apply
1. When there is a reservation made orally or in writing
2. If the receipt does not recite that it was issued for a
particular installment due as when the receipt is only
dated
3. To payment of taxes
4. Where non-payment of the prior obligations has been
proven
D IFFERENT K INDS OF
O BLIG ATIONS
Pure Obligations
Obligations whose performance DOES NOT depend upon
a FUTURE or UNCERTAIN event or upon a past event
UKNOWN to the parties is DEMANDABLE AT ONCE (Art.
1179 Par 1).
Obligations which contains no terms or conditions
whatever upon which depends the fulfillment of the
obligation contracted by the obligor.
Note: Though demandable at once, the debtor should be
given a reasonable period to perform the obligation
depending on the nature and complexity of such.
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A demand note is subject to neither a suspensive
condition nor a suspensive period. The demand is not a
condition precedent, since the effectivity and binding
effect of the note does not depend upon the making of the
demand. It follows therefore, that a demand note is strictly
a pure obligation, and payment therefore is immediately
demandable in the absence of other restrictions.
Conditional Obligations
Obligations in which 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 (Art. 1181).
Characteristics of Conditional Obligations:
1. Every future and uncertain event upon which an
obligation or provision is made to depend.
2. Even though the event is uncertain, it should be
POSSIBLE.
3. The condition must be imposed by the WILL of the party
and NOT a necessary legal requisite.
4. Past event but unknown to parties (the knowledge to be
acquired in the future of a past event which at that
moment is unknown to parties interested - it is only in
that sense that the event is be deemed uncertain).
Note: 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 (Article 1180).
In this case, the creditor must first ask the court to fix the
period, otherwise the action to collect the debt would be
premature.
Effects of Failure to Comply with Condition:
1. If condition is imposed on the PERFECTION of a
contract -- results in the failure of the contract
2. If condition is imposed on the PERFORMANCE of the
obligation -- gives the other party an option either to
refuse to proceed with the compliance of the obligation
or to waive the condition.
Classifications of Conditions:
1. As to the effect of obligation
a. Suspensive -- the obligation arises, but if the
condition DOES NOT happen, the obligation does not
come into existence.
Principle of retroactivity in suspensive condition
(Art. 1187)
The principle of retroactivity, under Art. 1187, is
limited to the effects of the obligation. The cause of
action for the enforcement of the obligation accrues
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and the prescription of the action must still be
computed from the moment of the happening of the
suspensive condition.
In obligations to give
Ratio: the condition is only an accidental element of a
contract. An obligation can exist even without being
subject to a condition
Rule on retroactivity has no application to:
i. Real contracts; they are perfected only by delivery
of the object of the obligation; principle only applies
to consensual contract
ii. Contracts in which the obligation arising therefrom
can only be realized within successive periods or
intervals (e.g. lease, hire of service, life annuity).
Retroactive effect as to the fruits and interests in
obligations to give:
i. In Reciprocal Obligations: no retroactivity --
mutually compensated (fruits may be natural,
industrial or civil
ii. In Unilateral Obligations: no retroactivity, debtor
appropriates the fruits and interests received
because it is usually gratuitous unless intention
was otherwise, as inferred from nature and
circumstances
In obligations to do or not to do (personal
obligations): No fixed rule; Courts are empowered to
determine the retroactive effect of the suspensive
condition.
Note: This rule also applies to an obligation w/
resolutory condition (Art. 1190, par. 3).
b. Resolutory - fulfillment of the condition results in
extinguishment of rights arising out of the obligation.
2. As to the origin of condition
a. Potestative - one which depends upon the will of one
of the contracting parties; it is in the power of one of
the parties to realize or to prevent.
Kinds:
i. Simple Potestative -- presupposes not only a
manifestation of will but also the realization of an
external act of a 3rd party.
Note: Does not prevent formation of a valid
obligation because in part it depends on
contingencies over which the debtor has no
control.
 CIVIL LAW
ii. Purely Potestative -- if it depends solely and
exclusively upon the will of the debtor, it is VOID
for the debtor cannot fulfill an obligation arising
from his own choice. BUT It is valid if depends on
the will of the creditor.
Note: Applicable only to suspensive conditions
and not to resolutory. Hence, resolutory
potestative conditions are valid even if made to
depend upon the debtor since the obligation is
already in force.
iii. Casual - depends exclusively upon chance, will of
a third person, or partially by chance and partially
by will of a third person, or other factors and not
upon the will of the contracting parties.
iv. Mixed - depends upon the will of one of the
contracting parties and other circumstances,
including the will of third persons or chance.
3. As to possibility - impossible conditions, those
contrary to good customs or public policy and those
prohibited by law shall ANNUL the obligation which
depends upon them (Art. 1183).
a. Impossible - may either be PHYSICAL (contrary to
law of nature) or LEGAL (contrary to law, morals,
public policy, good customs).
Note: The impossible condition must exist at the time
of the creation of the obligation otherwise that would
fall under Art. 1266 (Subsequent Impossibility).
General rule: Impossible conditions annul the
obligations dependent upon them
Exceptions:
i. Pre-existing obligation
ii. Divisible obligation
iii. Negative Impossible Things
iv. Testamentary deposition
Note: If the obligation is divisible, that part not
affected by the impossible or unlawful condition shall
be VALID.
Principle of Indivisibility of Conditions
The indivisibility of the condition passes to the heirs of
the debtor: hence, some heirs cannot demand partial
performance of the obligation by offering to fulfill part
of the condition corresponding to them.
Exception: The condition may de divisible:
OBLIGATIONS & CONTRACTS
i. By nature of the condition
ii. By stipulation
iii. By law
4. As to mode
a. Positive -- condition that some event happen at a
determinate time shall EXTINGUISH the obligation as
soon as the time expires or become indubitable that
the event will not take place (Art. 1184).
b. Negative -- the condition that some event WILL NOT
HAPPEN at a determinate time shall render the
obligation EFFECTIVE from the moment the TIME
has elapsed of it has become EVIDENT that the
event CANNOT occur (Art. 1185) .
Note: If there is no period fixed in the foregoing, Art.
1185 Par. 2 shall apply. Intention of the parties is
controlling and the time shall be that which the parties
may have probably contemplated, taking into account
the nature of the obligation.
Effects of suspensive, resolutory, potestative, mixed,
casual condition (Art. 1181-1182):
1. Suspensive condition -- obligation shall only be effective
upon the fulfillment of the condition; upon constitution of
obligation, before fulfillment, obligee acquires a mere
hope or expectancy, protected by law.
a. Before fulfillment - Demandability and the acquisition
of the rights arising from the obligation is suspended.
Obligation of obligor to comply with the prestation is
held in suspense until fulfillment of condition.
Anything paid by mistake during such time may be
recovered
b. After the fulfillment - The obligation arises or
becomes effective; obligor can be compelled to
comply with what is incumbent upon him.
If it becomes certain that the condition will not be
fulfilled, the conditional creditor loses all hope of
becoming a real creditor, and likewise loses the power
to exercise the actions granted by Art. 1188 for the
preservation of his rights.
2. Resolutory condition obligation becomes demandable
immediately after its constitution and rights are
immediately vested in the obligee, but such rights are
always subject to the threat or danger of extinction.
Principle of retroactivity applies (Art. 1190 par. 1).
a. Before fulfillment - right recognized in Art. 1188, par.
1 in case of a suspensive condition should likewise be
available in obligations with a resolutory condition.
b. After fulfillment - Whatever may have been paid or
delivered by one or both of the parties upon the
constitution of the obligation shall have to be returned
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upon the fulfillment of the condition. There is a return
to the status quo.
Aside from the actual things received, the fruits or the
interests thereon should also be returned after
deducting the expenses made for their production,
gathering and preservation.
When condition is not fulfilled, rights are consolidated
and they become absolute.
3. Potestative condition
a. When it depends exclusively upon the will of creditor
- condition and obligation is valid.
b. When it depends exclusively upon the will of debtor in
case of a suspensive condition condition and
obligation are void; to allow such condition would be
to sanction illusory obligation, in direct contravention
of the principle announced in Art. 1308.
c. When it depends exclusively upon the will of debtor in
case of a resolutory condition condition and
obligation is valid; the position of the debtor is exactly
the same as the creditor in a suspensive condition
and does not render the obligation illusory.
Note: If the obligation is a pre-existing one, and does
not depend for its existence upon the fulfillment by the
debtor of the potestative condition, only the condition is
void leaving unaffected the obligation itself. Here, the
condition is imposed not on the birth of the obligation
but on its fulfillment (valid obligation).
If condition is declared void but the obligation is still
valid, in converting the obligation into a pure and
demandable one, an arrangement may be enforced
which is not within the contemplation of the parties. The
best solution is to consider the parties as having
intended a PERIOD within which the valid obligation is
to be complied with such that the creditor should ask the
court to fix a period for compliance. (Patente vs.
Omega, G.R. No. L-4433, May 29, 1953).
4. Casual condition - the obligation and condition shall
take effect.
5. Mixed condition - the obligation and condition shall take
effect.
Effects of impossible conditions (Art. 1183):
1. Conditional obligation is void -- both obligation and
condition are void.
2. Conditional obligation is valid -- if condition is negative,
it is disregarded and obligation is rendered pure and
valid.
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3. Only the affected obligation is void -- if the obligation is
divisible, the part not affected by the impossible
condition shall be valid.
4. Only the condition is void -- if obligation is pre-existing,
not depending on fulfillment of the condition which is
impossible for its existence, only the condition is void.
5. Condition considered not imposed - if
impossible/unlawful condition is attached to a simple or
remuneratory donation as well as to a testamentary
disposition, condition is considered not imposed while
the obligation is valid.
Note: The impossibility of the condition must exist at the
time of the creation of the obligation; a supervening
impossibility does not affect the existence of the
obligation.
Effects of positive and negative condition (Art. 1184-
1185):
In positive condition, obligation is extinguished as soon as
the time expires or if it becomes indubitable that the event
will not take place.
In negative condition, the obligation is effective from the
moment the time indicated has lapsed, or if it has become
evident that the event cannot occur, although the time
indicated has not yet lapsed.
The intention of the parties, taking into consideration the
nature of the obligation, shall govern if no time has been
fixed for the fulfillment of the condition.
Doctrine of constructive fulfillment of suspensive
condition (Art. 1186)
1. Condition is deemed fulfilled when the obligor actually
prevented the obligee from complying with the
condition; prevention must have been voluntary or willful
in character.
Reason: One must not profit by his own fault.
2. Doctrine applies only to suspensive condition. It can
have no application to an external contingency which is
lawfully within the control of the obligor (Taylor vs. Uy
Tieng Pao, GR No. L-16109, October 2, 1922).
3. The mere intention of the debtor to prevent its
happening or the mere placing of ineffective obstacles
to its compliance, without actually preventing fulfillment
is not sufficient (Manresa).
Note: When the voluntary act of the debtor did not have
for its purpose the prevention of the fulfillment of the
 CIVIL LAW
condition, it will not fall under constructive fulfillment.
The same is true when the debtor acts pursuant to a
right (Tolentino, Arturo M., Commentaries and
Jurisprudence on the Civil Code of the Philippines, Vol.
4, p 161 [1991]).
Requisites of Constructive Fulfillment:
1. Condition is suspensive
2. Debtor actually prevents the fulfillment of the condition
3. He acts voluntarily
Rights of the Creditor before the fulfillment of the
condition:
1. The creditor, may, before the fulfillment of the
obligation, bring the appropriate action for the
PRESERVATION of his right (Art. 1188).
Note: No preference of credit is granted to the creditor.
Right of the Debtor before the fulfillment of the
condition:
1. The debtor may recover what he paid by mistake
BEFORE the happening of the suspensive condition.
2. If the payment was for a determinate thing, debtor may
file an accion reivindicatoria.
3. If the payment was for an indeterminate thing, there is
solution indebiti.
4. If payment was made with knowledge of the condition,
debtor impliedly waives the condition and cannot
recover.
5. If payment was with knowledge but the condition did not
happen, the debtor can recover lest the creditor will be
unjustly enriched.
Note: Art. 1188 does not provide for recovery of the fruits
or interest by the debtor who has paid before the
happening of the condition. However, the silence of the
law should not bar the recovery of fruits or interest by the
debtor (Jurado, Desiderio, Comments and Jurisprudence
on Obligations and Contracts [2010]).
LOSS, DETERIORATION OR IMPROVEMENT
PENDING THE HAPPENING OF THE CONDITION
Loss
A thing is lost when it: (1) Perishes; (2) Goes out of the
commerce of men; and (3) Disappears in such a way that
its existence is unknown or it cannot be recovered.
Deterioration
Any reduction or impairment in the substance or value of a
thing which does not amount to loss; the thing is less than
when the obligation was constituted.
OBLIGATIONS & CONTRACTS
Improvement
Anything added to, incorporated in, or attached to the
thing that is due.
In Obligations to give:
The thing, pending the happening of the condition, in case
of improvement, loss or deterioration, the following rules
shall be observed:
1. If loss without fault of debtor, OBLIGATION IS
EXTINGUISHED.
2. If loss through the fault of the debtor, OBLIGED TO
PAY DAMAGES.
3. If thing deteriorates without fault of the debtor,
IMPAIRMENT TO BE BORNE BY THE CREDITOR.
4. If thing deteriorates through the fault of the debtor,
CREDITOR MAY CHOOSE BETWEEN FULFIMMENT
OR RESCISSION WITH DAMAGES IN EITHER CASE.
5. If improvement is through the nature or time, INURES
TO THE BENEFIT OF CREDITOR
6. If improvement is at the expense of the debtor, RIGHTS
SIMILAR TO THAT GRANTED TO THE
USUFRUCTUARY (see Arts. 579 and 580).
Note: Consequently, the debtor cannot ask
reimbursement for the expenses incurred for useful
improvements of for improvements for mere pleasure (Art.
579). He can only ask reimbursement for necessary
expenses (Art. 546).
The above rules apply to the following:
1. Determinate things only because the genus of a thing
never perishes (genus nun quam peruit)
2. Obligation with a period
3. Those who have a duty to return in case of loss,
deterioration or improvement of the thing in an
obligation with a resolutory condition (Art. 1190, par. 2).
The happening of a resolutory condition does not ipso jure
re-vest ownership in the original debtor; he merely
becomes entitled to the delivery which would give him
ownership anew.
The original debtor merely has a personal right which is
enforceable only against his creditor who has become a
debtor obliged to make restitution.
Expenses incurred by the person obliged to make
restitution relating to the production, gathering, and
preservation of the fruits should be deducted from the
gross value of the fruits to be returned.
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In Obligations to do or not to do:
The provision of Art. 1187 Par.2, in which the courts shall
determine, shall be observed as regards the effect of the
extinguishment of the obligation.
RESCISSION OF RECIPROCAL OBLIGATIONS IN
GENERAL (Art. 1191)
Reciprocal obligations
Those which are created or established at the same time,
out of the same cause, and which result in mutual
relationships of creditor and debtor between the parties.
General Rule: If one of the parties fails to comply with
what is incumbent upon him, there is a right on the part of
the other to rescind (or resolve) the obligation (tacit
resolutory condition).
Implied in reciprocal obligations and is more appropriately
referred to as RESOLUTION.
Based on breach of faith, violative of reciprocity between
the parties, committed by the person who is supposed to
comply with the obligation as compared to the rescission
referred to in Art. 1380 which involves damage or lesion,
or injury to the economic interest of a person.
Permitted only for such breaches as are substantial and
fundamental as to defeat the object of the parties in
making the agreement (Universal Food Corp. vs. CA, G.R.
No. L-29155, May 13, 1970).
Can be demanded only if the plaintiff is ready, willing, and
able to comply with his own obligation and the other is not
(Seva vs. Berwin, G.R. No. L-24321, January 11. 1926),
and the party who has not performed his part of the
agreement is not entitled to sue/ rescind; the right belongs
to the injured party.
A right which belongs to the injured party alone (Mateos
vs. Lopez, 6 Phil. 206).
Must be invoked judicially UNLESS contract contains a
facultative resolutory provision, in which case, judicial
permission to cancel or rescind the contract is no longer
necessary act of rescission must be communicated to
other party (Jison vs. CA, G.R. No. L-45349, August 15,
1988).
Mere failure of a party to comply with what is incumbent
upon him does not ipso jure produce the rescission or
resolution of the obligation.
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Requires restitution or bringing parties back to original
status prior to the contract (Unlad Resources Dev. Corp.,
et al. vs. Renato Dragon, et al., G.R. No. 149338, July 28,
2008).
Requisites:
1. One of the parties failed to comply with what is
incumbent upon him.
2. The injured party chose rescission over fulfillment or
performance is no longer possible.
3. The breach is substantial so as to defeat the object of
the parties in making the agreement.
Right to Rescind NOT Absolute
The court is given discretionary power to fix a period
within which the obligor in default may be permitted to
comply with what is incumbent upon him (Art. 1191 par.
3). But the discretionary power of the court cannot be
applied to reciprocal obligations arising from a contract of
lease because they are governed by Art. 1659.
The termination of a contract must not be contrary to law,
morals, good customs, public order or public policy.
Waiver of Right
The right to rescind may be waived, expressly or impliedly
(Sps. Francisco vs. DEAC Construction, Inc., et al, G.R.
No. 171312, February 4, 2008).
Effects:
1. If there is a stipulation granting the right of rescission on
the part of the aggrieved party and he validly rescinds
the contract pursuant to such express grant, any court
decision adjudging the propriety of the rescission extra-
judicially made is NOT the REVOCATORY act of
rescission but merely DECLARATORY or an affirmation
of the revocation (De Luna vs. Abrigo, G.R. No. 57455,
January 18, 1990).
2. The decree of rescission shall be without prejudice to
the rights of third persons who have acquired the thing
in accordance with Arts. 1385 and 1388 and Mortgage
Law (Art. 1191 par. 4).
Art. 1191 does NOT apply to the following:
1. Contracts of partnership where a partner fails to pay the
whole amount which he has bound to contribute to the
common fund (see Arts. 1786 and 1788).
2. Sales of real or personal property by installments. The
first being governed by Recto Law while the latter is
governed by Maceda Law.
3. Action for rescission is not required upon breach of
compromise agreement; Article 2041 confers upon the
party concerned the authority to regard it as rescinded
and to insist upon the original demand.
 CIVIL LAW OBLIGATIONS & CONTRACTS

Alternative remedies of injured party (Art. 1191, par. 2):
1. Fulfillment of the obligation with damages
Even after the injured party has chosen fulfillment and
such fulfillment should become impossible, he can still
seek the rescission of the obligation.
2. Rescission of the obligation with damages
Note: 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 a conditional one.
When the debtor bind himself to pay WHEN his MEANS
PERMIT him, the obligation shall be deemed to be one
with a period (Art. 1180).

Note: An alternative prayer for fulfillment or rescission Term/Period

in the complaint is not incompatible. The presumption Interval of time, which, exerting an influence on an
is that he is leaving the matter to the sound discretion of obligation as a consequence of a juridical act, either
the court. suspends its demandability or produces its
extinguishment.
Effects of Rescission:
1. Duty upon the court to require the parties to surrender Requisites:
whatever they may have received from the other 1. Future;
(without prejudice to the obligation of the party who was 2. Certain; and
not able to comply with what is incumbent upon him). 3. Possible, legally and physically.
2. Can no longer be demanded when he who demands is
no longer in the position to return whatever he may be When the period is too short for the prestation, as when
obliged to restore; neither can it be demanded when the Atoy is to build a ten-story building in 24 hours, the
thing which is the object of the contract is already in the obligation is void (See Tolentino Vol. IV, p 188).
possession of a third person who obtained it in good
faith Note: What is suspended by the term is not the
acquisition of the right or the effectivity of the obligation
Remedy: proceed against the party responsible for the but its demandability.
transfer or conveyance for damages.
When Period of Prescription Begins
If the thing is acquired in bad faith, the injured party can It commences from the time the term in the obligation
still go after the property. arrives, for it is only from that date that it is due and
demandable (Ullman vs. Hernaez, G.R. No. L-9816,
If the thing can no longer be recovered, the only remedy is March 10, 1915).
to proceed against the third person who acted in bad faith
for damages. Term/Period and Condition Distinguished
Term/Period Condition
Note: There can be partial rescission or fulfillment under
Interval of time which is Fact or event which is future
Art. 1191 (Central Bank vs. CA, G.R. No. L-45710,
future and certain and uncertain
October 3, 1985).
Must necessarily come,
Effects of breach by both parties (Art. 1192): although it may not be May or may not happen
1. The liability of the first infractor shall be equitably known when
tempered by the courts; Exerts an influence upon the
2. If it cannot be determined which of the parties first Exerts an influence upon the
time of demandability or
violated the contract, the same shall be deemed very existence of the
extinguishment of an
extinguished, and each shall bear his own damages. obligation itself
obligation

OBLIGATIONS WITH A PERIOD No retroactive effect unless

Obligations whose fulfillment a DAY CERTAIN has been there is an agreement to the Has retroactive effect
fixed, shall be DEMANDABLE only when that day contrary
COMES. Obligations with a RESOLUTORY PERIOD When it is left exclusively to When it is left exclusively to
takes effect at once but terminate upon the ARRIVAL of the will of the debtor, the the will of the debtor, the
the day certain (Art. 1193). existence of the obligation is very existence of the
not affected; empowers the obligation is affected

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court to fix the duration of
the obligation
Must be possible, otherwise, Must be possible, otherwise,
obligation is void obligation is void
Kinds of Period/Term:
1. As to Effect
a. Suspensive (Ex Die) -- Obligations whose fulfillment
a DAY CERTAIN has been FIXED, shall be
DEMANDABLE only when that day comes (Art. 1193
Par. 1).
Thus, the period must lapse before the performance
of the obligation can be demanded.
Note: If a fortuitous event supervenes, the obligor is
merely relieved of the obligation to fulfill at that time
and does NOT stop the running of the period because
in effect that would be an extension of the term of the
contract (Victorias Planters vs. Victorias Milling Co.,
G.R. No. L-6648,nJuly 25, 1955).
Fortuitous event does NOT interrupt the running of
the period.
b. Resolutory (In Diem) -- Obligations with a resolutory
period take effect AT ONCE but TERMINATE upon
arrival of the day certain (Art. 1193, Par 2).
Thus, the arrival of the period terminates the
obligation.
2. As to expression
a. Express -- when specifically stated.
b. Implied -- when it can be deduced that the parties
intended a period such as in the case of Art. 1180
when one promises to pay when able.
3. As to definiteness
a. Definite -- refers to a FIXED known date or time
b. Indefinite -- even which will necessarily happen but
the date of its happening is unknown
Note: The uncertainty of the date of occurrence DOES
NOT convert into a condition so long as there is no
uncertainty whether the event WILL HAPPEN or NOT.
4. As to source
a. Conventional - made by agreement of the parties
b. Legal - period fixed by law such Articles 1682 and
1687
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c. Judicial - set my courts in case of implied and
indefinite period
Note: In case of loss, deterioration or improvement the
same rules as discussed under conditional obligations
apply.
EFFECT OF PAYMENT IN ADVANCE
Effect of Advance Payment or Delivery
In obligations to give, the obligor can recover what he has
paid or delivered with fruits and interests (Art. 1195).
Note: There can be no right of recovery if the obligor
delivers the thing voluntarily or with the knowledge of the
period or term or the fact that the obligation has not yet
become due and demandable
Period for whose benefit (Art. 1196)
General Rule: For the benefit of both parties in the
absence of stipulation or in case of doubt.
Exception: If it can be shown that the period has been
established in favor of the creditor or of the debtor.
Period for the Benefit of the Creditor
Creditor may demand the fulfillment of the obligation at
any time but the obligor cannot compel him to accept
payment before the expiration of period (e.g. on
demand).
Period for the Benefit of the Debtor
Debtor cannot be compelled to perform obligation
prematurely, but he can do so if he desires.
Judicial Term/Period
When fixed by a competent court in accordance with the
causes expressly recognized by law. Once fixed, the
period can no longer be judicially changed.
When Court May Fix Period
General Rule: Courts are WITHOUT power to fix period.
Exceptions:
1. If the obligation does not fix a period, but from its nature
and circumstances it can be inferred that a period was
intended (Art. 1197).;
2. If the duration of the period depends upon the will of the
debtor (Art. 1197, Par. 2).;
3. If under the circumstances the parties have
contemplated a period (Art. 1197, Par. 3).
 CIVIL LAW
4. If the debtor binds himself when his means permit him
to do so (Art. 1180).
Note: The remedy cannot be applied to contract of
services and pure obligations. The period of employment
is understood to be implicitly fixed, in default of express
stipulation, by the period for the payment of the salary of
the employee in accordance with customs.
Applies to a lease agreement where a contract of lease
clearly exists.
The fulfillment of the obligation cannot be demanded until
after the court has fixed the period and such period has
arrived. Such technicality need not be adhered to when a
prior and separate action would be a mere formality and
would serve no other purpose than to delay (Borromeo vs.
CA, G.R. No. L-22962, September 28, 1972).
There can be no possibility of any breach of contract or
failure to perform the obligation unless the period is fixed
by courts.
It is NOT necessary that the creditor, in his complaint,
must expressly ask the court to fix the duration of the term
or period, such may be granted although the complaint
does not ask for such relief where the essential
allegations of the pleadings describe an obligation with an
indefinite period.
Once fixed by court, the period can no longer be judicially
changed. However, Art. 1197, par. 3 does not prohibit
parties to set a different period than that fixed by court.
When Debtor Loses Right to Make Use of Period (Art.
1198):
1. He becomes insolvent, unless he gives a guaranty or
security for the debt (the insolvency need not be
judicially declared).
2. He does not furnish to the creditor the guaranties or
securities which he has promised.
3. If, after their establishment, the guaranty or security is
impaired through the fault of the debtor, he shall lose
his right to the benefit of the period; however, if it is
impaired without his fault, he shall retain his right.
Note: Impairment need not be total.
4. If the guaranty or security disappears through any
cause, even without the fault of the debtor.
5. He violates any undertaking, in consideration of which
the creditor agreed to the period (i.e. if an employee
commits a substantial breach of his employment
contract, the employer may terminate the employment).
OBLIGATIONS & CONTRACTS
6. He attempts to abscond.
It is not essential that there be actual absconding.
Note: If IMPAIRMENT is without the fault of the debtor, he
shall retain the right.
When obligations comprehend several objects it may
be:
1. Conjunctive - when all the objects or prestations are
demandable at the same time.
2. Distributive- when only one is demandable. It may
either be alternative or facultative.
ALTERNATIVE AND FACULTATIVE OBLIGATIONS
1. Conjunctive - all prestations must be performed to
extinguish the obligation; or
2. Disjunctive - one or some prestations must be
performed to extinguish the obligation
a. Alternative
b. Facultative
ALTERNATIVE OBLIGATION:
The debtor must perform one of several obligations, the
choice belongs to the debtor UNLESS expressly given to
the creditor (Art. 1200).
Limitation: The debtor shall have NO right to choose
those prestations which are impossible, unlawful or which
could not have been the object of the obligation (Art.
1200, Par. 2).
Note: Grant of choice to creditor cannot be implied. Also,
right of choice may be entrusted to a third person.
A person ALTERNATIVELY BOUND by different
prestations shall completely perform one of the (Art 1199,
Par. 1).
Limitation: The creditor cannot be compelled to receive
part of one and part of the other undertaking (Art. 1199,
Par. 2).
Effect of Notice of Choice:
1. Limits the obligation to the object or prestation selected
with all the consequences which the law provided.
2. The obligation is converted to a simple obligation to
perform the prestation chosen.
3. Once the selection has been communicated, it becomes
irrevocable.
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When Notice Produces Effect:
The CHOICE shall PRODUCE effect EXCEPT from the
TIME it has been COMMUNICATED (Art. 1201).
Notice of selection may be in any form provided that it is
sufficient to make the other party know that the election
has been made. It may be:
1. Orally
2. In Writing
3. Tacitly
a. Performance by the debtor who has the right to
choose or in the acceptance of a prestation by the
creditor when he has a right of selection.
b. When the creditor sues the debtor for the
performance of one of the prestation.
Note: The law does not require the other party to consent
to the choice made by the party entitled to choose
UNLESS the debtor has chosen a prestation which could
not have been the object of the obligation and the creditor
consents thereto which amount to a novation.
The right to choose is not lost by the mere fact that the
party entitled to choose delays in making his selection.
In case the person entitled to choose, does not make his
selection, the other party can ask the court for a 3rd party
to choose.
Effect of Loss or Impossibility of One or All
Prestations:
The debtor shall LOSE the RIGHT of CHOICE, when
among the prestations whereby he is alternatively bound,
only one is practicable (Art. 1202).
Note: The obligation then is converted to a SIMPLE and
PURE obligation.
If the debtor cannot make a choice according to the terms
of the obligation through the creditors act, the former may
rescind the contract with damages (Art. 1203).
When creditor is entitled to indemnity for damages
(Art. 1204):
When through the fault of the debtor:
1. All the things which are alternatively the object of the
obligation have been lost; OR
2. Compliance of the obligation has become impossible
unless due to fortuitous event.
Note: The indemnity shall be fixed based on the value of
the LAST THING which disappeared OR that of the
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SERVICE which LAST became IMPOSSIBLE (Art. 1204,
Par. 2).
Damages other than the above-mentioned may also be
rewarded (Art. 1204, Par. 3).
When Alternative Obligation Cease to be such:
When the CHOICE has been EXPRESSLY given to the
CREDITOR, the obligation shall CEASE to be alternative
from the day when the SELECTION has been
communicated to the debtor (Art. 1205 Par. 1).
Effects of Loss of Objects of Alternative Obligation
(Art. 1204- 1205):
A.When choice belongs to debtor:
1. Due to Fortuitous Event
a. All are lost debtor is released from the
obligation
b. Some but not all are lost deliver that which he
shall choose from among the remainder
c. Only one remains deliver that which remains
2. Debtors fault
a. All are lost creditor shall have a right to
indemnity for damages based on the value of the
last thing which disappeared or service which
become impossible
b. Some but not all are lost deliver that which he
shall choose from among the remainder without
damages
c. Only one deliver that which remains
B.When choice belongs to creditor:
1. Due to Fortuitous Event
a. All are lost debtor is released from the
obligation
b. Some but not all are lost deliver that which he
shall choose from among the remainder
c. Only one remains deliver that which remains
2. Debtors fault
a. All are lost creditor may claim the price/value of
any of them with indemnity for damages
b. Some but not all are lost creditor may claim any
of those subsisting without a right to damages
OR price/value of the thing lost with right to
damages
FACULTATIVE OBLIGATION (Art. 1206)
An obligation wherein only one object or prestation has
been agreed upon by the parties to the obligation, but
which may be complied with by the delivery of another or
the performance of another prestation in substitution.
 CIVIL LAW OBLIGATIONS & CONTRACTS

Art. 1201 can be applied by analogy with respect to the
time/moment when the substitution will take effect.
Communication is necessary to make substitution
effective.
Effect of Loss of Substitute in Facultative Obligation
(Art. 1206):
Loss of the thing intended as substitute
1. Before substitution is made:
a. If due to bad faith or fraud of obligor obligor is liable
b. If due to the negligence of the obligor obligor is not
liable
Note: According to Jurado: It is submitted that
whatever may be the cause of the loss/deterioration of
the thing intended as a substitute, such loss or
deterioration shall not render the debtor liable.
2. After substitution is made:
The loss or deterioration of the substitute on account of
the obligors delay, negligence or fraud obligor is
liable because once substitution is made, the obligation
is converted into a simple one with the substituted thing
as the object of the obligation.
Note: Creditor cannot be compelled to receive part of
one and part of another undertaking.
JOINT AND SOLIDARY OBLIGATIONS
Joint Obligation (Obligacin Mancomunada)
The whole obligation is to be paid or fulfilled
proportionately by different debtors or demanded
proportionately by different creditors.
Solidary Obligation (Obligacin Solidaria)
Each one of the debtors is bound to render, and/or each
one of the creditors has a right to demand entire
compliance with the prestation.
Nature of a Collective Obligation (Art. 1207)
General Rule: Obligation is presumed joint if there is
concurrence of several creditors OR of several debtors
OR of several creditors and debtors in one and the same
obligation.
Exceptions:
1. The obligation expressly states that there is solidarity
(i.e. jointly and severally, individually and collectively,
I promise to pay followed by the signatures of two or
more persons;)
2. The law requires solidarity ex. tort, quasi- contracts,
liability of principals, accomplices and accessories of a
felony, obligations of devisees and legatees, bailees in
commodatum.

Difference between Alternative and Facultative
Obligations
Alternative
1. Various prestations all of
which constitute parts of
the obligation.
2. Nullity of one of the
prestation does not
invalidate the obligation
which is still in force with
respect to those which
have no vice.
3. Right to choose may be
given to the creditor.
4. Only the
IMPOSSIBILITY OF ALL
the prestations due
WITHOUT the fault of
the debtor extinguished
the obligation.
Our law recognizes solidary responsibility for wrongful
acts whether they are crimes or quasi-delicts. A moral
wrong cannot be divided into parts; hence the liability
Facultative for it must be solidary.
1. Only the principal 3. Nature of the obligation requires solidarity.
prestation constitutes 4. When a charge or condition is imposed upon heirs or
the obligation, the legatees, and the testament expressly makes the
accessory being only a charge or condition in solidum (Manresa).
means to facilitate 5. When a solidary responsibility is imputed by a final
payment. judgment upon several defendants.
2. Nullity of the principal
prestation invalidates Principal Effects of Joint Liability:
the obligation. 1. Vices of each obligation arising from the personal defect
3. Only the debtor can of a particular debtor or creditor does not affect the
choose the substitute. obligation or right of the others
4. Impossibility of the 2. Insolvency of one debtor does not make others
principal prestation is responsible for his share.
sufficient to extinguish 3. Demand by the creditor on one joint debtor puts him in
the obligation, even if default, but not the others since the debts are distinct.
the substitute is 4. When the creditor interrupts the running of the
possible. prescriptive period by demanding judicially from one,
the others are not affected.

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5. Defenses of one debtor are not necessarily available to
the others.
Note: Even if the parties stipulated in their contract that
the obligation of the debtor is solidary, but such contract
was superseded by a JUDICIAL DECISION declaring the
obligation to be merely joint, the said decision must be
enforced in a joint manner (Oriental Philippines Company
vs. Abeto, G.R. No. L-4239, October 10, 1934).
Solidary liability is determined by the tenor of the contract,
NOT by judicial admission by the party.
Joint Divisible Obligation (Art. 1208)
Each creditor can demand only for the payment of his
proportionate share of the credit; each debtor can be held
liable only for the payment of his proportionate share of
the debt.
Credit or debt shall be presumed to be divided into as
many equal shares as there are creditors or debtors,
the credits or debts considered distinct from one
another subject to the Rules of Court governing
multiplicity of suits.
In case of breach of obligation by one of the debtors,
damages due must be borne by him alone; if there is any
defense purely personal to one of the debtors, he alone
can avail himself of such defense.
Note: The co-creditors or co-debtors may regulate their
rights or liabilities in their internal relations with each
other.
Joint Indivisible Obligation (Art. 1209)
Midway between joint and solidary obligations, preserving
the two characteristics of the joint obligation, in that no
creditor can do an act prejudicial to others, and no debtor
can be made to answer for others.
Characteristics:
1. No creditor can act in representation of the other;
If not all of the creditors demand the prestation, the
debtor may legally refuse to deliver to them or he can
insist that all the creditors together receive the thing,
and if any of them refuses to join the others, the debtor
may deposit the thing by way of consignation.
2. No debtor can be compelled to answer for the liability of
others;
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If there are two or more debtors, the fulfillment of or
compliance with the obligation requires the concurrence
of all the debtors, although each for his own share
In case of insolvency of one of the debtors, the others
shall not be liable for his shares. To hold otherwise
would destroy the joint character of the obligation.
Breach of Joint Indivisible Obligation (Art. 1224)
Obligation can be enforced only by proceeding against all
of the debtors.
If anyone of the debtors should fail or refuse to comply
with the obligation, it is converted into one of indemnity for
damages.
Debtors who may have been ready to comply with what is
incumbent upon them shall not contribute to the indemnity
beyond the corresponding portion of the price of the thing
or the value of the service in which the obligation consists.
The debtor who failed or refused to comply with the
prestation shall bear the burden of paying all of the
damages to the creditor/s and shall indemnify the other
debtors for damages suffered as a result of the
transformation of the obligation into one of indemnity.
Interruption of Period of Prescription
Two Views:
1. The act of one joint creditor beneficial to others, as for
instance the interruption of period of prescription, is
sufficient since Art. 1209 merely provides that the right
of creditors may be prejudiced only by their collective
acts (Manresa).
2. The act of a joint creditor which would ordinarily
interrupt the period of prescription would not be valid
because the indivisible character of the obligation
requires collective action of the creditors (De Buen).
Note: Both Jurado and Tolentino are inclined with the
view of De Buen.
Indivisibility and Solidarity Distinguished
(Art. 1210)
Indivisibility Solidarity
Refers to the legal tie or
Refers to the prestation that
vinculum juris, and
is not capable of partial
consequently to the subjects
performance.
or parties of the obligation.
Exists only if there is more
Exists even if there is only than one creditor or more
one creditor and one debtor. than one debtor (plurality of
subjects).
 CIVIL LAW OBLIGATIONS & CONTRACTS

Each creditor cannot c. Mixed solidarity on the part of the debtors and
Each creditor may demand creditors, where each one of the debtors is liable to
demand more than his
the entire prestation and render, and each one of the creditors has a right to
share and each debtor is not
each debtor is bound to pay demand, entire compliance with the obligation.
bound to pay more than his
the entire prestation.
share.
3. As to uniformity
Effect of breach: obligation a. Uniform parties are bound by the same stipulations.
is converted into indemnity Effect of breach: solidarity b. Non-uniform or Varied parties are not subject to the
for damages; indivisibility is remains same stipulations.
terminated
Only the debtors guilty of All the debtors are liable for Effect: Creditor can commence an action against
breach of obligation is liable the breach of the obligations anyone of the debtors for compliance with the entire
for damages. committed by a debtor. obligation minus the portion or share which
corresponds to the debtor affected by the condition or
All debtors are period.
Other debtors are not liable
proportionately liable for the
if one debtor is insolvent. Distinguished from a surety (fiador in solidum)
insolvency of one debtor.
Passive Solidary Surety (Solidary
In case of non-performance by the debtors, the obligation Debtor Guarantor)
to pay the damages arises. With respect to the damages, Both are solidarily liable to the creditor for the
the prestation becomes divisible and each creditor can payment of the entire obligation
recover separately. Liable not only for the Liable only for the debt
payment of the debt of of another
The debtors who may have been ready to fulfill or perform another, but also for the
what was incumbent upon them shall not contribute to the payment of a debt which
indemnity beyond the corresponding portion of the price of is properly his own
the thing or the value of the service in which the obligation Has a right to demand Acquires a right of
consists (Art. 1224). reimbursement from his reimbursement from the
co-debtors of their principal debtor of the
SOLIDARITY (Art. 1211) shares, if he pays the entire amount he has
Solidarity may exist although creditors and debtors may entire amount of the paid
not be bound in the same manner and by the same obligation
periods and conditions. An extension of time An extension of time
granted by the creditor granted by the creditor
Kinds of Solidarity to one of the solidary to the principal debtor
1. As to source debtors without the would release the surety
a. Legal imposed by law knowledge of the other from the obligation
b. Conventional agreed upon by the parties solidary debtors would
c. Real imposed by the nature of the obligation not have the effect of
releasing the latter from
2. As to parties bound obligation
a. Active solidarity on the part of the creditors, where
any one of them can demand the fulfillment of the Effects of Prejudicial and Beneficial Acts (Art. 1212):
entire obligation. 1. Each one of the solidary creditors may do whatever
may be useful or beneficial to the others, but not
Effect: Mutual representation among the solidary anything which may be prejudicial to the latter.
creditors with powers to exercise the rights of others in 2. As far as the debtor/s is/are concerned, a prejudicial act
the same manner as their rights. performed by a solidary creditor is valid and binding; as
between the solidary creditors, the creditor who
b. Passive solidarity on the part of the debtors, where performed such act shall incur the obligation of
any one of them can be made liable for the fulfillment indemnifying the others for damages (Castan).
of the entire obligation.

Effect: Mutual guaranty relationship is created.

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Reason: Art. 1212 must be harmonized with Art. 1215.
Art. 1215 expressly recognizes the effectiveness of acts of
extinguishment by a solidary creditor.
Effects of Assignment of Rights in Solidary
Obligations (Art. 1213)
General Rule: A solidary creditor CANNOT assign his
right as it is predicated upon mutual confidence, i.e.,
personal qualification of each creditor had been taken into
consideration.
Exceptions:
1. Assignment to a co-creditor
2. Assignment is with consent of co-creditor
To Whom Payment Made in Solidary Obligation (Art.
1214)
General Rule: Payment may be made to any of the
solidary creditors
Exception: If demand, judicial or extra-judicial, has been
made by one of them, payment should be made to him.
Reason: When one creditor makes an extrajudicial or
judicial demand for payment, the tacit representation by
the other creditors is considered revoked and during the
pendency of the action, the creditors who did not sue lose
their representation of the others.
As to the effect of res judicata to the other creditors.
Under Art. 1214, once an action is filed by a solidary
creditor, he represents all the others and payment can be
made only to him. If the filing of the action consolidates in
the plaintiff creditor all the rights of the other co-creditors,
the latter must benefit from the favorable results and
suffer from the adverse consequences of such action.
However the other creditors will not be adversely affected,
if the judgment is based on a cause personal to the
plaintiff in the first action (Tolentino, Arturo M.,
Commentaries and Jurisprudence on the Civil Code of the
Philippines, Vol. 4, p 242 [1991]).
EFFECT OF NOVATION, COMPENSATION,
CONFUSION, AND REMISSION IN SOLIDARY
OBLIGATIONS (Art. 1215, Arts. 1219-1220)
Novation
1. If prejudicial, the solidary creditor who effected the
novation shall reimburse the others for damages
incurred by them;
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2. If beneficial and the creditor who effected the novation
is able to secure performance of the obligation, such
creditor shall be liable to the others for the share which
corresponds to them, not only in the obligation, but also
in the benefits;
3. If effected by substituting another person in place of the
debtor, the solidary creditor who effected the novation is
liable for the acts of the new debtor in case there is
deficiency in performance or in case damages are
incurred by the other solidary creditors as a result of
the substitution;
4. If effected by subrogating a third person in the rights of
the solidary creditor responsible for the novation, the
obligation of the debtor or creditors is not in reality
extinguished; the relation between the other creditors
not substituted and the debtor/s is maintained;
5. If the novation is effected by subrogating a third person
in the rights of all the solidary creditors, the creditor
responsible for such novation is liable to the other
creditors for the share which corresponds to them in the
obligation.
Compensation and Confusion
1. PARTIAL: rules on application of payment shall apply,
without prejudice to the right of other creditors who have
not caused the confusion or compensation to be
reimbursed to the extent that their rights are diminished
or affected;
2. TOTAL: obligation extinguished, what is left is the
ensuing liability for reimbursement within each group
the creditor causing the confusion or compensation is
obliged to reimburse the other creditors; the debtors
benefited by the extinguishment of the obligation are
obliged to reimburse the debtor who made the
confusion or compensation possible.
Remission
1. ENTIRE OBLIGATION: obligation is totally extinguished
but the solidary debtor who obtained it does not entitle
him to reimbursement from his co-debtors;
Reason: Said debtor gives or loses nothing
2. For the benefit of one of the debtors covering his entire
share: he is completely released from the creditor/s;
3. For the benefit of one of the debtors and it covers only
part of his share: his character as a solidary debtor is
not affected.
4. Total or partial remission: Creditor/s responsible for the
remission are liable to reimburse others for the share in
the obligation corresponding to them.
5. Total or partial remission: if the creditor/s proceed
against any one of the solidary debtors for the payment
 CIVIL LAW
of the entire obligation, such debtor can always avail
himself of the defense of partial remission (Art. 1222)
The above rules cannot be applied in case the debt has
been totally paid by anyone of the solidary debtors before
the remission was effected (Art. 1219).
Effect of Death of Principal Debtor
Under the law and jurisprudence, the creditor may sue,
separately or together, the principal debtor and the surety,
in view of the solidary nature of their liability. The death of
the principal debtor will not work to convert, decrease or
nullify the substantive right of the solidary creditor.
Evidently, despite the death of the principal debtor, the
creditor may still sue the surety alone in accordance with
the solidary nature of the latters liability under the
performance bond (Stronghold Insurance Co. vs. Republic
Asahi Glass Corp., G.R. No. 147561, June 22, 2006).
Effect of Payment to a Creditor
If one of the solidary creditors is able to collect the entire
amount of the debt from one or some or all of the solidary
debtors, the obligation is totally extinguished, although
there arises a consequent obligation on his part to render
an account to his co-creditors (Art.1215, par.2).
Effect of Demand upon a Solidary Debtor (Art. 1216)
The demand made against one of them shall not be an
obstacle to those which may subsequently be directed
against the others so long as the debt has not been fully
collected.
The creditor may proceed against any one of the solidary
debtors or against all of them simultaneously.
A creditors right to proceed against the surety exists
independently of his right to proceed against the principal
(Palmares vs. Court of Appeals, G.R. No. 126490, March
31, 1998).
Because of the unity of the legal tie in solidarity, although
the solidary debtors may be individually distinct from each
other, they constitute legally one and the same party
(Tolentino, Arturo M., Commentaries and Jurisprudence
on the Civil Code of the Philippines, Vol. 4, p 243 [1991]).
Note: If a claim from one of the solidary debtors has been
dismissed by a court on grounds other than the
extinguishment of the whole obligation or that the claim
has prescribed, it does not necessarily mean that the
solidary indebtedness cannot be claimed against the other
solidary debtors who were not impleaded in the case or
against those who were impleaded but whose liability was
OBLIGATIONS & CONTRACTS
found by the court as proper (Inciong vs. CA, G.R. No.
96405, June 26, 1996).
Effect of Payment by a Debtor (Art. 1217 and Art. 1218)
Payment made by one of the solidary debtors either totally
or partially extinguishes the obligation depending upon
whether the entire amount of debt is paid or only a part
thereof.
If two or more solidary debtors offer to pay, the creditor
may choose which offer to accept.
Solidary debtor who made the payment merely entitles
him to claim from his co-debtors the share which
corresponds to them with interest from the time of
payment; does not create a real case of subrogation; if
payment was made before the debt is due, no interest for
the intervening period may be demanded.
Reason: The right of the paying co-debtor to be
reimbursed is not based on the original obligation but
upon the payment made by him.
No reimbursement if payment is made after the obligation
has prescribed or has become illegal.
Share of the insolvent solidary debtor shall be borne by
ALL his co-debtors, in proportion to the debt of each.
Computation of Interest
Two Views:
1. From the time payment was made
2. From the time the debt became due
Effect of Loss or Impossibility of Performance in
Solidary Obligation (Art.1219-Art. 1221):
1. If it is not due to the fault and before delay of the
solidary debtors, the obligation is extinguished.
2. If the loss or impossibility is due to the fault of one of the
solidary debtors OR due to a fortuitous event after one
of the solidary debtors had already incurred in delay,
the obligation is converted into an obligation of
indemnity for damages but the solidary character of the
obligation remains.
Defenses Available to a Solidary Debtor (Art. 1222):
1. Defenses derived from the nature of the obligation
total defense; all the solidary co-debtors are benefited.
Example: Payment or performance, res judicata,
prescription, those that causes defects in the contracts
and others of similar nature
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2. Defenses personal to him constitutes total defense
and partial defense.
Example of total defense: Minority, insanity, and other
defenses that causes the annulment of consent
Example of partial defense: Special terms or
conditions affecting his part of the obligation
3. Defenses pertaining to his own share constitutes a
partial defense; only the debtor is benefited.
Example: Share of debtor is not yet due, the creditor
can only compel the share of other co-debtors
4. Defenses personal to the others, but only as regards
that part of the debt for which the latter are responsible
constitutes partial defense only for the debtor-
defendant.
Example: The co-debtors share is not yet due, so the
creditor can only compel the debtor to give his share.
Divisible Obligations
Those which have as their object a prestation which is
susceptible of partial performance without the essence of
obligation changed.
Indivisible Obligations
Those which have as their object a prestation which is not
susceptible of partial performance, otherwise, the essence
of the obligation will be changed.
Three Kinds of Division
1. Quantitative- the thing can be materially divided into
parts and such parts are homogenous to each other.
Movable- parts are actually separated from each other.
Immovable- the limits of the parts are fixed by metes
and bounds.
2. Qualitative- the thing can be materially divided but the
parts are not exactly homogenous (i.e., inheritance)
3. Ideal/Intellectual- the thing cannot be separated into
material parts (i.e., co-ownership)
Test of Divisibility: Whether the prestation is susceptible
of partial compliance or not (Art. 1225, par. 1).
The susceptibility of partial compliance should be
understood in the sense of the possibility of realizing the
end or purpose which the obligation seeks to attain
(Sanchez Roman).
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In obligations to give, even though the object may be
physically divisible, the obligation is still indivisible if it is
provided by law or it is so intended by the parties (Art.
1225, par. 3).
In obligations to do, the obligation shall be considered
divisible when it has for its object (Art. 1225, par. 2):
1. The execution of a certain number of days of work
2. The accomplishment of work by metrical units
3. The accomplishment of analogous things which by
their nature are susceptible of partial performance.
In obligations not to do, it depends upon the character of
the prestation in each particular case (Art. 1225, par. 3).
Effect of Divisible or Indivisible Obligation
(Art. 1223)
Divisibility/indivisibility is of little significance as implied
under Art. 1223
General Rule: Creditor cannot be compelled partially to
receive the prestation in which the obligation consists;
neither may the debtor be required to make partial
payments
Exceptions:
1. When the obligation expressly stipulates the contrary
2. When the different prestations constituting the objects
of the obligation are subject to different terms and
conditions
3. When the obligation is in part liquidated and in part
unliquidated
Whether a contract is entire or severable depends in
general upon the consideration to be paid, not upon its
object. If the consideration is single, the contract is entire,
but if the consideration is expressly or by implication
apportioned, as when the part to be performed by one
party consists in several and distinct items, and the price
is apportioned to each of them, the contract is severable.
Note: When there is plurality of debtors and creditors, the
effect of divisible /indivisible character of the obligation
depends on whether the obligation is joint or solidary.
If solidary Arts. 1211 to Art. 1222 apply
If joint divisible Art. 1208 is applicable
If joint indivisible Art. 1209 and 1224 apply
Art. 1224: Breach of Joint Indivisible Obligation. See
previous discussion on joint indivisible obligation (p. 184).
OBLIGATION WITH A PENAL CLAUSE
An obligation to which an accessory undertaking (penal
clause/ penalty) is attached for the purpose of insuring its
 CIVIL LAW OBLIGATIONS & CONTRACTS

performance by virtue of which the obligor is bound to pay Obligations with a Penal Clause Distinguished from
a stipulated indemnity or perform a stipulated prestation in Other Obligations
case of breach.
A. As against a conditional obligation
Penal Clause and Condition Distinguished Obligation with a Conditional Obligation
Penal Clause Condition Penal Clause
Does not constitute an There is already an No obligation before the
Constitutes an obligation
obligation existing obligation from suspensive condition
May become demandable the very beginning happens
upon default of the Penalty is dependent
Never demandable Principal obligation itself
unperformed obligation and upon the non-
sometimes jointly with it is dependent upon the
performance of the
uncertain event
principal obligation
Purpose of Penalty:
1. Funcin coercitiva o de garantia - to insure the B. As against an alternative obligation
performance of the obligation; Obligation with a Alternative Obligation
2. Funcin liquidatoria - to liquidate the amount of Penal Clause
damages to be awarded in case of breach of the There is only one Two or more obligations
principal obligation (compensatory) prestation are due
3. Funcin estrictamente penal - in certain exceptional The impossibility of one,
cases, to punish the obligor in case of breach of the Impossibility of the
without the fault of the
principal obligation (punitive). Does not resolve the principal extinguishes
debtor, leaves the other
question of damages also the penalty
subsisting
The obligor cannot
A penal clause is attached to an obligation in order to choose to pay the
insure performance and has a double function: (1) to penalty to relieve Debtor can choose
provide for liquidated damages, and (2) to strengthen the himself of the principal, which prestation to fulfill
coercive force of the obligation by the threat of greater unless this right is
responsibility in the event of breach (Filinvest Land, Inc. expressly granted to him
vs. Court of Appeals, G.R. No. 138980, September 20,
2005). C. As against a facultative obligation
Obligation with a Facultative Obligation
Kinds of Penalty: Penal Clause
1. As to origin Payment of the penalty
a. Legal constituted by law in lieu of the principal Power of the debtor to
b. Conventional constituted by parties obligation can be made make the substitution is
only by express absolute
2. As to purpose stipulation
a. Compensatory or Reparatory indemnity for The creditor can The creditor can never
damages demand both demand both
b. Punitive punishment for breach prestations prestations
3. As to effect D. As against a guaranty
a. Subsidiary only penalty may be demanded
Obligation with a Guaranty
b. Joint or Complementary both penalty and principal
Penal Clause
obligation may be demanded
Object of the obligations
Obligation to pay the
of the principal debtor
penalty is different from
and the guarantor is the
the principal obligation
same
Principal obligation and
Principal debtor cannot
the penalty can be
be the guarantor of the
assumed by the same
same obligation
person

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Obligation with a Guaranty
Penal Clause
Guaranty subsists even
As a rule, penalty is
when the principal
extinguished by the
obligation is voidable,
nullity of the principal
unenforceable or a
obligation
natural one
Effect of Penalty (Art. 1226, par. 1)
General Rule: The penalty shall substitute the indemnity
for damages and payment of interest in case of
noncompliance
Exceptions:
1. When there is a stipulation to the contrary
2. When the obligor refuses to pay the penalty
3. When the obligor is guilty of fraud
Note: See Art. 1170
Enforceability of Penalty (Art. 1226 par. 2)
Penalty, as a stipulation in a contract, is demandable only
if there is a breach of the obligation and it is not contrary
to law, morals, good customs, public order or public
policy.
Where both of the contracting parties are unable to
comply with their respective obligations, although the
breach is not willful or culpable, the penal clause cannot
be invoked by anyone of them to the prejudice of the other
(Reyes vs. Formoso, CA, 46 Off. Gaz. 5621).
Limitation upon the Right of the Debtor in Obligations
with a Penal Clause (Art. 1227)
General Rule: Debtor cannot exempt himself from the
performance of the principal obligation by paying the
stipulated penalty
Exception: Unless this right has been clearly and
expressly granted to him.
Limitations on the Right of the Creditor in Obligations
with a Penal Clause (Art. 1227)
General Rule: Creditor cannot demand the fulfillment of
the principal obligation and demand the satisfaction of the
penalty at the same time.
Exception: Unless the right has been clearly granted to
him
If creditor has chosen fulfillment of the principal obligation
and performance thereof became impossible without his
fault, he may still demand satisfaction of the penalty.
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If there was fault on the part of debtor, creditor may
demand not only satisfaction of penalty but also the
payment of damages.
Proof of Actual Damages (Art. 1228)
The rule that proof of actual damages is not necessary; it
is applicable only to the general rule stated in Art. 1226
and not to the exceptions.
Penalty is exactly identical with what is known as
liquidated damages under Art. 2226.
When Penalty May Be Reduced (Art. 1229):
1. If the principal obligation has been partly complied with;
2. If the principal obligation has been irregularly complied
with; and
3. If the penalty is iniquitous or unconscionable even if
there has been no performance.
The power of a judge to reduce the penalty refers only to
penalties prescribed in contracts.
Effect of Nullity of Obligation or Penalty
(Art. 1230)
If principal obligation is void, penal clause shall also be
void because the penalty is merely an accessory
obligation. But if penal clause is void, principal obligation
is NOT affected.
E XTINGUI SHMENT OF
O BLIG ATIONS
Extinguishment of Obligations
(NoCoMeRePaLo Pre Re Ful An)
1. Payment/performance
2. Loss of the thing due
3. Condonation or remission of debt
4. Confusion or merger
5. Compensation
6. Novation
7. Annulment
8. Rescission
9. Fulfillment of a resolutory condition
10.Prescription
Note: Enumeration under Art. 1231 is NOT exclusive.
Other Forms of Extinguishment Not Under (Art. 1231)
1. Death (for personal or intransmissible obligation)
2. Mutual desistance or withdrawal
3. Arrival of resolutory period
4. Compromise
 CIVIL LAW
5. Impossibility of fulfillment of condition
6. Fortuitous event
Payment or Performance
Fulfillment of the prestation due. A fulfillment that
extinguishes the obligation by the realization of the
purposes for which it was constituted.
JURIDICAL ACT which is VOLUNTARY, LICIT, and
MADE with the INTENT to EXTINGUISH the obligation.
Requisites:
1. Person who pays
2. Person to whom payment is made
3. Thing to be paid
4. Manner, time, and place of payment
Kinds of Payment:
1. Normal- when the debtor voluntarily performs the
prestation as agreed upon
2. Abnormal- when debtor is forced by means of a judicial
proceeding either to comply with the prestation or pay
indemnity
Characteristic of a valid payment:
1. Identity only the prestation agreed upon and no other
must be complied with
2. Completeness the thing or service must be completely
delivered or rendered
3. Indivisibility payment or performance must be
indivisible.
Note: As a general rule, the above characteristics must
concur.
Principle of Integrity (Art. 1233)
General Rule: A debt shall not be understood to have
been paid unless the thing or service in which the
obligation consists has been completely delivered or
rendered, as the case may be.
Exceptions:
1. When the obligation has been substantially performed
in good faith (Art. 1234) less damages suffered by the
oblige
2. When the obligee accepts performance, knowing its
incompleteness or irregularity and without expressing
any protest or objection; based on the principle of
estoppel (Art. 1235).
Who must pay?
A. In general
1. Debtor
2. Anyone acting on the debtors behalf
OBLIGATIONS & CONTRACTS
a. Duly authorized agent or representatives
b. Heirs (provided that the debtor is already dead for
otherwise they are considered as third persons
interested in the obligation)
c. Successors-in-interest and assignees
Note: The creditor cannot refuse valid tender of
payment from the abovementioned individuals.
B. Third person who is an INTERESTED PARTY
Interested party
One who has an interest in the extinguishment of the
obligation such as:
1. Co-debtors
2. Sureties
3. Guarantors
4. Owners of mortgages property or pledge
Note: Even without the knowledge of the debtor, a
person interested in the fulfillment of the obligation can
pay (Art. 1302 ,Par. 3).
Effects of Payment:
1. The obligation is extinguished.
2. The debtor is to fully reimburse the third person
interested.
3. The third person interested is subrogated to the
rights of the creditor.
Note: The creditor cannot refuse valid tender of
payment from the abovementioned individuals.
C. Third person who is NOT an INTERESTED PARTY
but with DEBTORs CONSENT
General Rule: The creditor is NOT BOUND to accept
payment or performance by a third person who has NO
interest in the fulfillment of the obligation (Art. 1236,
Par. 1).
Exception: Unless there is a stipulation to the contrary.
Effects of Payment
1. Third person is entitled to full reimbursement.
2. There is legal subrogation as the third person steps
into the shoes of the creditor.
Note: The creditor may refuse to accept payment.
D. Third person who is NOT an interested party and
WITHOUT knowledge or AGAINST the will of the
debtor
General Rule: Whoever pays for another may demand
from the debtor what he has paid (Art. 1236, Par. 2).
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Exception: If payment was made without the
knowledge or against the will of the debtor.
In such case, he can only recover insofar as the
payment has been beneficial to the debtor.
Effects of Payment:
1. Third person can only be reimbursed insofar as
payment has been beneficial to the debtor.
Benefit to the creditor is presumed in the following
cases (Art. 1241): RES
a. If the creditor ratifies the payment to the third
person (ratification);
b. If by the creditors conduct, the debtor has been
led to believe that the third person had authority
to receive the payment (estoppel);
c. If after the payment, the third person acquires the
creditors rights (subrogation).
Art. 1237 states that whoever pays on behalf of the
debtor without the knowledge or against the will of the
latter, CANNOT compel the creditor to subrogate him
in his rights.
To Whom Payment Must Be Made (Art. 1240)
1. The person in whose favor the obligation has been
constituted.
2. His successor in interest.
3. Any person authorized to receive it by law or by
the creditor at the time when payment is due and not
when the obligation was constituted.
Effect of payment to unauthorized persons in
obligation to give:
General Rule: It shall NOT be valid, even though made
in good faith.
Exceptions:
1. Payment made to a third person, provided that it has
redounded to the benefit of the creditor.
Benefit to the creditor is presumed in the following
cases (Art. 1241): (RES)
a. If the creditor ratifies the payment to the third
person (ratification);
b. If by the creditors conduct, the debtor has been led
to believe that the third person had authority to
receive the payment (estoppel);
c. If after the payment, the third person acquires the
creditors rights (subrogation);
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2. Payment to the possessor of the credit, made in good
faith (Art. 1242)
This refers to the possession of credit not the document
evidencing it.
Note: In obligations to give, payment to incapacitated
person is valid when:
a. The incapacitated has kept the amount or thing paid
or delivered .
b. Payment has been beneficial to the incapacitated
person Art. 1241.
Payment made to the creditor by the debtor after the
latter has been judicially ordered to retain the debt shall
NOT be valid (Art. 1243); UNLESS otherwise stipulated,
extrajudicial expenses required by the payment shall be
for the account of the debtor (Art. 1247).
Rule in monetary obligations (Art. 1249)
1. Must be made in the currency stipulated; if it is not
possible to deliver such currency, then in the currency
which is legal tender in the Philippines.
2. Delivery of promissory notes payable to order or bills of
exchange or other mercantile documents shall not
produce the effect of payment except:
a. When they have been cashed or credited; or
b. When through the fault of the creditor they have been
impaired.
Note: The impairment of the negotiable instrument
through the fault of the creditor contemplated by Art. 1249
is applicable ONLY to a document executed by a THIRD
PERSON and delivered by the debtor to the creditor and
does not apply to instruments executed by debtor himself
and delivered to the creditor.
Pending the cashing of the mercantile document, the
creditor cannot bring an action against the debtor during
the intervening period as the action derived from the
original obligation shall be held in abeyance.
Legal Tender: Such currency which may be used for the
payment of all debts, whether private or public. Its
significance is manifested by the fact that it is such which
the debtor may compel a creditor to accept in payment of
the debt.
Legal tender in the Philippines would be all NOTES AND
COINS issued by the Bangko Sentral (Circular No. 537):
1. 1-Peso, 5-Pesos and 10-Peso coins: in amounts not
exceeding P1,000.00
2. 25 centavo coin or less: in amounts not exceeding
P100.00
 CIVIL LAW
Take note that bills, regardless of denomination, are legal
tender up to whatever amount.
R.A. 8183 provides that all monetary obligations shall be
settled in the Philippine currency which is legal tender in
the Philippines. The parties may agree that the obligation
or transaction be settled in other currency at the time of
payment.
Extraordinary inflation or deflation (Art. 1250)
Requisites:
1. There must be a decrease or increase in the purchasing
power of the currency which is unusual or beyond the
common fluctuation in the value of the currency;
2. Such decrease or increase could not have been
reasonably foreseen or which was manifestly beyond
the contemplation of the parties at the time the
obligation was established.
Take note that that Art. 1250 mentions in the currency
STIPULATED. Thus, it applies ONLY to contractual
obligations.
Value of currency at the time of the establishment of the
obligation shall be the basis of payment. The law does not
say it should be the amount paid (Jurado & Desideri,
Comments and Jurisprudence on Obligations and
Contracts, 2010 ed., p.263).
Note: Even if the price index of the goods and services
may have risen during the intervening period (Sangrador
vs. Valderrama, GR No. 79552, November 29, 1988), this
increase, without more, cannot be considered as resulting
in extraordinary inflation as to justify the application of
Article 1250 (Telengtan & Sons, Inc. vs. United States
Lines, Inc., et. al., G.R. No. 132284, February 28, 2006).
There must be a declaration of such extraordinary inflation
or deflation by the Bangko Sentral. Without such
declaration, the creditors cannot demand an increase, and
debtors a decrease, of what is due to or from them
(Ramos vs. CA, GR No. 119872, July 7, 1997 and Mobil
Oil Phils. vs. CA, GR No. 103072, August 20, 1993).
Place of Payment (Art. 1251)
1. Place stipulated by the parties.
2. If there is no stipulation and the obligation is to deliver a
determinate thing, payment shall be made at the place
where the thing might be at the time the obligation was
constituted.
3. In any other case, the payment shall be made at the
domicile of the debtor.
OBLIGATIONS & CONTRACTS
Note: If the debtor changes his domicile in bad faith or
after he has incurred in delay, the additional expenses
shall be borne by him.
Art. 1251 governs unilateral obligations. Reciprocal
obligations are governed by special rules.
Special Forms of Payment:
A.Application of Payment Designation of the debt to
which the payment must be applied when the debtor
has several obligations of the same kind in favor of the
same creditor.
Requisites:
1. There must be only one debtor and only one creditor;
Under Art. 1792, application of payment may be had
even if there are two creditors -- the partnership and
the managing partner (Jurado, p. 265), but the law
allows such application in favor of the managing
partner only if the personal credit of the partner
should be more onerous to him.
Neither the requirement that there must be only one
debtor militates against the possibility of extending
the rules on application of payment to solidary
obligations. The solidary debtor who paid may have
other obligations in favor of the creditor.
2. There must be two or more debts of the same kind;
The fact that the debts are of the same kind is
reckoned from the time of the application of payment,
not from the time of constitution of the obligation. A
non- monetary obligation, for instance, may be
converted into one of damages at the time of
application of payment.
3. All the debts must be due except if there is
stipulation to the contrary OR application of payment
is made by the party for whose benefit the term has
been constituted (Art. 1196); and
4. Amount paid by the debtor is insufficient to cover the
total amount of all the debts.
Rules on Application of Payment:
1. The right to designate the debt to which the payment
shall be applied belongs primarily to the debtor.
2. If the debtor does not apply, the creditor may
designate which debt is paid by specifying in the
receipt.
3. If the creditor did not apply or if application is void,
debt which is the most onerous, is the one satisfied. It
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is evident in the circumstances laid by Art. 1254, that
it is the law which makes the application.
Why the most onerous debt?
In making the application of payments, the law
considers particularly the interest of the debtor. It is
assumed that if the debtor had chosen the debt to be
paid, he would have relieved himself first of the most
burdensome debt.
Which is more onerous?
1. OLDEST debts are more onerous than more recent
ones;
2. INTEREST BEARING debts are more onerous than
those which do not, even if the latter were incurred at
an earlier debt;
3. A SECURED debt is more onerous than that which is
not;
4. A debt in which the is PRINCIPALLY bound is more
onerous than that which he is merely a guarantor or
surety;
5. A debt in which he is solidarily bound is more onerous
than that which he is only a sole debtor;
6. Within a solidary obligation, the share which
corresponds to a solidary debtor would be most
onerous;
7. An obligation for INDEMNITY is more onerous than
that which is by way of penalty;
8. LIQUIDATED DEBTS are more onerous than
unliquidated ones.
No hard and fast rule, however, can be put up. As a
last resort, when it cannot definitely be determined
whether one debt is more burdensome than the other,
the abovementioned rules may be applied.
Debts due of the same nature, payment shall be
applied proportionately.
Must conform to the general rules on payment (Arts.
1232-1251).
Applying both rules, should a debtor have two debts of
the same nature and burden amounting to P100 and
P200 and he pays only P100, the same shall not be
applied proportionately as the creditor cannot be
compelled to accept partial payment. Consequently, his
payment shall be fully applied to the debt amounting to
P100.
Note: If the debt produces interests, payment of the
principal shall not be deemed to have been made until
the interests have been covered (Art. 1253); applies
only in the absence of an agreement to the contrary
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and is merely directory and not mandatory. It means
that the benefits of Art. 1253 may be waived by way of
stipulation.
B.Dation in Payment (Dacion en pago) Delivery and
transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance
of the obligation.
Requisites:
1. Existence of a money obligation;
Take note, however, that it is precisely in obligations
which are not money debts, in which the true juridical
nature of dation in payment becomes manifest. The
fact that there must be a prior agreement of the
parties on the delivery of the thing in lieu of the
original prestation shows that there is a novation
which extinguishes the original obligation, and the
delivery is a mere performance of the obligation
(Tolentino, Arturo M., Commentaries and
Jurisprudence on the Civil Code of the Philippines,
1991 ed., Vol. 4, p.294).
Thus, if the creditor is evicted from the thing given in
dation in payment, the original obligation is not
revived.
It is submitted that the question of whether the pre-
existing obligation in dation in payment is in money
has significance only in determining whether the
resulting contract is that of sale and not whether the
original obligation has been extinguished.
2. Alienation to the creditor of a property by the debtor
with the consent of the former; and
3. Satisfaction of the money obligation of the debtor.
C.Payment by Cession (Art. 1255) - special form of
payment whereby the debtor assigns/abandons ALL of
his property for the benefit of his creditors in order that
from the proceeds thereof, the latter may obtain
payment of their credits.
Requisites:
1. Plurality of debts;
2. Partial or relative insolvency of the debtor; and
3. Acceptance of the cession by the creditors.
Kinds of Payment by Cession:
1. Contractual (Art. 1255)
2. Judicial (governed by Insolvency Law)
a. Voluntary
b. Involuntary
 CIVIL LAW OBLIGATIONS & CONTRACTS

Dation in Payment and Payment by Cession Special Requisites of Consignation:

Distinguished 1. Existence of a valid debt which is due.
Dation in Payment Payment By Cession 2. Tender of payment by the debtor; creditors refusal
without just cause to accept it or any of the cases
One creditor Plurality of creditors provided in Art. 1256 par. 2 exists.
a. Tender must precede consignation;
Debtor not necessarily in Debtor must be partially
b. It must have been unconditional
state of financial difficulty or relatively insolvent
c. Refusal must be without just cause
Thing delivered is At the time of deposit, however it is not necessary
Universality of property of for the debtor to show want of cause for the refusal
considered as equivalent
debtor is what is ceded of the creditor; this fact may be established during
of performance
Extinguishes obligation to the hearing of the case.
Merely releases debtor
the extent of the value of
for net proceeds of things 3. Previous notice of consignation to person interested
the thing delivered as
ceded or assigned, in the fulfillment of the obligation, in order to give the
agreed upon, proved or
unless there is contrary creditor the opportunity to reconsider his unjustified
implied from the conduct
intention refusal and to accept payment to avoid consignation
of the creditor
and the subsequent litigation.
Does not involve all Involves all the properties
properties of debtor of the debtor Lack of previous notice does not invalidate the
consignation, but simply makes the debtor liable for
Creditor does not the expenses occasioned thereby (Tolentino, Arturo
Creditor becomes owner become the owner. M., Commentaries and Jurisprudence on the Civil
of property of debtor Possession is only Code of the Philippines,1991 ed., Vol. 4, p.324)
transmitted.
With respect to the creditor, this notice can be made
D.Tender of Payment and Consignation simultaneously with the tender of payment (i.e. by
(Art. 1256) way of warning that should the payment be not
accepted the thing will be deposited in court).
Tender of Payment Separate notices must be given to other interested
Manifestation of the debtor to the creditor of his decision parties such as guarantors. (Id.)
to comply immediately with his obligation; preparatory
act and extrajudicial in character. 4. Consignation amount or thing due placed at the
disposal of the court
Consignation
Deposit of the object of the obligation in a competent 5. Subsequent notice of consignation to enable the
court in accordance with the rules prescribed by law, creditor to withdraw the goods or money deposited.
after refusal or inability of the creditor to accept the
tender of payment; principal act and judicial in It would be unjust to make the creditor suffer the risk of
character. deterioration, depreciation or loss of such goods or
money by reason of lack of knowledge of the
Consignation, being a form of payment, presupposes consignation
that there must be a debt that must be paid. Tender of
payment ALONE would be sufficient to preserve the Note: Since consignation is a special form of payment.
right of the redemptioner or the vendee a retro. It must conform not only with the special requirements
prescribed by law, but also with all the requisites of a
In case of exercise of right of repurchase by tender of valid payment.
check, such tender is valid because it is an exercise of
a right and not made as mode of payment of an Instances where consignation shall produce the
obligation. Article 1249 is not applicable (Adelfa effects of payment without prior tender of payment
Properties, Inc. vs. CA, G.R. No. 111238, January 25, (Art. 1259, par. 2):
1995). 1. Creditor is absent or unknown, or does not appear at
the place of payment.

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Absence need not be judicially declared. He must
however, have no legal representative to accept the
payment.
2. Creditor is incapacitated to receive the payment at
the time it is due.
3. When without just cause, the creditor refuses to give
a receipt.
It appears in this case that the refusal to issue a
receipt preceded the tender of payment.
4. When two or more persons claim the right to collect
(as in the case of interpleader).
5. When the title of the obligation has been lost.
The list is not exclusive. The rule also applies if the
creditor, prior to the tender of payment, intimated that
he will not accept the debtors payment.
Effects of consignation:
1. If the creditor accepts the thing or amount deposited
without contesting the validity or efficacy of the
consignation, the obligation is cancelled/extinguished.
2. If the creditor contests the validity of the consignation
or if the creditor is not interested or unknown or is
absent, the result is litigation. If during the trial, the
plaintiff-debtor is able to establish that all the
requisites of consignation have been complied with,
the obligation is extinguished.
Effects of withdrawal of the object/ amount
deposited:
1. Before creditor accepted consignation or judicial
declaration of consignation (Article 1260, par. 2)
Obligation remains in force.
Withdrawal by the debtor at this stage is a matter of
right because he still owns the thing.
Should the debtor opt not to withdraw the thing at this
stage, can another creditor attach the same property
since the debtor still owns the thing?
No. Property deposited with court is exempt from
attachment and not subject to execution; it is said to
be in custodia legis and cannot be withdrawn without
an express order from the court.
2. With consent of the creditor (Art. 1261)
a. Creditor loses every preference which he may have
over the thing.
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b. Solidary co-debtors, guarantors and sureties are
released.
c. Solidary debtors are released only from their
solidary liability but not from their shares of their
obligation.
d. The obligation is revived, but without prejudice to
other interested parties.
Withdrawal by the debtor at this stage is a matter of
privilege
Note: To have the effect of payment, the law requires
the twin acts of tender of payment and consignation.
Tender of payment without consignation only frees the
debtor from the obligation to pay interest on the
outstanding amount from the time the unjustified refusal
takes place (Go Sinco vs. CA, et. al., GR No. 151903,
October 9, 2009).
Creditor can be held liable for damages under Article
19 for unjustified refusal to accept payment (Go Sinco
vs. CA, Ibid).
The expenses of consignation, when properly made,
shall be charged against the creditor (Art. 1259).
LOSS OF THE THING DUE
Effects of Loss in Determinate Obligation to Give (Art.
1262): Obligation is extinguished if the thing is lost or
destroyed without the fault of the debtor and before he
has incurred in delay.
General Rule: Loss of a determinate thing through
fortuitous event shall extinguish the obligation.
Exceptions:
1. When the law so provides;
2. When the stipulation so provides;
3. When the nature of the obligation requires an
assumption of risk;
4. Loss of the thing is partly due to the fault of the debtor;
5. Loss of the thing occurs after the debtor incurred in
delay;
6. When the debtor promised to deliver the same thing to
two persons who do not have the same interest;
7. When the obligation to deliver arises from a criminal
offense; and
8. When the obligation is generic.
If the loss is through theft the debtor is considered
negligent having placed the thing within the reach of
thieves and not in a secure and safe place. In theft, taking
is accomplished without the use of violence or force.
 CIVIL LAW
Effect of Partial Loss (Art. 1264)
General Rule: Partial loss does not extinguish the
obligation.
Exception: When the partial loss or destruction of the
thing is of such importance that would be tantamount to a
complete loss or destruction.
Rule if the thing is in debtors possession
(Art. 1265)
General Rule: If it is lost while in the possession of the
debtor, it is presumed that the loss was due to his fault,
unless there is proof to the contrary.
Exception: No such presumption in case of earthquake,
flood, storm or other natural calamity.
Effect of impossibility of performance in obligation to
do (Art. 1266): When the obligation becomes legally or
physically impossible without the fault of the debtor,
obligor is released from the obligation. Take note that the
provision mentions that the prestation BECOMES
impossible and thus, would contemplate subsequent
impossibility.
The legal and physical impossibility must have occurred
after the constitution of the obligation.
Note: Does not apply to obligations to give.
Natural Impossibility and Impossibility In Fact
Distinguished
Natural Impossibility Impossibility In Fact
In the absence of inherent
Must consist in the nature impossibility in the nature
of the thing to be done and of the thing stipulated to be
not the inability of the party performed, which is only
to do so improbable or out of the
power of the obligor
Does not render the
Renders the contract void
contract void
Natural impossibility is reckoned from the time of
constitution of the obligation. Thus, the obligation remains
void even if the prestation subsequently becomes
possible.
In case of subsequent partial impossibility the rule in Art.
1264 may be applied.
Temporary impossibility does not extinguish the obligation
but merely delays its fulfillment. This presupposes that the
duration of impossibility has been contemplated by the
parties; otherwise, the same may extinguish the obligation
OBLIGATIONS & CONTRACTS
under Art. 1267. In the latter case, the fact that the
prestation later becomes possible does not revive the
obligation.
Effect of Relative Impossibility
Doctrine of Unforeseen Events (Art. 1267)
When the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the
court should be authorized to release the obligor in whole
or in part. (This is also referred to as the Doctrine of
Frustration of Enterprise)
The intention of the parties should govern and if it appears
that the service turns out to be so difficult as to have been
beyond their contemplation, it would be doing violence to
the intention to hold the obligor still responsible.
It will be noted that Art.1267 speaks of a service,- a
personal obligation. Thus, real obligations are not within
its scope (Paras Edgardo L. Civil Code of the Philippines
Annotated IV,2008 ed., p.439). Jurado however is of the
opinion that the word service should be understood as
referring to the performance of the obligation (p.293).
It is not a requirement under Art. 1267 that the contract be
for future service with future unusual change.
The impossibility is RELATIVE because the difficulty of
performance triggers a manifest disequilibrium in the
prestations, such that one party would be placed at a
disadvantage by the unforeseen event.
Principle of Subjective Impossibility
When there is no physical or legal loss but the object of
the obligation belongs to another, the performance by the
debtor of the obligation undoubtedly becomes impossible.
Failure of performance is imputable to the debtor. Thus,
the debtor must indemnify the creditor for the damages
suffered by the latter (Tolentino, Arturo M., Commentaries
and Jurisprudence on the Civil Code of the Philippines,
1991 ed., Vol. 4, p.336).
Effect of Loss on Reciprocal Obligations
First view If an obligation is extinguished by the loss of
the thing or impossibility of performance through fortuitous
events, the counter-prestation is also extinguished. The
debtor is released from liability but he cannot demand the
prestation which has been stipulated for his benefit. He
who gives nothing has no reason to demand (Tolentino,
Arturo M., Commentaries and Jurisprudence on the Civil
Code of the Philippines, 1991 ed., Vol. 4, p.337-338).
Second View The loss or impossibility of performance
must be due to the fault of the debtor. In this case, the
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injured party may ask for rescission under Article 1191
plus damages. If the loss or impossibility was due to a
fortuitous event, the other party is still obliged to give the
prestation due to the other (J.B.L. Reyes).
Rule if obligation arises from criminal offense (Art.
1268)
General Rule: Debtor shall not be exempted from the
payment of the price whatever may be the cause for the
loss.
Exception: When the thing having been offered by the
debtor to the person who should receive it, the latter
refused without justification.
Note: The offer referred in Art. 1268 should not be
confused with consignation; the latter refers only to the
payment of the obligation, the former refers to the
extinguishment of the obligation through loss by fortuitous
event.
CONDONATION OR REMISSION OF THE DEBT
An act of liberality by virtue of which the obligee, without
receiving any price or equivalent, renounces the
enforcement of the obligation, as a result of which it is
extinguished in its entirety or in that part or aspect of the
same to which the remission refers.
It is the gratuitous abandonment by the creditor of his
right; a form of donation.
Requisites of remission:
1. It must be gratuitous;
2. It must be accepted by the obligor;
3. The obligation must be demandable;
4. Parties must have the capacity;
5. Not inofficious; and
6. Must comply with the forms of donation SHOULD IT BE
EXPRESS (Arts. 748 and 749).
Note: Whether express or implied, the extent of remission
or condonation shall be governed by the rules regarding
inofficious donation.
If the creditor voluntarily delivers the private document
evidencing the credit to the debtor, there is a presumption
that he renounces his right of action against the latter for
the collection of the said credit (Art. 1271). When such
private document is found in possession of the debtor, it
shall be presumed that the creditor delivered it voluntarily,
unless the contrary is proved (Art. 1272).
When the obligation is joint, and the private document
evidencing a debt is found in the possession of one of the
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debtors, the presumption of remission can refer only to the
portion of the debtor who is in the possession of the
instrument. If the obligation is solidary, Articles 1215, 1219
and 1220 shall apply.
If the remission refers to the principal obligation, all the
accessory obligations are extinguished. However, if
remission refers only to the accessory obligation, the
principal obligation continues to subsist (Art. 1273).
It is presumed that the accessory obligation of pledge has
been remitted when the thing pledged, AFTER ITS
DELIVERY to the creditor, is found in the possession of
the debtor, or of a third person who OWNS the thing
(Art.1274). The provision presupposes that the accessory
contract of pledge has been perfected.
CONFUSION
It is the merger of the characters of the creditor and the
debtor in one and the same person by virtue of which the
obligation is extinguished.
Example:
Atoy makes a check payable to bearer, and hands it to
Joey, who hands it to Kaye who finally hands it to Atoy.
Here Atoy owes himself and thus, his obligation is
extinguished.
If however, the reason for the confusion ceases, the
obligation is revived. Thus, should Kaye deliver the note to
Atoy in the performance of a void obligation, Atoys
obligation is recreated. But the time intervening between
the merger and its revocation is not to be computed in the
determination of the period for prescription.
Requisites of Merger
1. Merger of the characters of the creditor and debtor must
be in the same person;
2. Must take place in the person of either the principal
creditor or the principal debtor; and
3. Whether the merger refers to the entire obligation or
only part thereof, there must be complete and definite
meeting of all qualities of creditor and debtor in the
obligation or in the part thereof affected by the merger.
Effects of confusion/ merger (Arts. 1276-1277)
1. If confusion takes place in the person of either the
principal creditor or principal debtor extinguishment of
entire obligation.
2. If confusion takes place in the person of a subsidiary
creditor or subsidiary debtor (e.g. guarantor) no
extinguishment of principal obligation; only substitution
of creditor or debtor
 CIVIL LAW OBLIGATIONS & CONTRACTS

3. If confusion takes place in one of the joint debtors Kinds of Compensation:

principal obligation is extinguished up to the share
which corresponds to him.
4. If confusion takes place in one of the solidary debtors
entire obligation is extinguished. However, the debtor
in whom confusion took place may claim
reimbursement from co-debtors for the shares which
correspond to them.
COMPENSATION
Mode of extinguishing in the concurrent amount of the
obligation of those persons who are reciprocally debtors
and creditors of each other.
Most Fundamental Effect: It extinguishes both debts to
the extent that the amount covered by the amount of the
other.
Compensation and Confusion; Distinguished
Compensation Confusion
Two persons who, in their Only one person in whom
own right, are creditors and the qualities of debtor and
debtors of each other creditor are merged
There must be at least two
There is only one obligation
obligations
Compensation and Payment; Distinguished
Compensation Payment
The requisites prescribed by law for compensation are
different from those prescribed by law for payment.
1. As to cause
a. Legal- takes effect by operation of law from the
moment all of the requisites are present.
b. Voluntary -- when parties who are mutually creditors
and debtors agree to compensate their respective
obligations, even though all of the requisites for
compensation may not be present.
c. Judicial -- takes effect by judicial decree.
d. Facultative
2. As to effect
a. Total - debts to be compensated are equal in
amount.
b. Partial - debts to be compensated are not equal in
amount.
Requisites of compensation (Art. 1279)
1. There must be two parties, who, in their own right, are
principal creditors and principal debtors of each other
except in case of a guarantor (Art. 1280);
2. Both debts must consist in sum of money, or if the
things due are fungibles (consumables), they must be of
the same kind and quality;
General Rule: Compensation is not possible in
obligations to do because of the difference in the
respective capacities of the obligors (Jurado, Desiderio,
Comments and Jurisprudence on Obligations and
Contracts,2010 ed., p.317).
3. Both debts must be due;

Takes effect by operation of Takes effect by act of the EXCEPTION: Voluntary compensation (Article 1282)
law parties
Capacity to give and to Capacity to give and to 4. Both debts must be liquidated and demandable;
acquire is not necessary acquire is essential 5. There must be no retention or controversy commenced
by third persons over either of the debts and
As a rule, law permits communicated in due time to the debtor;
As a rule, complete and
partial extinguishment of 6. The compensation must not be prohibited by law.
indivisible
obligation
Right of guarantor to set-up compensation (Art. 1280)
Compensation and Counterclaim; Distinguished The guarantor, in case the payment of the debt is
Compensation Counterclaim demanded from him, may set up compensation, not only
Requires that two debts for what the creditor owes him, but also for what the
must consist in money or if creditor owes the principal debtor.
Not necessary
fungibles, same kind and
quality Rule in case of rescissible or voidable debts (Art.
1284)
As a rule, both debts must Does not require that debts Rescissible or voidable obligations may be compensated
be liquidated be liquidated against each other before they are judicially rescinded or
Need not be pleaded; takes Must be pleaded to be avoided.
effect by operation of law effectual

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Effects of assignment of rights (Art. 1285)
1. If with consent of debtor debtor cannot set-up
compensation unless he reserved his right to
compensation.
2. If with knowledge but without consent of debtor debtor
may set-up compensation prior to the assignment but
not subsequent ones
3. If without knowledge of the debtor may set-up
compensation of all credits which he may have against
the assignor and which may have become demandable,
before he was notified of the assignment.
Debts Which Cannot Be Compensated
(Arts. 1286-1287):
1. Debts arising from contracts of depositum
2. Debts arising from contracts of commodatum
3. Claims for support due by GRATUITOUS title
Take note that the law did not limit itself to legal support
and thus would include other rights which have for their
purpose the subsistence of the debtor, such as
pensions.
4. Obligations arising from criminal offenses (Art. 1288)
5. Certain obligations in favor of government (e.g. taxes,
fees, duties, and others of a similar nature).
But when the debts are purely contractual and are not
of public interest, compensation can take place.
Facultative Compensation
Compensation which can be set up only at the option of
the creditor when legal compensation cannot take place
because of want of some legal requisites for the benefit of
the creditor. The latter can renounce his right to oppose
the compensation and he himself can set it up. It differs
from conventional compensation because it is unilateral
while the latter depends upon the agreement of both
parties (Tolentino, Arturo M., Commentaries and
Jurisprudence on the Civil Code of the Philippines, 1991
ed., Vol. 4, p.367).
NOVATION
It is the substitution or change of an obligation by another,
resulting in its extinguishment or modification, either by
changing its object or principal conditions, or by
substituting another in place of the debtor, or by
subrogating a third person in the rights of the creditor.
Requisites of Novation:
1. Previous valid and existing obligation;
A new contract, recognizing and assuming a prescribed
debt, would be valid and enforceable. The prescription,
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being available to the debtor, can be waived by him.
The novation of a prescribed debt is thus valid.
2. Capacity of the contracting parties (to the new contract);
3. Animus novandi or intent to novate (especially for
implied novation and substitution of debtors);
4. Substantial difference between the old obligation and
the new obligation (especially for implied
novation),consequently, extinguishment of the
obligation; and
5. Validity of the new obligation.
Two-fold Purpose of Novation:
1. Original obligation is extinguished
2. A new obligation is created
Kinds of Novation
1. As to its essence
a. Objective/Real
b. Subjective/Personal -- substitution of debtor or by
subrogation.
c. Mixed change in the object or principal condition
and change in the persons of either creditor and
debtor of an existing obligation.
2. As to its form/ constitution
a. Express when it is declared in unequivocal terms
that the old obligation is extinguished by a new one
which substitutes the same.
b. Implied when the old and new are incompatible
with each other on every point.
Test of Incompatibility: Whether or not the old and new
obligations can stand together, each having its own
independent existence. If they can stand together,
there is no incompatibility hence, no novation. If they
cannot stand together, there is incompatibility;
consequently, there is novation. Changes that breed
incompatibility must be essential in nature and not
merely incidental.
3. As to extent/effect
a. Total
b. Partial
Note: Novation is never presumed. Unless it is clearly
shown either by express agreement of the parties or by
acts of equivalent import, this defense will never be
allowed (Ong vs. Bogalbal, G.R. No. 149140 September
12, 2006).
Objective Novation (Art. 1291, par.1)
According to Castan, objective novation is effected by:
1. Changing the cause of the obligation
 CIVIL LAW
2. Changing the object of the obligation
3. Changing the principal or essential conditions of the
obligation.
Requisites:
a. New obligation expressly declares that the old is
extinguished or
b. New obligation is on every point incompatible with the
old one (Ajax Marketing & Development Corp. vs. CA,
G.R. No. 118585, September 14, 1995)
Note: A change in the rate of interest is merely a collateral
agreement between the creditor and principal debtor that
did not affect the surety. The agreement to pay the
additional interest was an additional burden upon the
debtor only. It did not in any way affect the original
contract. Thus, despite the compounding of the interest,
the liability of the surety remains only up to the original
uncompounded interest (Garcia, Jr. vs. CA, G.R. No. L-
80201, November 20, 1990).
The grant of a 45-day credit extension does not novate
the contract as it merely modifies the contract by
extending the time for payment.
The obligation to pay a sum of money is not novated by
an instrument that expressly recognizes the old, changes
only the terms of the payment, adds other obligations not
incompatible with the old ones or the new contract merely
supplements the old contract (Sps.Reyes vs. BPI Family
Savings Bank, GR No. 149841-41, March 31, 2006).
If a subsequent contract is designed to novate a previous
contract and not all parties to the original contract
consented to or are made parties in the subsequent
contract, there can be no novation
Novation by substitution of debtors (Art. 1293)
A subjective/personal novation consists in the substitution
of a new debtor in place of the original debtor.
Forms of novation by substitution of debtors:
1. Expromisin effected with the consent of the creditor
at the instance of the new debtor even without the
consent or even against the will of the old debtor
(beneficial reimbursement).
Requisites:
a. Initiative for substitution must emanate from the new
debtor;
b. Consent of the creditor to the substitution; and
c. Old debtor must be released from obligation.
OBLIGATIONS & CONTRACTS
Example: Atoy owes Eugene 1K. Joey, a friend of Atoy
approaches Eugene and tells him: I will pay you what
Atoy owes you. From now on, consider me your debtor.
Atoy is to be excused. Take note that in this example,
there is an agreement that Atoy will be released from
the obligation. Sans such agreement, there is no
novation and the creditor (Eugene) can still enforce the
obligation against the original debtor (Atoy).
Kinds of Substitution by Expromisin
a. Substitution with the knowledge and consent of the
old debtor; and
b. Substitution without the knowledge or against the will
of the old debtor.
2.Delegacin effected with the consent of the creditor at
the instance of the old debtor (delegante), with the
concurrence of the new debtor (delegado)
(reimbursement and subrogation).
Requisites:
a. Initiative for substitution must emanate from the old
debtor;
b. Consent of the new debtor;
c. Acceptance by the creditor; and
d. Old debtor must be released from his obligation
Example: Atoy owes Eugene 1K. Atoy texted Eugene
that his friend Joey will pay the debt, and he wishes to
be released from the obligation. Both Joey and Eugene
agreed to such terms. Take note again that the
substitution must be made with the intention to release
the original debtor.
Parties in delegacion
Delegante- original debtor (Atoy)
Delegatorio- the creditor (Eugene)
Delegado- the new debtor (Joey)
Rights of New Debtor:
1. Expromisin
a. Substitution with knowledge and consent of original
debtor and payment made by new debtor with or
without knowledge and consent of original debtor:
i. Reimbursement from the original debtor of the
entire amount paid
ii. Subrogation in all the rights of the creditor
b. Substitution without the knowledge and consent of
the original debtor, and payment is made by the new
debtor without the knowledge and consent of the
original debtor:
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i. Reimbursement from the original debtor only
insofar as the payment has been beneficial to
such debtor
ii. No subrogation
2. Delegacin Since substitution was effected with the
consent of all the parties, the new debtor can demand
reimbursement from the original debtor of the entire
amount which he has paid as well as compel the
creditor to subrogate him to all of his rights.
Note: The mere fact that the creditor receives a guaranty
or accepts payment from a third person who agrees to
assume the obligation, when there is no agreement that
the first debtor shall be released from responsibility, does
not constitute novation, and the creditor can still enforce
the obligation against the original debtor. If the older
debtor is not released, there is no novation; the third
person becomes merely a co-debtor, surety or co-surety
(Mercantile Insurance Co., Inc. vs. CA, GR No. 85647,
April 22, 1991).
Effect of insolvency or non-fulfillment by new debtor
(Arts. 1294-1295)
1. Expromisin --
Tolentino: it shall not revive the original debtors liability
to the creditor whether the substitution is effected with
or without the knowledge or against the will of the
original debtor.
Jurado: If the substitution was effected with the
knowledge and consent of the original debtor, it shall
revive the original debtors liability to the creditor.
2. Delegacin - The right of the creditor can no longer be
revived EXCEPT in the ff. cases:
a. Insolvency already existing and of public knowledge
at the time when the original debtor delegated his
debt
b. Insolvency was already existing and known to the
original debtor when he delegated his debt
It is submitted that ACTUAL knowledge of the creditor
that new debtor was insolvent at the time of delegation,
will bar him from recovering from the old debtor. He
must bear the consequences of his acts knowingly
done.
Note: A change in the incidental elements of, or an
addition of such elements to an obligation, unless
otherwise expressed by the parties, will not result in its
extinguishment.
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Effects of novation upon accessory obligations (Art.
1296)
When the principal obligation is extinguished in
consequence of a novation, accessory obligation may
subsist only insofar as they may benefit third persons who
did not give consent.
Art. 1296 has no application to novation effected by
subrogating a third person to the rights of the creditor.
Such novation is regulated by Arts. 1303-1304.
Effects of condition in novation:
1. If the original obligation was subject to suspensive/
resolutory condition, the new obligation shall be under
the same condition, unless otherwise stipulated (Art.
1299).
2. If the new obligation and the old obligation are subject
to different conditions:
a. If the conditions can stand together --
i. If both are fulfilled -- the new obligation becomes
demandable
ii. If only the condition affecting the old obligation is
fulfilled -- old obligation is revived while the new
obligation loses its force.
iii. If only the condition affecting the new obligation is
fulfilled -- there is no novation since the requisite
of a previous valid and effective obligation would
be lacking.
b. If the conditions are incompatible the effect is to
extinguish the old obligation so that only the new
obligation remains and whose
demandability/effectivity depend upon the
fulfillment/non-fulfillment of the condition affecting it.
Novation by Subrogation (Art. 1300)
A personal novation effected by subrogating a third
person in the rights of the creditor.
Forms of novation by subrogation:
1. Conventional - takes place by agreement of the
original creditor, the third person substituting the
original creditor, and the debtor (Art. 1301).
2. Legal - takes place by operation of law
Conventional Subrogation and Assignment of Rights;
Distinguished
Conventional Subrogation Assignment of Rights
Governed by Arts. 1300- Governed by Arts. 1624-
1304 1627
Debtors consent is required Debtors consent is not
 CIVIL LAW OBLIGATIONS & CONTRACTS

Conventional Subrogation Assignment of Rights subrogated in Caths place. By reason of confusion, or

by reason of the fact that Atoy became a guarantor and
required a creditor at the same time, the guaranty is
extinguished.
Has the effect of
Has the effect of STRICTLY SPEAKING, there is no legal subrogation
transmitting the rights of the
extinguishing the obligation when a solidary debtor pays the entire obligation.
creditor to another person
and giving rise to a new Solidarity terminates upon the payment of the whole
without modifying/
one obligation. Thus, the paying debtor DOES NOT
extinguishing the obligation
COMPLETELY step into the shoes of the creditor, as he
Defects/ vices in the old Defects/ vices in the old cannot demand from any of his co-debtors the
obligation are cured obligation are not cured compliance of the entire obligation but only the
The effects arises from the As far as the debtor is proportion which pertains to each.
moment of novation/ concerned, arises from the
subrogation moment of notification Effects of Subrogation (Arts. 1303-1304)
1. Total subrogation -- Transfers to the person subrogated
the credit with all the rights the original creditor had
Legal subrogation (Art. 1302) against the debtor or third persons.
General Rule: Legal subrogation is not presumed. Accessory obligations are not extinguished; the person
subrogated acquires all the rights the original creditor
Exceptions: had against third persons and the rule is absolute with
1. When a creditor pays another creditor who is preferred, respect to legal subrogation. In conventional
without debtors knowledge; subrogation, accessory obligations may be increased or
reduced upon agreement of the parties.
Example: Atoy has two creditors, Mhik who is a
mortgage creditor for P15K and Jerome who is an 2. Partial subrogation -- A creditor, to whom partial
ordinary creditor for P6K. Jerome paid Atoy debt of payment has been made, may exercise his right for the
P15K to Mhik. Jerome will be subrogated to the rights of remainder, and he shall be preferred to the person who
Mhik. This means that Jerome will now be a mortgage has been subrogated in his place.
creditor for P15K and an ordinary creditor for 6K.
Example: Atoy owes Eugene P4K. With the consent of
2. When a third person, not interested in the obligation, both Joey pays Eugene P2K. Now Eugene and Joey
pays with the express or tacit approval of the debtor; or are the creditors of Atoy to the amount of P2K. By
reason of the preferential right to the remainder,
Example: Atoy owes Joey 10K secured by mortgage. Eugene is to be preferred in case Atoy has only P2K.
Eugene, a classmate of Atoy, and having no connection The preference, however, enjoyed by Eugene is only in
with the contract paid Joey with Atoys approval. the assets remaining with the debtor (Atoy) and not
Subrogation takes place and Eugene becomes a those already transferred to others.
mortgage creditor.

If Eugene pays without the knowledge or against the C OMPROMISE

will of Atoy, he is only entitled to demand
reimbursement as to the extent that Atoy has been
benefited by the payment. There is no subrogation in
this case.
3. When, even without 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.
Example: Joey owes Cath P10K secured by a
mortgage and by a guaranty of Atoy. If Atoy even
without Joeys knowledge pays Cath, Atoy will be
A compromise is a contract whereby the parties, by
making reciprocal concessions, avoid litigation or put an
end to one already commenced (Art. 2028).
Requisites:
1. Uncertainty of juridical relation;
2. An agreement to eliminate the uncertainty through
reciprocal concessions (5 Tolentino, p.485)
Kinds:
1. Judicial-end a pending litigation

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 OBLIGATIONS & CONTRACTS
2. Extra-judicial- to prevent a litigation from arising.
Characteristics:
1. Consensual
2. Reciprocal
3. Onerous
4. Nominate
5. Accessory (in the sense that a prior conflict is
presupposed)
6. Once accepted, binding upon the parties except if
consent is vitiated.
7. Principally, settlement of controversy; Incidentally,
settlement of claim
Questions on Which There Can be NO Valid
Compromise
1. The civil status of persons;
2. The validity of a marriage or a legal separation;
3. Any ground for legal separation;
4. Future support;
5. The jurisdiction of courts;
6. Future legitime (Art. 2035).
Effects of Compromise
A compromise has upon the parties the effect and
authority of res judicata; but there shall be no execution
except in compliance with a judicial compromise (Art.
2037).
If one of the parties fails or refuses to abide by the
compromise, the other party may either enforce the
compromise or REGARD it as rescinded and insist upon
his original demand (Art. 2041).
A compromise extinguishes the rights and actions which
gave rise to it and new obligations are created in
substitution of those extinguished (Tolentino, Arturo M.,
Commentaries and Jurisprudence on the Civil Code of the
Philippines,1991 ed., Vol. 5, p.492).
If a writ of execution is issued to enforce a judgment
based on compromise, the writ cannot be enforced
against a person who although a party to the case, was
not a party to the compromise agreement, and who in fact
was absolved from liability (Paras Edgardo L. Civil Code
of the Philippines Annotated, 2008 ed.,Vol. V, p.994).
(See discussions in Remedial Law)
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C ONTR ACTS
Contract
A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to
give something or to render some service.
ELEMENTS OF CONTRACTS:
1. Essential those without which there can be no
contract (Art. 1318)
a. Common elements -- present in all contracts
i. Consent
ii. Object or Subject Matter
iii. Cause or Consideration
b. Special elements -- present only in certain contracts.
(e.g., delivery in real contracts or form in solemn
ones)
c. Extraordinary elements peculiar to specific
contract. (e.g., price in a contract of sale.)
2. Natural -- those which are derived from the nature of the
contract and ordinarily accompany the same; they are
presumed by law, although they can be excluded by the
contracting parties if they so desire.
3. Accidental -- those which exist only when the parties
expressly provide for them for the purpose of limiting or
modifying the normal effects of the contract. (e.g.
conditions, terms or modes)
CLASSIFICATION OF CONTRACTS:
1. According to their relation to other contracts
a. Preparatory preliminary step towards the
celebration of another subsequent contract
b. Principal can subsist independently from other
contracts
c. Accessory can exist only as a consequence of, or
in relation with, another prior contract
2. According to their perfection
a. Consensual perfected by mere agreement of the
parties
b. Real requires consent of the parties and delivery of
the object for their perfection
3. According to their form
a. Common or informal requires no particular form
b. Special or formal -- requires some particular form
Take note of Arts. 748, 749, 1771, 1773, 2134, 1874,
1956, 1744
4. According to their purpose
a. Transfer of ownership e.g. sale
b. Conveyance of use e.g. commodatum
c. Rendition of service e.g. agency
5. According to their subject matter
a. Things e.g. sale, deposit, pledge
b. Services e.g. agency, lease of services
 CIVIL LAW
6. According to the nature of the vinculum which they
produce
a. Unilateral e.g. commodatum, gratuitous deposit
b. Bilateral e.g. sale, lease
7. According to their cause
a. Onerous e.g. sale
b. Gratuitous e.g. commodatum
8. According to the risk involved
a. Commutative e.g. lease
b. Aleatory e.g. insurance
9. According to their names or norms regulating them
a. Nominate have their own individuality; regulated
by special provisions of law
b. Innominate lack individuality; not regulated by
special provisions of law
Kinds of Innominate Contracts:
i. Do ut des - I give that you give
ii. Do ut facias - I give that you do
iii. Facio ut des - I do that you give
iv. Facio ut facias - I do that you do
Note: Innominate contracts shall be regulated by:
1. The stipulations of the parties,
2. The general provisions of the Civil Code on
obligations and contracts,
3. The rules governing the most analogous nominate
contracts and
4. The customs of the place (Art. 1307).
According to some authorities, do ut des is no longer
an innominate contract. It has already been given a
name of its own, i.e. barter or exchange (Art. 1638).
Auto-Contract
A kind of contract in which one person acted in behalf of
the other party and himself or another person in another
capacity to establish a contract.
Take note however of the situations involving conflict of
interest under Art. 1491 and Art. 1890.
Collective Contracts
Those where the law authorizes the will of the majority to
bind a minority to an agreement notwithstanding the
opposition of the latter when all have a common interest in
the juridical act (i.e. collective bargaining by labor
organizations).
Reason: Co-ownership is legally presumed among the
persons having a common interest; rule of the required
majority is imposed upon the minority.
OBLIGATIONS & CONTRACTS
Contracts of Adhesion
Contracts in which one of the parties imposes a ready-
made form of contract, which the other party may accept
or reject, but which the latter cannot modify (PCIB vs. CA.
G.R. No. 97785 March 29, 1996).
Contract implied in fact/ Implied-in-fact Contract
It is a contract, the existence and terms of which are
manifested by conduct and not by direct or explicit words
between parties but is to be deduced from conduct of the
parties, language used, or things done by them, or other
pertinent circumstances attending the transaction (UP vs.
Philab, G.R. No. 152411. September 29, 2004).
Stages of Contracts:
1. Generation comprehends the preliminary or
preparation or conception. It is the period of negotiation
and bargaining.
2. Perfection the moment when the parties come to
agree on the terms of the contract
3. Consummation it is the fulfillment or performance of
the terms agreed upon in the contract.
CHARACTERISTICS OF CONTRACTS (OMARC):
1. Obligatory force of contracts
2. Mutuality
3. Autonomy
4. Relativity
5. Consensuality
Obligatory Force of Contracts
It is a rule that once the contract is perfected, it shall be of
obligatory force upon both of the contracting parties.
This principle is explicitly recognized in Arts. 1159, 1308,
1315, and 1356.
Mutuality (Art. 1308)
The contract must bind both parties.
Note: The validity or fulfillment of a contract cannot be left
to the will of one of the contracting parties.
Validity or fulfillment may be left to (1) the will of a third
person, whose decision shall not be binding until made
known to both the contracting parties (Art. 1309) or (2)
chance. The determination shall not be obligatory if it is
evidently inequitable. In such case, the courts shall decide
what is equitable under the circumstances (Art. 1310).
Autonomy (Art. 1306)
The contracting parties may establish such stipulations,
clauses, terms and conditions as they deem convenient.
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Limitation to the Principle of Autonomy: Stipulations
should not be contrary to law, morals, good customs,
public order, or public policy.
Relativity (Art. 1311)
General Rule: Contracts take effect only between parties,
their assigns and heirs.
HOWEVER with respect to assignees or heirs, the general
rule under Art. 1311 is not applicable if the rights and
obligations arising from the contract are not transmissible
or purely personal.
Exceptions:
1. Beneficial Stipulation/ Stipulation pour autrui - A
stipulation in favor of a third person.
Requisites:
a. There must be a stipulation in favor of a third person;
b. The stipulation must be a part, not the whole of the
contract;
c. The contracting parties must have clearly and
deliberately conferred a favor upon a third person, not
a mere incidental benefit or interest;
d. The favorable stipulation should not be conditioned or
compensated by any kind of obligation whatever;
e. The third person must have communicated his
acceptance to the obligor before its revocation; and
f. Neither of the contracting parties bears the legal
representation or authorization of the third party.
Test of Beneficial Stipulation: It must be the purpose
and intent of the parties to benefit the third person.
The test is whether or not the parties deliberately
inserted terms in their agreement with the avowed
purpose of conferring a favor upon such third person
(Uy Tam vs. Leonard, GR No. 8312, March 29, 1915).
2. When the third person comes into possession of the
object of a contract creating real rights (Art. 1312).
3. Where the contract is entered into in order to defraud a
creditor(Art. 1313);
Here, the creditor may ask for its rescission.
4. Where the third person induces a contracting party to
violate his contract (Art. 1314). Such third person can
be held liable for damages.
Requisites:
a. The existence of a valid contract;
b. Knowledge on the part of the third person of the
existence of the contract; and
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c. Interference by third person without legal justification
or excuse.
Consensuality of Contracts (Art. 1315)
General Rule: Contracts are perfected by mere consent
and from that moment, the parties are bound to the
fulfillment of what has been expressly stipulated and to all
consequences which, according to their nature may be in
keeping with good faith, usage and law.
Exception: Real contracts (e.g., deposit, pledge and
commodatum) are not perfected until the delivery of the
object of the obligation.
E SSENTI AL R EQUI SI TES OF A
C ONTR ACT
There is no contract unless the following requisites
concur (COC):
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the
contract;
3. Cause of the obligation which is established (Art. 1318).
CONSENT
It refers to the conformity of the parties to the terms of the
contract; meeting of the minds between the parties on the
subject matter and cause of the contract.
Requisites:
1. Must be manifested by the concurrence of the offer and
acceptance (Arts. 1319-1326);
2. Parties must possess the necessary legal capacity
(Arts. 1327-1329); and
3. Must be intelligent, free, spontaneous, and real (Arts.
1330-1346).
The fact that the signatures of the witnesses and the
notary public were forged does not negate the existence
of the contract for as long as the parties consented to it.
The signatures of the witnesses and the notary public are
necessary simply to make the contract binding on the third
person (Soriano vs. Soriano, G.R. No. 130348,
September 3, 2007).
Offer
Unilateral proposition which one party makes to the other
for the celebration of a contract. It exists only if the
contract can come into existence by the mere acceptance
by the offeree, without any further act on the offeror.
 CIVIL LAW
Requisites (DICD):
1. It must be definite.
2. It must be intentional.
3. It must be complete.
4. It must be directed to person or persons with whom the
offeror intends to enter into a contract except definite
offers which are not directed to a particular person but
to the public in general (i.e. public auction).
Withdrawal of Offer: Offer/proposal may be withdrawn so
long as the offeror has no knowledge of acceptance by
offeree (Manresa, 5th Ed., Bk. 2, p. 373).
Exception: Option Contract (Art. 1324)
Counter-offer
This refers to qualified acceptance; involves a new
proposal; a rejection of the original offer.
Complex offers
When a single offer involves two or more contracts, the
perfection, where there is only partial acceptance, will
depend upon the relation of the contracts between
themselves, whether due to their nature or due to the
intent of the offeror (Tolentino, Arturo M., Commentaries
and Jurisprudence on the Civil Code of the Philippines,
1991 ed., Vol. 4, p. 452).
Rule on Complex offers:
1. Offers are interrelated contract is perfected if all the
offers are accepted.
2. Offers are not interrelated single acceptance of each
offer results in a perfected contract unless the offeror
has made it clear that one is dependent upon the other
and acceptance of both is necessary.
Acceptance
Must be certain or definite and absolute in character. A
qualified acceptance constitutes a counter-offer (Art.
1319). It may be express or implied (e.g. failure on the
part of the heir to reject the inheritance within 30 days
from notice of the order of the court distributing the estate)
(Art. 1320).
Requisites of acceptance (ADIPC):
1. Absolute (no vitiation)
2. Directed to the offeror
3. Made with the intention to be bound
4. Made within the proper time
5. Communicated to the offeror and learned by him unless
the offeror knows of the acceptance.
OBLIGATIONS & CONTRACTS
Amplified Acceptance
Under certain circumstances, a mere amplification on the
offer must be understood as an acceptance of the original
offer, plus a new offer which is contained in the
amplification (Tolentino, Arturo M., Commentaries and
Jurisprudence on the Civil Code of the Philippines, 1991
ed., Vol. 4, p.452).
Withdrawal of Acceptance:
First View (Manresa): Although the offeror is not bound
until he learns of the acceptance, the same thing cannot
be said of the offeree who, from the moment he accepts,
loses the power to retract such acceptance since the right
to withdraw between the time of the acceptance and its
communication is a right which is expressly limited by law
to the offeror. Since the offeree is the first person who
knows of the concurrence of wills of the parties, as a
consequence, the obligation, as far as he is concerned,
must also commence earlier.
Second View (Tolentino): Acceptance may be revoked
before it comes to the knowledge of the offeror because in
such case there is still no meeting of the minds, since the
revocation has cancelled or nullified the acceptance which
thereby ceased to have any legal effect.
Note: The offeror may fix the time, place, and manner of
acceptance, all of which must be complied with (Art.
1321). Any act to the contrary is a counter-offer.
An offer made through an agent is accepted from the time
acceptance is communicated to him (Article 1322).
Art. 1322 is not applicable when an intermediary who has
no power to bind either the offerer or the offeree is NOT
an agent. Thus, the communication of the acceptance to
him does not perfect the contract.
An offer becomes ineffective upon the death, civil
interdiction, insanity or insolvency of either party before
acceptance is conveyed (Art. 1323).
Theories that determine the exact moment of
perfection when acceptance is made by letter or
telegram:
1. Manifestation Theory perfected from the moment the
acceptance is declared or made.
This is adhered to by the Code of Commerce
2. Expedition Theory perfected from the moment the
offeree transmits the notification of acceptance to the
offeror.
3. Reception Theory perfected from the moment that the
notification is in the hands of the offeror in such a
manner that he can, under ordinary conditions, procure
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the knowledge of its contents, even if he is not able to
actually acquire such knowledge.
4. Cognition Theory perfected from the moment the
acceptance comes to the knowledge of the offeror. This
is adhered to by the Civil Code.
Note: The stipulation of the parties governs the manner
and moment of acceptance as when they stipulate that it
be expressly accepted.
Silence can be construed as consent.
Requisites for silence to be construed as consent:
1. There is a duty or possibility to express oneself;
2. The manifestation of the will cannot be interpreted in
any other way;
3. There is a clear identity in the effect of the silence and
the undisclosed will (Articles 1670, 1870 to 1873).
Option Contract
A preparatory contract is one in which one party grants to
the other, for a fixed period and under specified
conditions, to decide whether or not to enter into a
principal contract.
It binds the party who had given the option not to enter
into the principal contract with any other person during the
period designated, and within that period, to enter into
such contract to whom the option was granted if the latter
should decide to use the option.
Requisites:
1. It is supported by an independent consideration;
If the option is not supported by a consideration which is
distinct from the purchase price, the offer may still be
withdrawn even if the offeree has already accepted it
(Jurado, Desiderio, Comments and Jurisprudence on
Obligations and Contracts, 2010 ed., p. 413).
2. It is exclusive.
Business Advertisements (Art. 1325)
They are mere invitations to make an offer, and NOT
definite offers, unless it appears otherwise.
Advertisement for Bidders (Art. 1326)
It is simply an invitation to make proposals. The advertiser
is not bound to accept the highest or lowest bidder, unless
it appears otherwise.
Note: It is not applicable in judicial sales because the
highest bid must necessarily be accepted.
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Persons incapacitated to give consent (Art. 1327):
The capacity of the contracting parties is in effect, an
essential element of a contract or to be more exact, it is
an indispensable requisite of consent (Jurado, Desiderio,
Comments and Jurisprudence on Obligations and
Contracts, 2010 ed., p.417).
1. Minors
Exceptions:
a. When minor misrepresents his age. (It must be an
active not merely constructive representation);
The instant exception is based on estoppel. Estoppel
presupposes capacity to misrepresent. The
circumstances of the minor (i.e. he appears to be of
legal age) must be of such nature that it could have
been relied upon by the other party. Otherwise, the
contract remains voidable.
b. Contracts involving the sale and delivery of
necessaries to minors (Art. 1489).
c. Contracts by guardians or legal representatives.
d. Upon reaching the age of majority, they ratify the
same (Ibanez v. Rodriguez, 47 Phil 554).
2.Insane or demented persons, unless the contract was
entered into during a lucid interval (Art. 1328).
An insane or demented person includes any person,
who, at the TIME OF THE CELEBRATION OF THE
CONTRACT, CANNOT understand the nature and
consequences of the act or transaction by reason of any
cause affecting his intellectual or sensitive faculties
whether permanent or temporary (Jurado, Desiderio,
Comments and Jurisprudence on Obligations and
Contracts, 2010 ed., p. 420).
Take note that contracts agreed to in a state of
drunkenness or during a hypnotic spell are VOIDABLE
(Art. 1328). The same must be of a degree that
obscures completely the faculties and almost
extinguishes the consciousness of acts.
There is a PRIMA FACIE presumption that every
person of legal age possesses the necessary capacity
to execute a contract (Jurado, Desiderio, Comments
and Jurisprudence on Obligations and Contracts, 2010
ed., p. 423).
 CIVIL LAW OBLIGATIONS & CONTRACTS

3. Deaf-mutes who do not know how to read and write. A. Mistake (Art. 1331)

Being deaf-mute is not by itself alone a disqualification Requisites:

for giving consent. The law refers to the deaf-mute who 1. The error must be substantial regarding:
does NOT know how to write. a. the object of the contract (error in re) which
may be:
If deaf-mute but knows how to write: Contract is i. mistake as to the identity of the thing (error in
VALID. corpore);
ii. mistake as to the substance of the thing (error
If deaf-mute who knows how to read but not write: in substantia);
Contract is VALID because reading means that the iii. mistake as to the conditions of the thing
person is capable of understanding. provided; or
iv. mistake as to the quantity of the thing (error in
(See also Rule 93 Sec. 2 for other incompetent persons.) quantitate).
b. the conditions which primarily moved or
If both of the parties are incapable of giving consent, the induces one of the parties
contract is unenforceable (Art. 1403). c.identity or qualifications (error in persona), but
only if such was the principal cause of the
Incapacity to give consent (Art. 1327) vs. contract.
Disqualification to contract (Art. 1329) 2. The error must be excusable.
Article 1327 Article 1329 3. The error must be a mistake of fact, and
not of law.
Restrains the exercise of the
Restrains the very right itself
right to contract.
Not only wrong conception of the thing but also the
Based upon subjective lack of knowledge with respect to it (Manresa, 5th ed.
Based upon public policy
circumstances of certain Bk2, p. 395).
and morality
persons
Voidable Void Two General Kinds of Mistake
Mistake of Fact Mistake of Law
Vices of consent (Art. 1330): (VIMFU) One or both parties arrive
1. Vices of the will (vicios de la formacion de la voluntad) at an erroneous
a. Violence One or both contracting
conclusion regarding the
b. Intimidation parties believe that a fact
interpretation of a
c. Mistake exists when in reality it
question of law or legal
d. Fraud does not or vice versa.
effects of a certain act or
e. Undue influence transaction.
Does not vitiate consent
2. Vices of declaration (vicios de la declaracion)
except when it involves
-- simulation of contracts.
mutual error as to the
Vitiates consent
effect of an agreement
According to Manresa, Art. 1330 is a negative
when the real purpose is
enumeration of the requisites of consent: (1) intelligent, or
frustrated.
with an exact notion of the matter to which it refers, (2) it
should be free; and (3) it should be spontaneous, and (4)
real. Requisites of Art. 1334 which will vitiate consent:
1. It must be of a past or present fact;
In the absence of the first 3 requisites, the contract is 2. It must not be imputable to the party mistaken, i.e.
voidable. mistake is not inadvertent and excusable; Mistake must
be with respect to the legal effect of an agreement;
In the absence of the fourth requisite, the contract may be 3. It must be mutual; and
either void ab initio or valid as far as the real agreement is 4. Parties real purpose must have been frustrated.
concerned, depending upon whether the simulation is
absolute or relative. Note: The obligation to show that the terms of the contract
had been fully explained to the party who is unable to read

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or understand the language of the contract, when fraud or
mistake is alleged, devolves on the party seeking to
enforce it (Art. 1332).
Note: There is no mistake if the party alleging it knew the
doubt, contingency or risk affecting the object of the
contract (Art. 1333).
B. Violence
When in order to wrest consent, serious or irresistible
force is employed (Art. 1335).
Requisites:
1. Must be serious or irresistible;
2. Must be the determining cause for the party upon
whom it is employed in entering into the contract;
3. It is not justified;
4. It is sufficient.
C. Intimidation (Art. 1335).
Requisites:
1. One party is compelled to give his consent by a
reasonable and well-grounded fear of an evil;
2. The evil must be imminent and grave;
3. The evil must be upon his person or property,
spouse, descendants or ascendants;
4. It is the reason why he enters the contract.
5. The evil must be unjust.
Violence Intimidation
Refers to physical Refers to moral
compulsion compulsion
External or prevents
Internal or induces the
the will to manifest
performance of an act
itself
Consent given through intimidation must be
distinguished from consent given reluctantly and even
against good sense and judgment. It is clear that one
acts as voluntarily and independently in the eyes of the
law when he acts reluctantly and with hesitation as
when he acts spontaneously and joyously. Legally
speaking, he acts voluntarily and freely when he acts
wholly against his better sense and judgment (Jurado,
Desiderio, Comments and Jurisprudence on Obligations
and Contracts, 2010 ed., p. 437).
If a contract is signed merely because of fear of
displeasing persons to whom obedience and respect
are due, the contract is still VALID, for by itself,
reverential fear is not wrong (Paras, Edgardo L., Civil
Code of the Philippines Annotated I, 2012 ed., p.639
2012).
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Note: 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 (Art. 1336).
D. 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 (Art. 1337).
Requisites:
1. Improper advantage;
2. Power over the will of another;
3. Deprivation of the latters will of a reasonable
freedom of choice.
Undue influence must be distinguished from
intimidation, in that in intimidation there must
be an unlawful or unjust act which is threatened
and which causes consent to be given, while in
undue influence, there need not be an unjust
or unlawful act (Tolentino, Arturo M., Civil Code of the
Philippines, 1987 ed., Vol. 4, p 501).
Test of undue influence: Whether or not the influence
exerted has so overpowered or subjugated the mind of
a contracting party as to destroy his free agency,
making him express the will of another rather than his
own (Coso vs. Fernandez Deza, G.R. No. 16763,
December 22, 1921).
Circumstances considered in determining whether the
influence exerted is unreasonable:
1. Confidential relations
2. Family relations
3. Spiritual relations
4. Other relations between the parties
By analogy, undue influence employed by a third
person may annul the contract.
E. Fraud
When, through insidious words or machinations of one
party, the other is induced to enter into a contract which,
without them, he would not have agreed to (Art. 1338).
Kinds of Fraud:
1. Fraud in the PERFECTION of the contract:
a. Causal Fraud (Dolo Causante)
b. Incidental Fraud (Dolo Incidente)
2. Fraud in the PERFORMANCE of an obligation
(Art. 1170)
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Requisites of Fraud under Art. 1338:
1. One party must have employed fraud or insidious
words or machinations
2. It must have been serious;
3. It induced the other party to enter into a contract;
4. It must have been employed by one contracting party
upon the other and not employed by both contracting
parties or by third persons;
5. Damage or injury resulted to the other party;
6. It must be made in bad faith, i.e. with knowledge of its
falsity.
Fraud by third person does not vitiate consent and merely
gives rise to an action for damages by the party injured
against such third person UNLESS:
a. It has created a substantial mistake and the same is
mutual.
b. Third person makes the misrepresentation with the
complicity, or at least with the knowledge but without
the objection, of the favored contracting party.
Misrepresentation made in good faith is not fraudulent but
may constitute error (Art. 1343).

Dolo Causante and Dolo Incidente distinguished When two persons constitute one party of the contract
Dolo Causante Dolo Incidente with respect to another, the deceit exercised by one of
(Art. 1338) (Art. 1344) them upon his co- party, is not a cause for annulment of
the contract.
Refers to those deceptions or Refers to those
misrepresentations of a deceptions or
Simulation of Contracts (Arts. 1345-1346)
serious character employed misrepresentations
It is the process of intentionally deceiving others by
by one party and without which are not serious in
producing the appearance of a contract that really does
which the other party would character and without
not exist or which is different from the true agreement.
not have entered into the which the other party
contract would have still entered
Requisites (DAP):
the contract
1. A deliberate declaration contrary to the will of the
Fraud which is serious in Fraud which is not parties.
character serious in character 2. Agreement of the parties to the apparently valid act.
It is the cause which induces It is not the cause that 3. The purpose is to deceive or to hide from third persons
the party to enter into a induced the party to although it is not necessary that the purpose be illicit or
contract enter into a contract for purposes of fraud.
Renders the party liable
Renders the contract voidable Kinds of simulation of contract:
for damages
1. Absolute (simulados) parties do not intend to be
bound by the contract at all. Status: VOID.
Bad faith and fraud are allegations of fact that demand 2. Relative (disimulados) parties conceal their true
clear and convincing proof. They are serious accusations agreement. It binds the parties to their real agreement,
that can be so conveniently and casually invoked, and that when it does not prejudice a third person and is not
is why they are never presumed (Cathay Pacific Airways, intended for any purpose contrary to law, morals, good
Ltd vs. Spouses Vazquez,G.R. No. 150843. March 14, customs, public order or public policy (i.e. a deed of
2003). sale of a piece of land is executed by the parties to
conceal their two agreement which is a donation).
Note: Failure to disclose facts, when there is a duty to
reveal them, constitutes fraud (Art. 1339). Two juridical acts in relatively simulated contracts:
1. Ostensible Act (Apparent or Fictitious) pretended
The usual exaggerations in trade, when the other party contract.
had an opportunity to know the facts, are not in 2. Hidden Act (Real) true agreement.
themselves fraudulent (Art. 1340). This is known as
tolerated fraud which includes minimizing the defects of Should the hidden act or the concealed contract be lawful
the thing, exaggerating its good qualities, and giving it and does not prejudice a third person, it is absolutely
qualities that it does not have (Tolentino, Arturo M., Civil enforceable. Its validity and effects will be governed by the
Code of the Philippines, 1987 ed., Vol. 4, p 510). rules applicable to it, and not by those applicable to the
apparent contract.
A mere expression of an opinion does not signify fraud
unless made by an expert and the other party relied on With respect to a third person acting in good faith, the
the formers special knowledge (Art. 1341). apparent contract must be considered as the true

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contract. The declaration that the contract is simulated
does not prejudice him.
Relative simulation is presumed by law in case of Art.
1602.
OBJECT
The thing, right or service which is the subject matter of
the obligation arising from the contract.
Requisites:
1. Must be within the commerce of man (Art. 1347);
2. Should be real or possible (Art. 1348);
3. Should be licit (Art. 1347); and
4. Should be determinate, or at least possible of
determination as to its kind (Art. 1349).
The genus or kind of the object must be expressed.
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.
Things which cannot be the object of contracts (Art.
1347-1349):
General Rule: All things or services may be the object of
contracts. This includes future things or rights which do
not belong to the obligor when the contract was made.
Exceptions:
1. Things outside the commerce of men;
2. Intransmissible rights;
3. Future inheritance, except in cases expressly
authorized by law;
Requisites of Future Inheritance:
a. The succession has not yet been opened;
b. The object of the contract forms part of the
inheritance; and
c. The promissor has an expectancy of a right which is
purely hereditary in nature.
After the death of a person, the properties and rights
left by him by way of inheritance can be the subject
matter of a contract among or by his heirs, even before
a partition thereof has been made, because the rights
of the heirs are transmitted to them from the moment of
death of the predecessor (Tolentino, Arturo
Commentaries and Jurisprudence on the Civil Code of
the Philippines, 1991 ed., Vol. 4, p 524).
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Exception to the exception:
a. In case of marriage settlements under Art. 130 of the
Civil Code; and
b. In case of partition of properties inter vivos by the
deceased under Art. 1080 of the Civil Code.
4. Services contrary to law, morals, good customs, public
order or public policy;
5. Impossible things or services;
Note: The law here pertains to ABSOLUTE impossibility
and not relative impossibility.
6. Objects not possible of determination as to their kind.
Note: In order that a thing, right or service may be the
object of a contract, it should be in existence at the
moment of the celebration of the contract, or at least, it
can exist subsequently or in the future.
A future thing may be the object of a contract. Such
contract may be interpreted in two possible ways:
1. Conditional contract if its efficacy should depend upon
the future existence of the thing.
2. Aleatory contract if one of the contracting parties
should bear the risk that the thing will never come into
existence (Manresa).
In case of doubt about the nature of the contract, it must
be deemed conditional as doubt shall be resolved in favor
of greatest reciprocity of interests.
CAUSE
It is the immediate, direct or most proximate reason which
explains and justifies the creation of an obligation through
the will of the contracting parties.
Essential requisites of cause (ELT):
1. Existing at the time of the celebration of the contract;
2. Licit or lawful; and
3. True.
Cause and Object; Distinguished
Cause Object
The service or benefit which The thing which is given in
is remunerated remuneration
The liberality of the donor or The thing which is given or
benefactor donated
Prestation or promise of a
The thing or service itself
thing or service by the other
Different with respect of May be the same for both
each party the parties
 CIVIL LAW OBLIGATIONS & CONTRACTS

Cause Motive The cause is

contrary to law,
Direct and most proximate Illegality morals, good The contract is null
Indirect or remote reason
reason of a contract of cause customs, public and void
Objective or juridical reason Psychological or purely order and public
of a contract personal reason policy
Always the same for each Differs for each contracting The contract is void
contracting party party if it should not be
proved that they
Its legality affects the Its legality does not affect Falsity of
The cause is were founded upon
existence or validity of the the existence or validity of cause
stated but is not another cause
contract contract true which is true and
lawful
Note: Motive becomes causa when it predetermines the
purpose of the contract (Jurado, Desiderio Comments and Shall not invalidate
Jurisprudence on Obligations and Contracts, 2010 ed., p. the contract,
466). UNLESS:
1. There is fraud,
Lesion or
Cause in Onerous Contracts: The prestation or promise mistake or undue
inadequac
of a thing or service by the other. influence; or
y of price
2. When the parties
Cause in Remuneratory Contracts: Past service or intended a
benefit which by itself is a recoverable debt. donation or some
other contract
Cause in Gratuitous Contracts: Mere liberality of the
benefactor. Presumption of lawful cause
When the cause is not stated, it shall be presumed to be
Cause in Accessory Contracts: The cause in an in existence and lawful unless proof to the contrary is
accessory contracts (e.g. pledge) is the same as that of shown (Art.1354)..
the principal contract.
F ORM OF C ONTR ACTS
Moral obligation as cause
Where the moral obligation arises wholly from ethical
considerations, unconnected with any civil obligations, it Form of Contracts
cannot constitute a sufficient cause or consideration to Art. 1356 retained the Spiritual System of the Spanish
support an onerous contract (Fisher vs. Robb, GR No.L- Code by virtue of which the law looks more at the spirit
46274, November 2, 1939). rather than the form of contracts

Where such moral obligation is based upon a previous General Rule: Contracts shall be obligatory, in whatever
civil obligation which has already been barred by the form they may have been entered into, provided all the
statute of limitations at the time when the contract is essential requisites for their validity are present (Art.
entered into, it constitutes a sufficient cause or 1356).
consideration to support a contract (Villaroel vs. Estrada,
G.R. No. 47362 Diciembre 19, 1940), it is then already a Exceptions:
natural obligation. 1. When law requires that the contract be in a certain form
to be valid (Art. 1356);
Effect of Lack of Cause, Unlawful Cause, False Cause 2. When law requires that the contract be in a certain form
and Lesion (Arts. 1352-1355) to be enforceable (Statute of Frauds);
Cause Effect 3. When required to make the contract effective as against
third parties (Art.1357-1358)
The contract
There is a total
Lack of confers no right and Where the validity of a contract is made to depend upon a
lack or absence of
cause produces no legal particular formality, an action under Art. 1357 cannot be
cause
effect brought to compel the other party to execute such

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formality. Article 1357 presupposes the existence of a
valid contract and cannot possibly refer to the form to
make it valid.
Contracts which must appear in writing:
1. Donation of personal property whose value exceeds five
hundred pesos (Art. 748);
2. Sale of a piece of land or any interest therein through
an agent (Art. 1874);
3. Agreements regarding payment of interest in contracts
of loan (Art. 1956); and
4. Antichresis (Art. 2134); and
5. Stipulation limiting common carriers duty of
extraordinary diligence to ordinary diligence (Art. 1744)
Contracts which must appear in a public document:
1. Donation of immovable properties (Art. 749);
2. Partnership where immovable property or real rights are
contributed to the common fund (Arts. 1171 and 1773);
3. 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 is governed by Articles
1403, No. 2, and 1405 (Art. 1358, no. 1);
4. The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains
(Art. 1358, no. 2);
5. 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 (Art. 1358, no. 3); and
6. The cession of actions or rights proceeding from an act
appearing in a public document (Art. 1358, no. 4).
With respect to those enumerated under Art. 1358 (items
3 to 6 in the preceding list), they are valid as between the
contracting parties, the requirement that they be executed
in a particular form is for the purpose of making them
effective against third persons. However, with respect to
items 1 and 2, formalities are required for the validity of
the contract.
Contracts which must be registered:
1. Chattel mortgages (Art. 2140)
2. Sale/transfer of large cattle (Cattle Registration Act).
Note: Arts. 1357-1358 do not require the execution of the
contract either in a public/private document in order to
validate/enforce it but only to insure efficacy, so that after
its existence has been admitted, the party bound may be
compelled to execute the necessary document.
When one of the contracting parties invokes Art. 1357 and
1358 by means of proper action, the effect is to place the
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existence of the contract in issue, which must be resolved
by the ordinary rules of evidence;
Actions to compel the execution of the necessary
document and action upon the contract may be exercised
simultaneously, unless it appears that the former action
must precede the latter.
Although Art. 1357, in connection with Art. 1358, do not
operate against the validity of the contract nor the validity
of the acts voluntarily performed by the parties for the
fulfillment thereof, yet from the moment when any of the
contracting parties invokes said provisions, it is evident
that under them execution of the required document must
precede the determination of the obligations derived from
the contract (Jurado, Desiderio, Comments and
Jurisprudence on Obligations and Contracts, 2010 ed., p.
484-485).
R.A. 8792 (E- Commerce Act) provides that the formal
requirements to make contracts effective as against third
persons and to establish the existence of a contract are
deemed complied with provided that the electronic
document is unaltered and can be authenticated as to be
usable for future reference.
R EFO RM ATION OF I NSTRUMENTS
Reformation of Instruments
Remedy through which a written instrument is made or
construed so as to express or conform to the real intention
of the parties when some error or mistake has been
committed.
Rationale: It would be unjust and inequitable to allow the
enforcement of a written instrument which does not reflect
or disclose the real meeting of the minds of the parties.
The courts, by reformation, do not attempt to make a new
contract for the parties, but to make the instrument
express their real agreement.
Requisites:
1. Meeting of the minds of the parties;
2. Their true intention is not expressed in the instrument;
3. Failure to express true intention is due to mistake,
fraud, inequitable conduct or accident and
4. Clear and convincing proof of mistake, accident, relative
simulation, fraud, or inequitable conduct.
 CIVIL LAW OBLIGATIONS & CONTRACTS

Reformation Annulment Rationale: An action to reform an instrument is in the

nature of specific performance and requires a valuable
Presupposes that there
The contract was not consideration an element lacking as between donor
is a valid contract but the
validly entered into as and done, and between testator and beneficiary.
document/instrument
when their minds did not
executed does not
meet or if the consent 2. Wills;
express their true
was vitiated
intention
Note: Only imperfect or erroneous descriptions of
Gives life to the contract persons or property can be corrected; but the manner
Involves a complete
by making the instrument in which the testator disposes of his property cannot be
nullification of the
conform to the true changed by a reformation of the instrument (Tolentino,
contract
intention of the parties Arturo M., Civil Code of the Philippines, 1987 ed., Vol.
4, p 556).
When can one party ask for the reformation of the
contract (Arts. 1361-1365): 3. When the real agreement is void (Art.1366)
1. In case of mutual mistake of the parties (Art. 1361)
Note: Upon the reformation of an instrument, the
Requisites: general rule is that it relates back to and takes effect
a. Mistake must be mutual. from the time of its original execution as between the
b. Mistake must be of a fact. parties.
c. There must be clear and convincing proof of the
mutual mistake. If mistake, fraud, inequitable conduct or accident has
prevented a meeting of the minds of the parties, the
2. When one party was mistaken and the other party proper remedy is not reformation of the instrument but
acted fraudulently (Art. 1362). annulment of the contract (Art. 1359).
3. When one party was mistaken, the other knew or
believed that the instrument does not show their real Expediency and Convenience are not grounds for the
intent but concealed that fact to the former (Art. 1363). reformation of an instrument (Multi-Ventures Capital and
4. In case of ignorance, lack of skill, negligence or bad Management Corp., vs. Stalwart Management Services
faith on the part of the person drafting the instrument Corp., G.R. No. 157439, July 4, 2007).
or the clerk or typist (Art. 1364).
5. When parties agree upon the mortgage or pledge of a When one of the parties has brought an action to enforce
real or personal property, but the instrument states that the instrument, no subsequent reformation can be asked
the property is sold absolutely or with a right of (Principle of estoppel).
repurchase (Art. 1365).
In case of mutual mistakes, reformation may be ordered at
Instances when there can be no reformation (Art. the instance of either parties or his successors in interest,
1366): otherwise it may only be brought by the petition of the
1. Simple donations inter vivos wherein no condition is injure party or his heirs and assigns (Art. 1365).
imposed;

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C OMP AR ATI VE T ABLE OF D EFECTI VE C ONTR ACTS

Void Voidable Rescissible Unenforceable

Defect is caused by lack of
Defect is caused by injury/
Defect is caused by lack of Defect is caused by vice of form, authority, or capacity of
damage either to one of the
essential elements or illegality consent both parties not cured by
parties or to a 3rd person
prescription
Valid and enforceable until Valid and enforceable until
Do not, as a general rule Cannot be enforced by a
annulled by a competent rescinded by a competent
produce any legal effect proper action in court
court court
Corresponding action for
Action for the declaration or
recovery, if there was total or
nullity or inexistence or Action for annulment or
Action for rescission may partial performance of the
defense of nullity or defense of annulability may
prescribe unenforceable contract under
inexistence does not prescribe
No. 1 or 3 of Article 1403 may
prescribe
prescribe
Not cured by prescription
Not cured by prescription Cured by prescription Cured by prescription except in case of Art. 1403
nos. 1 or 3
Cannot be ratified Can be ratified Need not be ratified Can be ratified
Assailed by a contracting Assailed by a contracting
party and a third person Assailed only by a contracting party and a third person who Assailed only by a contracting
whose interest is directly party is prejudiced or damaged by party
affected the contract
Assailed directly or Assailed directly or Assailed directly or
Assailed directly only
collaterally collaterally collaterally

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CHARACTERISTICS OF RESCISSIBLE CONTRACTS:

R ESCISSIBLE C O NTR ACTS 1. Its defect consists in injury or damage either to one of
the contracting parties or to third persons.
These are contracts which are valid but are defective 2. Before rescission, it is valid, and therefore, legally
because of injury or damage to either of the contracting effective.
parties or to third persons, as a consequence of which it 3. It can be attacked directly only and not collaterally.
may be rescinded by means of a proper action for 4. It can be attacked only by a contracting party or a third
rescission. person who is injured or defrauded.
5. It is susceptible of convalidation only by prescription
Resolution for Breach of Stipulation Rescission by and not ratification.
Reason of Lesin or Damage Distinguished
(Congregation of the Religious of the Virgin Mary, et.al., REQUISITES OF RESCISSION:
vs. Orola, et.al., G.R. No. 169790, April 30, 2008) 1. Contract must be rescissible under Articles 1381 and
1382;
Resolution for Breach of Rescission by Reason of 2. Party asking for rescission must have no other legal
Stipulation (Art. 1191) Lesin or Damage means to obtain reparation for the damages suffered
Principal action; retaliatory by him (Art. 1383);
Subsidiary action and
action against the other 3. Person demanding rescission must be able to return
involves partial resolution
party whatever he may be obliged to restore if rescission is
Based on lesion or granted (Art. 1385);
economic prejudice, 4. Things which are the object of the contract must not
rendering the contract have passed legally to the possession of a third person
Based on breach of trust
rescissible by law (Note: acting in good faith (Art. 1385); and
not all economic prejudices 5. Action must be brought within four years (Art. 1389).
are recognized by law)
Requires mutual restitution Requires mutual restitution CONTRACTS THAT ARE RESCISSIBLE (Arts. 1381-
as governed by Art. 1191 as governed by Art. 1381 1382):
Abrogation of the contract 1. Those entered into by guardians where the ward
from the beginning and to suffers lesion of more than of the value of the things
restore the parties to their which are objects thereof;
Termination of the relative positions as if no 2. Those agreed upon in representation of absentees, if
obligation and release of contract has been made the latter suffer lesion by more than of the value of
the parties from further the things which are subject thereof;
obligations form each other To declare the contract 3. Those undertaken in fraud of creditors when the latter
void at its inception and to cannot in any manner claim what are due them;
put an end to it though it 4. Those which refer to things under litigation if they have
never was been entered into by the defendant without the
May be demanded by a knowledge and approval of the litigants and the court;
May demanded only by a 5. All other contracts especially declared by law to be
third party prejudiced in the
party to the contract subject to rescission; and
contract
May be denied by court 6. Payments made in a state of insolvency for obligations
Extension of time does not whose fulfillment the debtor could not be compelled at
when there is sufficient
affect the right to ask for the time they were effected.
reason to justify the
rescission
extension of time
Non-performance is the Examples of contracts declared to be subject to
Various reasons of equity rescission:
only ground for the right to
are grounds for rescission 1. Partition of inheritance where an heir suffers lesion of
rescission
Applies whether reciprocal at least of the share to which he is entitled (Art.
Applies only to reciprocal 1098)
or unilateral obligations
obligations where one 2. Deterioration of the thing through the fault of the
and whether the contract
party has not performed debtor, if the creditor chooses to rescind (Art. 1189
has been fully fulfilled
(4));
Rescission shall be only to the extent necessary to cover 3. Right of unpaid seller to rescind (Art. 1526(4));
the damages caused (Art. 1384). 4. Deterioration of the object of the sale (Art. 1538);

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5. Sale of real estate with a statement of its area, at the
rate of a certain price for a unit of measure or number
and the vendor failed to deliver the area stated, the
vendee may ask for rescission of the contract if the
lack of area is not less than 1/10th of that stated.
(Art.1539)
6. The vendee does not accede to the failure to deliver
what has been stipulated (Art. 1542);
7. When through eviction, the vendee loses a part of the
thing sold of such importance, in relation to the whole,
that he would not have bought it without said part (Art.
1556);
8. If immovable sold is encumbered with any non-
apparent burden or servitude of such nature that it
cannot be presumed that the vendee could not have
acquired it had he been aware thereof, the vendee
may ask for rescission. (Art. 1560)
9. Election of the vendee to withdraw from the contract in
the cases under Arts. 1561, 1562, 1564, 1565 and
1566 (Art. 1567);
10. Rescission by the aggrieved party in a contract of
lease when the other party does not comply with Arts.
1654 and 1657 (Art. 1659)
Requisites before a contract entered into in behalf of
wards or absentees may be rescinded on the ground
of LESION:
Lesion
The injury which one of the parties suffers by virtue of a
contract which is disadvantageous for him. To give rise to
rescission, the lesion must be known or could have been
known at the time of making of the contract.
1. Contract was entered into by a guardian in behalf of
his ward or by a legal representative in behalf of an
absentee;
2. It was entered into without judicial approval;
3. Ward or absentee suffered lesion of more than of
the value of the property which is the object of the
contract;
4. There is no other legal means of obtaining reparation
for the lesion;
5. Person bringing the action must be able to return
whatever he may be obliged to restore; and
6. Object of the contract must not be legally in the
possession of a third person who did not act in bad
faith.
Take note that a guardian is authorized only to MANAGE
the estate of the ward; should he DISPOSE a portion
thereof without authority from the court by way of a
contract, the same is unenforceable under Art. 1403 (1),
irrespective of whether there is lesion or not.
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Requisites before a contract entered into in FRAUD
OF CREDITORS may be rescinded:
1. There is a credit existing prior to the celebration of the
contract;
2. There is fraud, or at least, the intent to commit fraud to
the prejudice of the creditor seeking rescission;
3. Creditor cannot in any legal manner collect his credit;
and
4. Object of the contract must not be legally in the
possession of a third person who did not act in bad
faith.
The action to rescind contracts in fraud of creditors is
known as accion pauliana.
Accion pauliana presupposes a judgment and unsatisfied
execution which cannot exist when the debt is not yet
demandable at the time the rescissory action is brought
(Tolentino,Arturo, Commentaries and Jurisprudence on
the Civil Code of the Philippines, 1991 ed., Vol. 4 p. 576).
Even secured creditors are entitled to accion paulina
(Tolentino,Arturo, Commentaries and Jurisprudence on
the Civil Code of the Philippines, 1991 ed., Vol. 4, p.
579).
Do all creditors benefit from the rescission of the
contract? As a rule, the rescission should benefit only
the creditor who obtained the rescission, because the
rescission is to repair the injury caused to him by the
fraudulent alienation. If a balance is left after satisfying
the claim of the creditor who brought the action, other
creditors who are qualified to bring an accion pauliana
should be given the benefit of rescission, instead of
requiring them to bring other rescissory actions.
However, creditors who only became such after the
fraudulent alienation, cannot benefit from the rescission
(Tolentino, Arturo, commentaries and Jurisprudence of
the Civil Code of the Philippines, 1991 ed., Vol. 4, p.
583).
Presumption of Fraud (Art. 1387)
Test of fraud: Does it prejudice the rights of the
creditors? (Tolentino, Arturo, Commentaries and
Jurisprudence on the Civil Code of the Philippines, 1991
ed., Vol. 4 p. 580)
When Alienation of Property Presumed in Fraud of
Creditors:
1. Alienation by gratuitous title if the debtor has not
reserved sufficient property to pay all of his debts
contracted before alienation;
 CIVIL LAW
2. Alienation by onerous title if made by a debtor against
whom some judgment has been rendered in any
instance or some writ of attachment has been issued.
Badges of fraud:
1. The fact of inadequate or fictitious cause or
consideration of the conveyance;
2. Transfer by a debtor after suit has been begun and
while it is pending against him;
3. Sale on credit by an insolvent debtor;
4. Evidence of large indebtedness or complete
insolvency
5. Transfer of all or nearly all of debtors property by him,
especially when insolvent or greatly embarrassed
financially;
6. Transfer between father and son, where others of the
above circumstances are present;
7. Failure of the vendee to take exclusive possession of
all the property.
Requisites before Payment Made by Insolvent can be
Rescinded:
1. It was made in a state of insolvency; and
2. Obligation must have been one which the debtor could
not be compelled to pay at the time such payment was
effected.
Apparent Conflict between Art. 1382 and Art. 1198 [1]
if the Obligation is subject to Suspensive Period:
Under Article 1382, payment made by an insolvent is
rescissible. Under Article 1198 [1], a debtor can be
compelled to pay by the creditor even before the
expiration of the period since by his insolvency he has
already lost his right to the benefit of such period.
The conflict can easily be resolved by considering the
priority of dates between the two debts. If the obligation
with a period became due before the obligation to the
creditor seeking the rescission became due, then the
latter cannot rescind the payment even if such payment
was effected before the expiration of the period; but if the
obligation with a period became due after the obligation
to the creditor seeking rescission became due, then the
latter can rescind the payment.(Manresa)
Parties who may institute action:
1. The creditor who is defrauded in rescissory actions on
ground of fraud, and other person authorized to
exercise the same in other rescissory actions.
2. Their representatives
3. Their heirs
4. Their creditors by virtue of the subrogatory action
define in Art. 1177 of the NCC
OBLIGATIONS & CONTRACTS
The action for rescission is SUBSIDIARY; it cannot be
instituted except when the party suffering damage has no
other legal means to obtain reparation for the same (Art.
1383). Rescission shall be only to the extent necessary
to cover the damages caused (Art. 1384).
EFFECT OF RESCISSION (Art. 1385):
1. As to the parties mutual restitution together with the
fruits and interest.
Note: This is applicable only to rescissory actions on
the ground of lesion and not to rescissory actions on
the ground of fraud.
2. As to third person
a. Bad faith or not legally in possession obliged to
return
b. Legally in possession and not in bad faith no
rescission; however, indemnity for damages may
be demanded from the person causing the loss
PRESCRIPTIVE PERIOD FOR ACTION FOR
RESCISSION (Art. 1389):
1. Under Art. 1381 no. 1 within 4 years from the time of
the termination of the incapacity of the ward
2. Under Art. 1381 no. 2 within 4 years from the time
the domicile of the absentee is known
3. Under Art. 1381 nos. 3 and 4 as well as Art. 1382
within 4 years from the time of the discovery of fraud
V OID ABLE C O NTRACTS
Voidable Contracts
Voidable or annullable contracts are existent, valid, and
binding, although they can be annulled because of want
of capacity or vitiated consent of one of the parties; but
before annulment, they are effective and obligatory
between the parties. Hence, it is valid until it is set aside,
and its validity may be assailed only in an action for that
purpose.
Characteristics of Voidable Contracts:
1. Its defect consists of the vitiation of consent of one of
the contracting parties.
2. It is binding until it is annulled.
3. It is susceptible of convalidation by ratification or
prescription.
4. Its defect or voidable character cannot be invoked by
third persons.
Voidable or Annullable Contracts::
1. Those where ONE of the parties is incapable of giving
consent to a contract;
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2. Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud. (Art.
1390)
Take note that Art. 1390 refers to a proper action in
court. The validity of a voidable contract may only be
attacked either by way of a direct action or by way of
defense via a counterclaim, and not a special or
affirmative defense.
Even though there are no damages between the
contracting parties, the contracts enumerated in Art.
1390 are still voidable.
If the consent is absolutely lacking or simulated, the
contract is inexistent.
Modes to Extinguish an action for Annulment:
1. Prescription;
2. Ratification; and
3. Loss of the thing which is the object of the contract
through fraud or fault of the person who is entitled to
institute the action.
Prescriptive Period: Action for Annulment (Art. 1391):
1. Contracts entered into by incapacitated person within
4 years from the time guardianship ceases;
2. Where consent is vitiated by violence, intimidation or
undue influence within 4 years from the time such
violence, intimidation or undue influence ceases;
3. Where consent is vitiated by mistake or fraud within
4 years from the time of the discovery of such mistake
or fraud.
Note: These periods apply only to the parties to the
contract and not to third persons.
Discovery of fraud must be reckoned from the time the
document was registered in the office of the register of
deeds. Registration constitutes constructive notice to
the whole world (Carantes vs. CA, GR No.L-33360,
April 25, 1977).
Ratification (Arts. 1392-1396):
The act or means by virtue of which efficacy is given to a
contract which suffers from a vice of curable nullity.
Forms of Ratification:
1. Express ratification
2. Implied ratification 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
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which necessarily implies an intention to waive his right
(Art. 1393).
Effects of Ratification:
1. Extinguish the action for annulment of a voidable
contract.
2. Cleanses the contract of its defects from the moment it
was constituted.
Requisites of Ratification:
1. Contract is tainted with a vice susceptible of being
cured;
2. Confirmation is effected by the person who is entitled
to do so under the law;
3. It is effected with knowledge of the vice or defect of the
contract; and
4. Cause of the nullity or defect have already
disappeared
Note: The right to ratify may be transmitted to the heirs
of the party entitled to such right. It may likewise be
exercised by the guardian of the incapacitated person
having such right (Art. 1394). Ratification does not
require the conformity of the contracting party who has
no right to bring an action for annulment (Art. 1385).
Who may institute action for Annulment (Art. 1397):
General Rule: Action for annulment may be instituted by
all who are thereby obliged principally or subsidiarily.
Requisites:
1. Plaintiff must have interest in the contract;
2. The victim and not the party responsible for the vice or
defect must assert the same.
Exception: If a third person is prejudiced in his rights
with respect to one of the contracting parties, and can
show detriment which would positively result to him from
the contract in which he has no intervention (Teves vs.
Peoples Homesite & Housing Corp., GR No. 21498,
June 27, 1968).
Effects of Annullment:
1. If contract has not yet been consummated parties
shall be released from the obligations arising
therefrom;
2. If contract has already been consummated rules
provided in Arts. 1398-1402 shall govern.
 CIVIL LAW
Effects of Annulment in cases of Consummated
Voidable Contracts (Arts. 1398-1399):
Obligation of Mutual Restitution:
1. Obligation to give The parties shall restore to each
other things which have been the subject matter of the
contract with fruits and the price with interest, except in
cases provided by law.
2. Obligation to do or not to do There will be an
apportionment of damages based on the value of such
prestation with corresponding interests.
3. When the defect of the contract consists in incapacity
of one of the contracting parties - the incapacitated
person is not obliged to make restitution except insofar
as he has been benefited by the thing or price received
by him.
It is presumed in the absence of proof that no such
benefit has accrued to the incapacitated person (8
Manresa, 5th Ed., Bk. 2, p. 647).
Art. 1399 cannot be applied to those cases were the
incapacitated person can still return the thing which he
has received. (Jurado, Desiderio, Comments and
Jurisprudence on Obligations and Contracts, 2010 ed., p.
554).
Effects of Failure to Make Restitution (Arts. 1400-
1402):
Where the thing is lost -
1. Due to fault of defendant he shall return the fruits
received and the value of the thing at the time of loss,
with interest from the same date
2. Due to fault of plaintiff the action for annulment shall
be extinguished
3. Due to fault of the incapacitated whether the loss
occurred during the plaintiffs incapacity or after he had
acquired capacity, the action for annulment would still
be extinguished in accordance with Art. 1401, par. 1
4. Due to fortuitous event contract can still be annulled,
but the defendant can be held liable only for the value
of the thing at the time of loss without interest thereon.
U NENFO RCE ABLE C ONTR ACTS
Unenforceable contract
Those which cannot be enforced by proper action in
court unless they are ratified, because, either:
1. They are entered into without or in excess of authority
(Art. 1403, no.1; Art. 1317);
2. They do not comply with the statute of frauds;
3. Both contracting parties do not possess the required
legal capacity.
OBLIGATIONS & CONTRACTS
CHARACTERISTICS OF UNENFORCEABLE
CONTRACTS:
1. It cannot be enforced by a proper action in court.
2. It susceptible of ratification.
3. It cannot be assailed by third persons.
Statute of Frauds (Art. 1403, no. 2):
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 thereof, of the agreement cannot be received
without the writing, or a secondary evidence of its
contents: (OMG-DLC)
a. An agreement that by its terms is not to be performed
within one year from the making thereof;
b. A special promise to answer for the debt, default or
miscarriage of another;
If the promise is an original one or independent one,
that is, the promisor becomes thereby primarily liable
for the payment of the debt, the promise is not within
the statute. But on the other hand, if the promise is
collateral to the agreement of another and the
promisor, the promise must be in writing.
c. An agreement made in consideration of marriage,
other than a mutual promise to marry;
When the marriage is a mere incident, and to be the
end to be attained by the agreement, the contract is
not in consideration of marriage, and oral evidence can
prove the agreement.
d. An agreement for the sale of goods, chattels or things
in action, at a price not less than 500 pesos, unless the
buyer accepted and received such goods and chattels
or 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 sale,
of the amount and kind of property sold, terms, price,
names of the purchasers and persons to whose
account the sale is made, it is a sufficient
memorandum;
Where there is a purchase of a number of articles
which separately do not have a price of 500P each but
has an aggregate sum exceeding P500, the statue is
only applicable if the transaction is INSEPARABLE.
e. An agreement for the leasing for a longer period than
one year; or for the sale of real property or interest
therein; and
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f. A representation as to the credit of a third person.

V OID OR I NEXISTENT
This serves as the basis for an action for damages C ONTR ACTS
against the party who made the representation, if it
turns out to be false or incorrect. Void or Inexistent Contracts
In general, they are those which lack absolutely either in
Rationale for the Statute of Frauds: To prevent fraud fact or in law one or some of the elements essential for
and perjury in the enforcement of obligations. its validity. It has no force and effect from the very
beginning, as if it has never been entered into, and which
The Statute of Frauds, however, simply provide for the cannot be validated either by time or by ratification.
manner in which contracts under it shall be proved. It
does not attempt to make such contracts invalid if not Characteristics of Void Contracts:
executed in writing, but only makes ineffective the action 1. It does not produce any legal effect;
for specific performance (Jurado, Desiderio, Comments 2. It is not susceptible of ratification;
and Jurisprudence on Obligations and Contracts, 2010 3. The right to set up the defense of inexistence or
ed., p. 617). absolute nullity cannot be waived or renounced;
4. The action or defense for the declaration of their
For a note or memorandum to satisfy the Statute, it must inexistence or nullity is imprescriptible;
be complete in itself and cannot rest partly in writing and 5. The inexistence or absolute nullity of a contract cannot
partly in parol. The note or memorandum must contain be invoked by a person whose interests are not directly
the names of the parties, the terms and conditions of the affected.
contract, and a description of the property sufficient to
render it capable of identification. Such note or Note: The defense of illegality of contract is not available
memorandum must contain the essential elements of the to third persons whose interests are not directly affected
contract expressed with certainty that may be (Art. 1421).
ascertained from the note or memorandum itself, or
some other writing to which it refers or within which it is A contract which is the direct result of a previous illegal
connected, without resorting to parol evidence. (Swedish contract, is also void and inexistent (Art. 1422).
Match, AB vs. CA, G.R. No. 128120 October 20, 2004)
Differences between Void and Inexistent Contracts
The statute of frauds applies only to EXECUTORY Void Contracts Inexistent Contracts
CONTRACTS, not to those that are partially or
completely fulfilled. Further, the statue does not apply to Those where all of the
actions which are neither for specific performance of the requisites of a contract
contract nor for the violation thereof. Take note that the are present but the cause, Those where one or some
provision mentions unenforceable by action. The object or purpose is or all of the requisites
prohibition, thus, applies on actions which spring from the contrary to law, morals, essential for the validity of
enforcement of the contract. good customs, public a contract are absolutely
order or public policy, or lacking.
The Statute of Frauds is EXCLUSIVE, that is, it applies contract itself is prohibited
only to the agreements or contracts enumerated therein. or declared void by law.
Principle of pari delicto is Principle of pari delicto is
Ratification of Contracts Infringing the Statute of applicable not applicable
Frauds (Art. 1405): Cannot produce any
May produce legal effects
effect
Such contracts may be ratified by:
1. Failure to object to the presentation of oral evidence to Covers Art. 1409 nos. Covers Art. 1409 nos. 2
prove such contracts; or 1,3,4,5,6, and 7 and 3
2. Acceptance of benefits under these contracts
Contracts which are inexistent and Void Ab Initio
Note: The unenforceability of a contract can only be (Art. 1409):
assailed by parties thereto (Art. 1408). This defense is 1. Those whose cause, object or purpose is contrary to
personal to the party to the agreement. law, morals, good customs, public order or public
policy;

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2. Those which are absolutely simulated or fictitious;
3. Those whose cause or object did not exist at the time
of the transaction;
4. Those whose object is outside the commerce of men;
5. Those which contemplate an impossible service;
6. Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained;
and
7. Those expressly prohibited or declared void by law.
The following stipulations are void:
1. Pactum comissorium (Arts. 2088, 2130 and 1390 - a
stipulation that allows the creditor to appropriate the
things given by way of pledge or mortgage or dispose
of them.
2. Pactum de non alienado (Art. 2130) - a stipulation
forbidding the owner from alienating the immovable
mortgaged.
3. Pactum leonina (Art.1799) - a stipulation which
excludes one or more partners from any share of the
profits or losses.
Principle of In Pari Delicto (Arts. 1411-1419):
When the defect of a void contract consists in the
illegality of the cause or object of the contract and both of
the parties are at fault or in pari delicto, the law refuses
them any remedy and leaves them where they are.
Exceptions:
1. Payment of usurious interest (Art. 1413);
2. Payment of money or delivery of property for an illegal
purpose, where the party who paid or delivered
repudiates the contract before the purpose has been
accomplished, or before any damage has been caused
to a third person (Art. 1414);
3. Payment of money or delivery of property made by an
incapacitated person (Art. 1415);
4. Agreement or contract not illegal per se but merely
prohibited by law, and the prohibition is designed for
the plaintiffs protection (Art. 1416);
5. Payment of any amount in excess of the maximum
price of any article or commodity fixed by law (Art.
1417);
6. Contract whereby a laborer undertakes to work longer
than the maximum number of hours fixed by law (Art.
1418);
7. Contract whereby a laborer accepts a wage lower than
the minimum wage fixed by law (Art. 1419);
8. In case of divisible contracts, the legal terms may be
enforced separately from the illegal terms (Art. 1420);
and
9. One who lost in gambling because of fraudulent
schemes practiced on him. He is allowed to recover his
OBLIGATIONS & CONTRACTS
losses [Art. 315, 3 (b), RPC] even if gambling is
prohibited.
Note: The principle of in pari delicto is applicable ONLY
TO VOID CONTRACTS and not to inexistent contracts.
Effects when both are at fault:
1. They shall have no action against each other.
2. Both shall be prosecuted.
3. The effects or instruments of the crime shall be
confiscated in favor of the government.
Effects when only one is at fault:
1. The guilty party will be prosecuted.
2. The instrument of the crime will be confiscated.
3. The innocent one may claim what he has given; or if
he has not given anything yet, he shall not be bound to
comply with his promise.
N ATUR AL O BLIG ATIONS
Natural Obligations
Those based on equity and natural law, which do not
grant a right of action to enforce their performance, but
after voluntary fulfillment by the obligor, authorize the
retention of what has been delivered or rendered by
reason thereof (Art. 1423).
The binding tie of these obligations is in the conscience
of man, for under the law, they do not have the
necessary efficacy to give rise to an action.
In order that there may be a natural obligation there must
exist a juridical tie which is not prohibited by law and
which in itself could give a cause of action but because of
some special circumstances is actually without legal
sanction or means of enforcing compliance by
intervention of courts (Tolentino, Arturo, Commentaries
and Jurisprudence on the Civil Code of the Philippines).
TWO CONDITIONS NECESSARY FOR NATURAL
OBLIGATIONS:
1. That there be a juridical tie between two persons; and
2. That this tie is not given effect by law.
The promise to perform a natural obligation is as
effective as performance itself and converts it into a civil
obligation (7 Planiol and Ripert, page 307-308).
A natural obligation may also be converted into a civil
obligation by novation (5 Vera, page 51-52), or by
confirmation or ratification (3 Salvat, page 160-161).
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As a general rule, partial payment of a natural obligation Examples of Estoppel:

does not make it civil; the part paid cannot be recovered 1. If a person, in representation of another sells or
but payment of the balance cannot be enforced (5 Vera alienates a thing, the former cannot subsequently set
52). up his title as against the buyer or grantee (Art. 1435).
2. A lessess or bailee is estopped from asserting title to
Natural Obligation Moral Obligation the thing leased or received, as against the lessor or
bailor (Art. 1436).
There is a juridical tie
No juridical tie whatsoever. 3. When in a contract between third persons concerning
between the parties which
immovable property, one of them is misled by a person
is not enforceable by court
with respect to the ownership or real right over the real
action
estate, the latter is precluded from asserting his legal
Voluntary fulfillment of such Voluntary fulfillment of such title or interest therein, provided all the following
produces legal effects does not produce any legal requisites are present:
which the court will effect which the court will a. there must be fraudulent representation or wrongful
recognize and protect. recognize and protect. concealment of facts known to the party estopped;
b. the party precluded must intend that the other should
Within the domain of law Within the domain of morals act upon the facts as misrepresented;
c. the party misled must have been unaware of the true
facts; and
Examples of Natural Obligations: d. the party defrauded must have acted in accordance
1. Performance after the civil obligation has prescribed with the misrepresentation.
(Art. 1424);
2. Reimbursement of a third person for a debt that has Note: Estoppel is effective only as between the parties
prescribed (Art. 1425); thereto or their successors-in-interest.
3. Performance after action to enforce civil obligation has
failed (Art. 1428); Note: The government is not estopped by mistake or
4. Payment by heir of debt exceeding value of property error on the part of its officials or agents.
inherited (Art. 1429); and
5. Payment of legacy after will have been declared void Laches or Stale Demands
(Art. 1430). Failure or neglect, for an unreasonable and unexplained
length of time, to do that which, by exercising due
diligence, could or should have been done earlier; it is
E STOPPEL negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party
Estoppel entitled to assert it either has abandoned it or declined to
A condition or state by virtue of which an admission or assert it.
representation is rendered conclusive upon the person
making it and cannot be denied or disproved as against Elements of laches:
the person relying thereon (Art. 1431). 1. Conduct on the part of the defendant, or of one under
whom he claims, giving rise to the situation of which
Kinds of Estoppel: complaint is made and for which the complaint seeks a
1. Estoppel in pais or by conduct remedy;
a. Estoppel by silence (e.g. Art. 1437) 2. Delay in asserting the complainants rights, the
b. Estoppel by acceptance of benefits (e.g. Art. 1438) complainant having had knowledge or notice of the
2. Technical estoppels defendants conduct and having been afforded an
a. Estoppel by deed a party to a deed is precluded opportunity to institute a suit;
from asserting as against the other party, material 3. Lack of knowledge or notice on the part of the
fact asserted therein. defendant that the complaint would assert the right on
b. Estoppel by record a party is precluded from which he bases his suit and
denying the truth of matters set forth in a record 4. Injury or prejudice to the defendant in the event relief is
whether judicial or legislative. accorded to the complainant, or the suit is not held to
3. Estoppel by judgment a party to a case is precluded be barred.
from denying the facts adjudicated by a court of
competent jurisdiction.
4. Estoppel by laches

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Prescription Laches
Concerned with the fact Concerned with the effect
of delay of delay
Question of inequity of
Question or matter of
permitting the claim to be
time
enforced
Statutory Not statutory
Applies in law Applies in equity
Cannot be availed of
Being a defense in
unless it is specifically
equity, it need not be
pleaded as an affirmative
specifically pleaded
allegation
Based on a fixed time Not based on a fixed time

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