OBLICO Reviewer

OBLIGATIO
NS AND
CONTRACT
S
Expanded Course
Outne Professor E.
A. Labtag
Karch Santos | UP Law
B2012
OBLIGATIONS & CONTRACTS | Prof. Labtag, A.Y. 2008-2009 Page 2 of 113
Karch E. Santos | UP Law B2012
University of the Philippines
College of Law
OBLlGATlONS AND CONTRACTS
Professor E. A. Labitag
2
nd
Semester, AY 2008-2009
Title l. OBLlGATlONS
Chapter l. General Provisions
CONCEPT OF OBLlGATlONS
Definition Art 1156 Obgaton s a juridical necessity to gve, to do or not to do.
OBLIGATORY RELATION IN ITS TOTALITY: The |urdca reaton, created by vrtue of certan facts,
between two or more persons, whereby the creditor or obligee, may demand of the debtor or obligor,
a defnte prestaton.
on
PASSIVE SIDE: Where there s a rght or power to demand, there s a correatve obgaton or an
mposton upon a person of a defnte conduct.
Criticism of definition: It s one sded, refects ony the debtors sde of the agreement - Sanchez
Roman
Elements of Obligation
1. Actve sub|ect - power to demand the prestaton (obgee/credtor) Persona
2. Passve sub|ect - bound to perform the prestaton (obgor/debtor) eements
! Temporary ndefnteness of a sub|ect e.g. negotabe nstrument payabe to bearer or a promse
of a prze or a reward for anyone performng a certan act
3. Prestaton or Ob|ect - not a thng but a partcuar conduct of the debtor, but aways a prestaton
llND5 OF PRE5TATlON
a. TO GIVE - conssts n the devery of a movabe or an mmovabe thng, n order to create a
rea rght or for the use of the recpent or for ts smpe possesson or n order to return to ts
owner
b. TO DO - a knds of work or servces, whether menta or physca
c. NOT TO DO - conssts n abstanng from some act, ncudes "not to gve," both beng
negatve obgatons
REOUl5lTE5 OF PRE5TATlON
a. Physcay and |urdcay possbe
b. Determnate or at east determnabe accordng to pre-estabshed eements or crtera
c. Possbe equvaent n money
! Pecunary nterest need not be for one of the partes, t maybe for the beneft of 3
rd
person/s
dstnct from the partes to the contract
! Prestaton need not be of economc character to have pecunary vaue, f t does not have vaue
the aw attrbutes to t economc vaue e.g. mora and nomna damages
4. Effcent cause or |urdca te or vinculum juris - reaton between obgor and obge whch s
estabshed:
- By aw (e.g. reaton of husband and wfe gvng rse to the obgaton to support)
- By batera acts (e.g. contracts gvng rse to the obgatons stpuated theren)
- By unatera acts (e.g. crmes and quas-dects)
5. Form in which the obligation is manifested - cannot be consdered essenta
Distinction between Natural and Civil Obligation
NATURAL ClVlL
As to
enforceabty
Not by court actons, but by
good conscence of debtor
Court acton or the coercve
power of pubc authorty
As to bass Equty and natura |ustce Postve aw
SOURCES OF OBLlGATlONS
A. LAW |Ex-Lege|
Art 1158 Obgatons derved from aw are NOT PRE5UMED. Ony those expressy determned in this
Code or n special laws are demandabe, and sha be reguated by the precepts of the law whch
estabshes them; and as to what has not been foreseen, by the provsons of ths book.
- Governed by the aw tsef
- Agreement of the partes s not necessary e.g. tax coecton, Art 448 and Art 488
- Not presumed, ony those expressy provded are enforceabe
B. CONTRACTS |Ex-Contractu, Cupa Contractua|
Art 1159 Obgatons arsng from contracts have the force of law between the contractng partes
and shoud be complied with in good faith.
- Expresses prncpe of autonomy of will, presupposes that contract s vad and
enforceabe
- PRE-CONTRACTUAL O8LlCATlON: Damages can be recovered when contract s not
perfected f:
! Offers s cear and defnte , eadng offeree n good fath to ncur expenses n expectaton of
enterng nto a contract
! Wthdrawa of the offer must be wthout any egtmate cause. If offeror:
" Cuilty of fault or negligence, abty woud be based on Art 2176
" No fault or negligence, wthdrawa was n abuse of rght, abty woud be based on Art
19 e.g. breach of promse to marry
Art 1305 A contract s a meetng of mnds between two persons whereby one bnds hmsef, wth
respect to the other, to gve somethng or to render some servce.
C. UASl-CONTRACTS or DELlCTS |Ouas Ex-Contractu|
Art 1160 Obgatons derved from quas-contracts sha be sub|ect to the provsons of Chapter 1,
Tte XVII.
Art 2142 Certan awfu, vountary and unatera acts gve rse to the |urdca reaton of quas-
contract to the end that no one sha be un|usty enrched or benefted at the expense of another.
- |urdca reaton whch arses from certan acts that are:
" LAWFUL (aganst crme),
" VOLUNTARY (aganst quas-dect - based on neggence or mere ack of foresght)
" UNlLATERAL (aganst contract n whch there are two partes)
- E.g. Art 2144 Art 2150
Art 2154 Art 2164
Art 2167 Art 2168
Art 2174 Art 2175
Kinds of uasi-contracts
1. Negotiorum gestio (offcous management)
Art 2144 Whoever vountary takes charge of the agency or management of the busness or
property of another, wthout any power from the atter, s obliged to continue the same unt the
termnaton of the affar and ts ncdents, or to requre the person concerned to substtute hm, f the
owner s n a poston to do so. Ths |urdca reaton DOE5 NOT arse n ether of these nstances:
1) When the property or busness s not neglected or abandoned
2) If n fact the manager has been tacitly authorized by the owner
2. Solutio indebiti (payment not due)
Art 2154 If somethng s receved when there s no right to demand it, and t was unduly delivered
through mistake, the obligation to return t arses.
3. Other quas-contracts (support gven by strangers and other "Good Samartans")
Art 2164 When, wthout the knowedge of the person obged to gve support, t s gven by a stranger, the atter sha
have a right to claim the same from the former, UNLESS t appears that he gave t out of piety and without
intention of beng repad.
Art 2165 When funera expenses are borne by a thrd person, wthout the knowedge of those reatves who were
obged to gve support to the deceased, sad reatves sha reimburse the third person, shoud the atter
cam rembursement.
Art 2166 When the person obged to support an orphan, or an nsane or other ndgent person un|usty refuses to gve
support to the atter, any thrd person may furnsh support to the needy ndvdua, wth rght of
rembursement from the person obged to gve support. The provsons of ths artce appy when the father or
mother of a chd under eghteen years of age un|usty refuses to support hm.
Art 2167 When through an accdent or other cause a person s n|ured or becomes serousy , and he s treated or
heped whe he s not n a condton to gve consent to a contract, he sha be liable to pay for the services of
the physician or other person adng hm, UNLE55 the servce has been rendered out of pure generosty.
Art 2168 When durng a fre, food, storm, or other caamty, property s saved from destructon by another person
wthout the knowedge of the owner, the atter s bound to pay the former just compensation.
Art 2169 When the government, upon the faure of any person to compy wth heath or safety reguatons concernng
property, undertakes to do the necessary work, even over hs ob|ecton, he sha be liable to pay the
expenses.
Art 2170 When by accdent or other fortutous event, movabes separatey pertanng to two or more persons are
commnged or confused, the rules on co-ownership sha be appcabe.
Art 2171 The rghts and obgatons of the finder of lost personal property sha be governed by Artces 719 and 720.
Art 2172 The rght of every possessor in good faith to rembursement for necessary and usefu expenses s governed
by Artce 546.
Art 2173 When a thrd person, wthout the knowedge of the debtor, pays the debt, the rghts of the former are
governed by Artces 1236 (recover what has been benefca to debtor) and 1237 (cannot compe credtor to
subrogate payor n hs rghts).
Art 2174 When n a sma communty a natonaty of the nhabtants of age decde upon a measure for protecton
aganst awessness, fre, food, storm or other caamty, any one who ob|ects to the pan and refuses to
contrbute to the expenses but s benefted by the pro|ect as executed sha be liable to pay his share of said
expenses.
Art 2175 Any person who s constraned to pay the taxes of another sha be entitled to reimbursement from the atter.
D. ACTS or OMlSSlONS PUNlSHED BY LAW |Ex-Dectu, Ex-Maefco, Cupa Crmna|
Art 1161 Cv obgatons arsng from crmna offense sha be governed by the pena aws, sub|ect
to the provsons of Art 2177, and of the pertnent provsons of Chapter 2, Premnary Tte on
Human Reatons and of Tte XVIII of ths Book, reguatng damages.
Art 100, RPC Every person crmnay abe for a feony s aso cvy abe.
! GENERAL RULE: Cv abty s a necessary consequence of cv abty
! Reason: Commsson of crme causes not ony mora ev but aso matera damage.
! Art 12, RPC Exemptng crcumstances; do not ncur abty but are NOT EXEMPT from cv
abty
1. Imbece or nsane person, uness actng n a ucd nterva
2. Person under 9 years of age
3. Person over 9 years of age and under 15, uness actng wth dscernment
4. Actng under compuson of an rresstbe force
5. Actng under mpuse of an uncontroabe fear of an equa or greater n|ury
! EXCEPTION (crmes wthout cv abty)
! Crmna contempt
! Gambng
! Traffc voatons
Subsidiary Liability for Crime
1. Innkeepers, tavern keepers and any other persons or corporatons sha be civilly liable for crmes
commtted n ther estabshment, n a cases where a voaton of muncpa ordnances or some
genera or speca poce reguaton sha have been commtted by them or ther empoyees.
2. Aso appcabe to empoyers, teachers, persons and corporatons engaged n any knd of
ndustry for feones commtted by ther servants, pups, apprentces or empoyees n dscharge
of ther dutes.
- To hod empoyers subsidiarily liable for CRlME of an empoyee: commtted n the
performance of the functons or dutes of the empoyee.
- But f acton s based on CONTRACT, and not upon prevous convcton of empoyee
for a crme: empoyers abty s PRIMARY and INDEPENDENT, not merey subsdary.
Civil liability arising from Crime
Art 1161 Cv obgatons arsng from crmna offenses sha be governed by the penal laws,
sub|ect to the provsons of Artce 2177, and of the pertnent provsons of Chapter 2, Premnary
Tte, on Human Reatons, and of Tte XVIII of ths Book, reguatng damages.
Rues on Crmna Procedure Rue 111 When a crmna acton s nsttuted, the cv acton for the
recovery of cv abty arsng from the offense charged sha be deemed instituted with the
criminal action UNLE55 the offended party waves the civil action, reserves the right to institute it
separately or nsttutes the cv acton prior to the crmna acton.
Extent of Civil Liability
Art 104, RPC What s ncuded n cv abty
1. Restitution - thng tsef s restored (Art 105, RPC)
2. Reparation of damage caused - court determnes amount of damage (Art 106, RPC)
3. lndemnification for consequential damages - not ony caused the 3
rd
party but aso
those suffered by hs famy or by a 3
rd
person by reason of the crme (Art 107, RPC)
Cv abty for crmes s extngushed the same causes provded n the CC for the
extngushment of other obgatons.
GENERAL RULE: Crmna acton bars cv acton for the same offense
Cv acton for recovery of cv abty arsng from the offense s impliedly instituted wth the
crmna acton
EXCEPTIONS:
Offended party reserves the right to nsttute t separatey
The aw provdes for an ndependent cv acton (.e. cv acton may proceed to fna |udgment
rrespectve of resut of the crmna acton and fng of the crmna acton does not suspend the
cv acton)
! obgatons arsng from the act or omsson camed to be crmna (Art 31)
! voatons of consttutona rghts and bertes of ndvduas (Art 32)
! defamaton, fraud or physca n|ures (Art 33)
! refusa or faure of members of poce force to render protecton to fe or property (Art
34)
E. UASl-DELlCTS |Ouas Ex-Decto, Ouas Ex-Maefco, Cupa Aquana, Tort (common aw)|
Art 1162 Obgatons derved from quas-dects sha be governed by the provsons of Chapter 2,
Tte XVII of ths Book and by speca aws.
Art 2176 Whoever by act or omsson causes damage to another, there beng faut or neggence, s
obged to pay for the damage done. Such faut or neggence when there s no pre-exstng
contractua reaton between the partes, s caed quasi-delict and s governed by the provsons of
ths Chapter.
BASIS: Undsputabe principle of equity; faut or neggence cannot pre|udce anyone ese besdes ts
author and n no case shoud ts consequences be borne by him who suffers the harm produced by such
faut or neggence.
- Man s responsbe not ony for hs vountary wfu acts, executed conscousy and
ntentonay but aso for those acts performed wth ack of foresght, care and
dgence, whch cause matera harm to socety or to other ndvduas.
NEW SOURCES OF OBLIGATION - generay recognzed by aw athough not ncuded n the code
1. Un|ust enrchment (CC categorzed under quas-contract)
2. Unatera decaraton of w
3. Abuse of rghts (CC categorzed under quas-dect)
Test of Negligence: Woud a prudent man, n the poston of the person to whom neggence s
attrbuted, foresee harm to the person n|ured as a reasonabe consequence of the course about to be
pursued?
ELEMENT5 OF NECLlCENCE
a) duty on the part of the defendant to protect the pantff from n|ury of whch the atter
compans
b) faure to perform such duty
c) an n|ury to the pantff through such faure
llND5 OF NECLlCENCE
1. Culpa aquilana - or cupa extra-contractua; neggence as a source of obgaton, a
quasi-delict
2. Culpa contractual - neggence n the performance of a contract
3. Culpa criminal - crmna neggence
Distinction between Culpa Aquilana and Culpa Contractual
CULPA AUlLANA
(culpa extra-contractual)
CULPA CONTRACTUAL
Governed by Art 2176 to 2194 Governed by Art 1179 et sequel
Neggence as a source of obgaton Neggence n the performance of a contract
Faut or neggence whch consttutes an
ndependent source of obgaton between
partes not prevousy bound
Faut or neggence of the debtor as an
ncdent n the fufment of an exstng
obgaton
Neggence of defendant shoud be the
proxmate cause of damage f abty s to
attach
Distinction between uasi-delicts and Crimes
AS TO. UASl-DELlCT CRlMES
Nature of rght voated ;
- An
obgat
on can
arse
from
both
crme
and
quas-
dect
at the
same
tme
(e.g.
physc
a
n|ures
) BUT
can
ony
recover
damag
e once
and
not
twce
Prvate rghts; wrong aganst the
ndvdua
Pubc rght; wrong aganst the state
Condton of mnd Crmna ntent s not necessary. Possbe
that there s not crmna charge but ony
cv abty for damages arsng from
quas-dect
Crmna ntent s necessary for the
exstence of abty, wthout t, there can
be no crme
Lega bass of abty Actonabe n any act or omsson
wheren faut or neggence ntervenes
Not as broad as quas-dect, can be
punshed ony when there s a pena aw
ceary penazng t
Labty for damages Labty for damages to the n|ured party Certan crmes do not have cv abty
e.g. contempt, gambng, voatons of
ordnances and traffc reguatons when
nobody s n|ured
Forms of redress Reparaton of the n|ury suffered by the
n|ured party # compensaton,
ndemnfcaton
Fne (accrung to the pubc treasury),
mprsonment or both punshment
Amount of evdence Preponderance of evdence Beyond reasonabe doubt
Compromse Can be compromsed as any other cv
abty
Can never be compromsed
Requisites of Liability under uasi-Delicts
1. There exsts a wrongful act or omission mputabe to the defendant by reason of hs fault or
negligence
2. There exsts a damage or injury
3. Direct causal connection or reaton of cause and effect between the faut or neggence and the
damage or n|ury OR that the faut or neggence be the cause of damage or n|ury
! DOCTRINE OF PROXIMATE CAUSE: such adequate and effcent cause as, n the natura
order of events, and under the partcuar crcumstance surroundng the cause, woud
necessary produce the event
! NATURAL AND PROBABLE CAUSE: ether when t acts drecty producng the n|ury, or sets
n moton other causes so producng t and formng a contnuous chan n natura
sequence down to the n|ury
! CONCURRENT CAUSE: f two causes operate at the same tme to produce a resut whch
mght be produced by ether ndependenty of the other, each of them s a proxmate
cause
! When the pantffs own negligence was the mmedate and proxmate cause of hs
n|ury, he cannot recover damages.
! BUT f neggence s only contributory, the mmedate and proxmate cause of the n|ury
s defendants ack of due care, the pantff may recover damages, the courts sha
mtgate the damages to be awarded (Art 2179)
Liability for fault of others - Obgaton arsng from quas-dect s demandabe not ony for ones
own acts or omssons, but aso for those of persons for whom one is responsible.
Art 2180 The obgaton mposed by Artce 2176 s demandabe not ony for one's own acts or omssons, but aso for those of
persons for whom one s responsbe.
The father and, n case of hs death or ncapacty, the mother, are responsbe for the damages caused by the mnor chdren
who ve n ther company.
Guardans are abe for damages caused by the mnors or ncapactated persons who are under ther authorty and ve n
ther company.
The owners and managers of an estabshment or enterprse are kewse responsbe for damages caused by ther empoyees
n the servce of the branches n whch the atter are empoyed or on the occason of ther functons.
Empoyers sha be abe for the damages caused by ther empoyees and househod hepers actng wthn the scope of ther
assgned tasks, even though the former are not engaged n any busness or ndustry.
The State s responsbe n ke manner when t acts through a speca agent; but not when the damage has been caused by
the offca to whom the task done propery pertans, n whch case what s provded n Artce 2176 sha be appcabe.
Lasty, teachers or heads of estabshments of arts and trades sha be abe for damages caused by ther pups and students
or apprentces, so ong as they reman n ther custody.
The responsbty treated of n ths artce sha cease when the persons heren mentoned prove that they observed a the
dgence of a good father of a famy to prevent damage.
Art 218, FC The schoo, ts admnstrators and teachers, or the ndvdua, entty or nsttuton engaged n chd are sha have
speca parenta authorty and responsbty over the mnor chd whe under ther supervson, nstructon or custody.
Authorty and responsbty sha appy to a authorzed actvtes whether nsde or outsde the premses of the schoo, entty
or nsttuton.
Art 219 , FC Those gven the authorty and responsbty under the precedng Artce sha be prncpay and sodary abe
for damages caused by the acts or omssons of the unemancpated mnor. The parents, |udca guardans or the persons
exercsng substtute parenta authorty over sad mnor sha be subsdary abe.
The respectve abtes of those referred to n the precedng paragraph sha not appy f t s proved that they exercsed the
proper dgence requred under the partcuar crcumstances.
A other cases not covered by ths and the precedng artces sha be governed by the provsons of the Cv Code on quas-
dects.
Diligence of Employers - An empoyer may be hed cvy abe for the quas-dect or crme of hs
empoyee.
LIABILITY OF EMPLOYERS FOR EMPLOYEES
UASl-DELlCT (Art 2180, CC)
LIABILITY OF EMPLOYERS FOR EMPLOYEES
CRlME (Art 103, RPC)
Prmary, can be sued directly by the n|ured party and after
he has pad the damages to such n|ured party, he can
recover from his employee amount pad by hm
Subsdary, empoyee must have frst been convcted
and sentenced to pay cv ndemnty and t must be
shown that he s insolvent n order that empoyee
may be abe
Empoyer can avod abty by provng that he exercsed
the diligence of a good father of a famy to prevent
damage
Labty s absoute and cannot avail of the defense
by proof of such dgence
A empoyers, whether they are engaged n some
enterprse or not, are abe for the acts of ther empoyees
ncudng house hepers
Empoyer s abe ony when he s engaged n some
knd of busness or ndustry (durng performance of
duty)
CLASSlFlCATlONS OF OBLlGATlONS
A. Primary Classification under the Civil Code
1. WHEN: Pure and Condtona (Art 1179-1192) tme of enforceability
PURE: demandabe at once
CONDITIONAL: fufment or extngushment depends upon a future and uncertan event
2. WHEN: Wth a perod or term (Art 1193-1198) tme of demandability
PERIOD: ts fufment or extngushment depends upon a future and certan event
3. WHAT: Aternatve and Facutatve (Art 1199-1206) # mutpe objects
ALTERNATIVE: mutpe prestatons but debtor w perform one or some but not all, dependng
on whose choce t s
FACULTATIVE: mutpe prestatons wth a principal obligation and substitute prestations,
choce s generay gven to the DEBTOR
4. WHO: |ont and Sodary (Art 1207-1222) # mutpe subjects, focuses on the te that bonds the
partes
|OINT: each can be made to pay only his share n the obgaton
SOLIDARY: one can be made to pay for the whole obligation sub|ect to rembursement
5. HOW: Dvsbe and Indvsbe (Art 1223-1225) performance of the prestaton, not to the thng
whch s ob|ect thereof, whether t can be fufed n parts or not
6. Wth a pena cause (Art 1226-1230) # accessory undertakng to assume greater abty n
case of breach
B. Secondary Classification
1. Lega (Art 1158) from aw
Conventona (Art 1159) from contracts
Pena (Art 1161) from commsson of a crme
2. (As to sub|ect matter) Rea (to gve) and Persona (to do or not to do)
3. (As to sub|ect matter of obgaton) Determnate and Generc
4. Postve (to gve, to do) and Negatve (not to gve, not to do)
5. Unatera - ony one party bound to perform obgaton, one debtor and one credtor (e.g. smpe
and remuneratory donaton, to gve support)
Batera - OR synaagmatc contracts, empto vendto; two partes are recprocay bound thus
debtor and credtor of each other (e.g. purchase and sae, ease)
6. Indvdua - ony one sub|ect
Coectve - severa sub|ect
7. Accessory - depends on the prncpa obgaton e.g. pedge, mortgage
Prncpa - man obgaton
8. As to ob|ect or prestaton
a. Smpe - ony one prestaton
b. Mutpe - two or more prestaton
. Con|unctve - a must be performed
.Dstrbutve - one or some must be performed
a. Aternatve - more than one prestaton but one party may choose whch one; severa are
due but ony one must be fufed at the eecton of the debtor
b. Facutatve - man prestaton and a substtute prestaton and t s the debtor who
chooses; ony one thng s due but the debtor has reserved the rght to substtute t wth
another
9. Possbe - capabe of beng performed, ether physcay or egay
Impossbe - physcay or egay ncapabe of beng done
Chapter ll. Nature and Effects of Obligations
KlNDS OF PRESTATlON
A. Obligation TO GlVE
SPEClFlC THlNG (determinate) GENERlC THlNG (indeterminate)
One that s ndvduazed and can be dentfed or
dstngushed from others of ts knd
Indcated ony by ts knd, wthout beng desgnated and
dstngushed from others of the same knd
Ob|ect due becomes determnabe from moment of
devery
5 pecific thing (determinate)
DUTlE5 OF THE O8LlCOR (Letters B-D are the accessory/ncdenta obgatons)
a. to deliver thing itself
Art 124 4 Par 1 The debtor of a thng cannot compel the credtor to receive a different one,
athough the atter may be of the same vaue as, or more vauabe than whch s due.
- Though upon agreement or consent of the creditor, the debtor may dever a dfferent
thng or perform a dfferent prestaton n eu of that stpuated # DATION n payment
(Art 1245) or OB|ECTIVE NOVATION (Art 1291)
- Defects of the thng may be waved by the credtor IF
! Expressy decares
! Wth knowedge thereof, he accepts the thng wthout protest or dsposes or consumes t #$
"waver of defect"
b. to preserve thing with due care
Art 1163 Every person obged to gve somethng s aso obliged to take care of t wth the
proper diligence of a good father of a family, UNLE55 the aw or the stpuaton of the
partes requres another standard of care.
- Why: the obgaton to devery woud be usory.
- What knd of dgence: DILIGENCE OF GOOD FATHER OF FAMILY; eaborated n Art
1173
! Faure to preserve the thng # Labty for damages
! BUT f due to FORTUITOUS EVENTS or FORCE MA|EURE # Exempted from responsbty
c. to deliver the accessions and accessories
Art 1166 Obgaton to gve a determnate thng ncudes that of delivering all its accessions
and accessories, even though they may not have been mentoned.
- May be quafed by contrary ntentons of the partes, e.g. excude devery of
accesson or accessory of the thng.
ACCESSlONS ACCESSORlES
Incudes everythng whch s produced by a thng, or
whch s ncorporated or attached thereto, ether
naturay or artfcay. Does not ncude fruts because
Art 1164 mentoned t aready
Acceson contnua whch ncudes:
1. Accesion natural- e.g. auvon
2. Accesion industrial - e.g. budng, pantng,
sowng
Those thngs whch, destned for embeshment, use or
preservaton of another thng or more mportant, have
for ther ob|ect the competon of the atter for whch
they are ndspensabe or convenent.
d. to deliver the fruits
Art 1164 Par 1 The credtor has a right to the fruits of the thng from the time the obligation
to deliver t arses. However, there s no real right unt the same has been devered to hm.
- Non nudis pactis, sed traditione domina rerum trasferentur the ownershp of thngs
s transferred not ony by mere agreements but by devery
REAL RlCHT - power beongng to a person over a specfc thng, wthout a passve sub|ect
ndvduay determned, aganst whom such rght may be personay exercsed
- Gves to a person a drect and mmedate power over a thng, whch s susceptbe of
beng exercsed, not ony aganst a determnate person but aganst the whoe word
- E.g. rghts of ownershp and possesson
PER5ONAL RlCHT - power beongng to one person to demand of another, as a defnte passve
sub|ect, the fufment of a prestaton to gve, to do or not to do
CORRELATlVE RlCHT5 OF THE O8LlCEE/CREDlTOR (from Sr Labtags dagrammatca outne)
1. Rght to compe devery
a. Fruts (both ndustra and natura from the tme obgaton to dever arses),
accessons and accessores
b. No rea rght unt devery # persona acton aganst debtor, no rght aganst the
word
2. Rght to rescsson or resouton
3. Rght to damages
a. Faure to dever
" Lega excuse for breach of obgaton or deay: FORTUITOUS EVENT uness
there s
! Law e.g. possesson n bad fath (Art 552)
! Stpuaton to the contrary
! Nature of obgaton requres assumpton of rsk
" FE APPLICABLE TO:
! Nonperformance
! Deay
! Loss/deteroraton of specfc thng
Art 1189 Before happenng of suspensve condton
Art 1190 Before happenng of resoutory condton
" Debtor st abe despte FE:
! Expressy specfed by aw
Art 1942 Baee abe for oss (commodatum)
Art 2001 Act of a thef
Art 2147 Negotorum gesto
Art 199 3 Loss of depost
! Stpuaton e.g. debtor becomes "nsurer" of the obgaton
! Assumpton of rsk
! Fraud or mace (bad fath)
Art 1165 Par 3 Devers to two or more persons havng dfferent
nterest
! Debtor n deay aready when FE happened (Art 1165 Par 3)
! Debtor guty of concurrent neggence # n ths case, no ong FE
! Labty arses from crmna act except f debtor tenders thng and
credtor un|ustfaby refuses to receve (Art 1268)
b. Fraud
c. Neggence n performance
d. Deay or defaut
e. Any manner n contraventon of the tenor of obgaton
C eneric thin g (indeterminate)
Art 124 6 When the obgaton conssts n the delivery of an indeterminate or generic thing,
whose quality and circumstances have not been stated, the credtor cannot demand a thng of
superior quality. Nether can the debtor dever a thng of inferior quality. The purpose of the
obgaton and other crcumstances sha be taken nto consderaton.
Credtor may ask for compance by 3
rd
person at debtors expense; acton for substtuted
performance (Art 1165 )
LlMlTED CENERlC THlNC - generc ob|ects confned to a partcuar cass, the cass s consdered n tsef
a determnate ob|ect
CORRELATlVE RlCHT5 OF THE O8LlCEE/CREDlTOR (from Sr Labtags dagrammatca outne)
1. Rght to ask for rescsson or damages
2. Rght to damages
a. Faure to dever
b. Fraud (mace or bad fath)
c. Neggence
d. Deay
e. Any matter contravene the tenor of obgaton
RlCHT5 OF A CREDlTOR (from BarOps Revewer 2008)
SPEClFlC GENERlC
To compe specfc performance To ask for the performance of the obgaton
To recover damages, n case of breach of the
obgaton, excusve or n addton to
specfc performance
To ask that the obgaton be comped wth
at the expense of the debtor
Enttement to fruts, nterests from the tme
obgaton to dever arses
To recover damages n case of breach of
obgaton
B. Obligation TO DO
Art 1244 Par 2 In obligations to do or not to do, an act or forbearance cannot be substituted
by another act or forbearance against the obligees will.
- Excepton: FACULTATIVE OBLIGATION wheren the debtor reserves the right to substitute another
prestaton
Art 1167 If a person s obged to do somethng fas to do t, the same sha be executed at his cost.
The same rue may be observed f he does t n contravention of the tenor of the obligation.
Furthermore, t may be decreed that what has been poorly done be undone.
DUTlE5 OF O8LlCOR (from BarOps Revewer 2008)
1. To do t (Art 1167)
2. To shouder the cost f someone ese does t (Art 1167)
3. To undo what has been poory done (Art 1167)
4. To pay damages (Art 1170-1172, 2201-2202)
No acton for compance because that woud be nvountary servtude whch s prohbted by
the consttuton.
C. Obligation NOT TO DO
Art 1244 Par 2 In obgatons to do or not to do, an act or forbearance cannot be substituted by
another act or forbearance aganst the obgees w.
- Performance cannot be by a deegate or an agent
- No ega accessory obgatons arse (as compared to obgaton to gve)
Art 1268 When the obgaton conssts n not dong, and the obgor does what has been forbdden
hm, t sha aso be undone at his expense.
DUTlE5 OF O8LlCOR (from BarOps Revewer 2008)
1. Not to do what shoud not be done
2. To shoud the cost to undo what shoud not have been done (Art 1168)
3. To pay damages (Art 1170, 2201-2202)
BREACH OF OBLlGATlON
CONCEPT
VOLUNTARY arses from the modes provded n Art JJ70
lNVOLUNTARY arses because of fortuitous events
Distinction between SUBSTANTlAL and CASUAL}SLlGHT breach
SUBSTANTlAL CASUAL
Tota Parta
Amounts to non-performance A part s performed
Bass for rescsson and payment of
damages
Gves rse to abty for damages
GENERAL RULE: Rescsson w not be permtted for a sght or casua breach of the contract, but ony
for such breaches as are so substantial and fundamental as to defeat the ob|ect of the partes n
makng the agreement.
MODES OF BREACH
Art 1170 Those who in the performance of ther obgatons are guty of FRAUD, NECLlCENCE, or
DELAY and those who n any manner CONTRAVENE THE TENOR thereof, are abe for damages.
1 FRAUD (Dolo)
Concept Fraud s the voluntary execution of a wrongful act, or a wfu omsson, knowng and
ntendng the effects whch naturay and necessary arse from such act or omsson.
- Deberate and ntentona evason of the norma fufment of obgatons
- Any vountary and wfu act or omsson whch prevents the norma reazaton of the
prestaton, knowng and ntendng the effects whch naturay and necessary arse
from such act
- Fraud n the performanceof a pre-existing obligation
- Cannot cover mstake and errors of |udgment made n good fath, ergo synonymous to
bad fath (dshonest purpose or some mora obquty and conscous dong of wrong)
- The eement of INTENT and NOT the harm done s the test
llND5 OF FRAUD
1. Fraud n the performance (Art 1171)
2. Fraud n the execution}creation}birth of the contract
a. Dolo causante (Art 1344)
b. Dolo incidente (Art 1338)
FRAUD (Art 1171) DOLO CAUSANTE (Art 1338) DOLO lNClDENTE (Art 1344)
WHEN
PRESENT
Durng the performance of a
pre-exstng obgaton
Durng the perfecton of a
contract
Durng the perfecton of a
contract
PURPOSE Evade the norma fufment of
obgaton
Secure the consent of another
to enter nto contract
Secure the consent of another
to enter nto contract BUT
fraud was not the prncpa
nducement n makng the
contract
RESULTS IN Breach of the obgaton Vtaton of consent;
Vodabe contract
Does not resut n the vtaton
of consent
GIVES RISE
TO
Rght n favor of credtor to
recover damages
Rght of the nnocent party to
annu the contract
Gves rse to a rght of the
nnocent party to cam for
damages
Non-waiver of Future Fraud Art 1171 Responsbty arsng from fraud s demandabe n ALL
OBLIGATIONS. Any waver of acton for future fraud s VOID.
- To permt such advance renuncatons woud practcay eave the obgaton wthout
effect.
- The aw does not prohbt the renuncaton of the acton for damages on the ground of
fraud aready commtted.
Effects of Fraud - Labty for damages, a crme or a quas-dect (Art 1170)
2 NEGLlGENCE (Culpa contractual)
Art 1172 Responsbty arsng from neggence n the performance of EVERY KIND OF OBLIGATION s
aso demandabe, but such abty may be RECULATED 8Y COURT5, accordng to the circumstances.
Concept - absence of due dgence
Art 1173 Par 1 The faut or neggence of the obgor conssts n the omission of that diligence whch
s requred by the nature of obgaton and corresponds wth the circumstances of the persons, of the
tme and the pace. When neggence shows BAD FAlTH, the provsons of Art 1171 (responsbty
arsng from fraud) and Art 2201 Par 2 (responsbe for a damages reasonaby attrbuted to non-
performance) sha appy.
Art 2201 Par 2 In case of fraud, bad fath, mace or wanton atttude, the obgor sha be
responsible for all damages whch may be REASONABLY ATTRIBUTED to the non-
performance of obgaton.
Distinction between Culpa and Dolo
CULPA (Negligence) DOLO (Fraud)
Mere want of care or dgence, not the
vountarness of act or omsson
Wfuness or deberate ntent to cause
damage or n|ury to another
Labty may be mtgated by courts Labty cannot be mtgated by courts
Waver for future neggence
vad f simple
vod f gross
Waver for future fraud s vod
Distinction between Culpa Aquilana and Culpa Contractual
Dfferent provsons that appy to the two concepts, hence dfferent ega effects
CULPA AUlLANA
(Culpa Extra-contractual)
CULPA CONTRACTUAL
Governed by Art 2176 to 2194 Governed by Art 1179 et sequel
Neggence as a source of obgaton Neggence n the performance of a contract
Faut or neggence whch consttutes an
ndependent source of obgaton between
partes not prevousy bound
Faut or neggence of the debtor as an
ncdent n the fufment of an exstng
obgaton
Neggence of defendant shoud be the proxmate cause of damage f abty s to attach.
Standard of care required
Art 117 3 Par 2 If aw or contract does not state dgence whch s to be observed n the performance,
that whch s expected of a GOOD FATHER OF FAMILY s requred.
Extra-ordnary dgence requred n:
! Art 1733 Common carrers
! Art 1744 Lesser than extraordnary
! Art 1998-2002 Inn keepers, hote keepers
Exemption from Liability for Negligence
1. INSURANCE: A party to a contract s reeved from the effects of hs faut or neggence by a 3
rd
person
2. Party to a contract renounces n advance the rght to enforce abty arsng from the faut or
neggence of the other
a. VOID f gross neggence Stpuatons exemptng from abty for that amount to a fraud
b. VALID f smpe neggence ony
Effects of Negligence
1. Damages are demandabe, whch the courts may reguate accordng to crcumstances
2. Invadates defense of fortutous event
3 DELAY (mora)
Concept - non-fufment of obgaton wth respect to tme
Art 1169 Those obliged to DELlVER or to DO somethng incur in delay from the tme the O8LlCEE
jUDlClALLY OR EXTRAjUDlClALLY DEMANDS from them the fufment of ther obgatons.
However, the DEMAND by the credtor sha NOT be necessary n order that deay may exst:
1. When the OBLlGATlON or LAW expressly so decares
2. When from the nature and the circumstances of the obgaton t appears that the DESIGNATION
OF THE TlME when the thng to be devered or the servce s to be rendered was a controlling
motive for the estabshment of the contract
3. When demand woud be USELESS, as when the obgor has rendered it beyond his power to
perform
In reciprocal obligations, nether party ncurs n deay f the other DOES NOT COMPLY or s NOT
READY to compy n a proper manner wth what s ncumbent upon hm. From the moment ONE of the
parties fulfills his obligation, deay by the other begns.
There can ony be deay n positive obligations (to gve and to do) and not n negatve
obgatons (not to gve and not to do).
Kinds of Mora
a. Mora solvendi - defaut on the part of the debtor
EX RE referrng to obgatons to gve
EX PERSONA referrng to obgatons to do
REOUl5lTE5 OF MORA 5OLVENDl
1. PRESTATION s demandable and aready liquidated
- There can be no deay f the obgaton s not yet due. There s no mora n natura
obgatons because performance s optona and vountary
2. That the debtor delays performance
- Effects of mora ony arse when the deay s due to the causes imputable to the
debtor; hence there s egay no deay f ths s caused by factors not mputabe to the
debtor (e.g. fortutous events)
3. That the credtor requres or demands the performance extrajudicially or judicially
- Mere remnder s not a demand because t must appear that the benevoence and
toerance of the credtor has ended.
GENERAL RULE: Credtor shoud make demand before debtor ncurs deay
Defaut begns from the moment credtor demands the performance of obgaton.
! If extra|udca: date of demand
! If uncertan: date of fng of compant (for purposes of computng payment of nterests or
damages)
Demand may be n any form, provded t can be proved. It s aso generay necessary even f a
perod has been fxed n the obgaton. Burden of proof of demand on the credtor.
Demand must refer to the prestaton that s due and not another.
But even f wthout demand, debtor ncurs n deay f he acknowledges his delay. Request for
extenson of tme for payment s not suffcent though, the acknowedgement must be express.
EXCEPTlON: When demand is not required
1. Express stpuaton - Inserton of the cause without further notice"
2. Law so provdes - Not enough to merey fx date for performance, but aso that defaut w
commence after the perod apses
3. Perod s the controng motve or the prncpa nducement for the creaton of the obgaton - n
cases where t appears that the obgaton woud not have been created for a date other than
that fxed (Abella v. Francisco)
4. Demand woud be useess - performance has become mpossbe
a. Caused by some act or faut of the debtor, e.g. hdng or dsposed of the thng to be
devered
b. Impossbty caused by fortutous event but debtor bound hmsef abe n cases of such
events
b. Mora accipiendi - defaut on the part of the credtor
Deay n the performance based on the omsson by the credtor of the necessary cooperaton,
especay acceptance on hs part.
Generay, debtor can perform at any time after the obgaton has been created, even before the
date of maturty.
It s necessary however that t be awfu for the debtor to perform, and that he can perform (e.g.
when the perod s estabshed for the beneft of the credtor or both of the partes).
REOUl5lTE5 OF MORA ACClPlENDl
1. Offer of performance by the debtor who has the required capacity
2. Offer must be to comply wth the prestaton as t shoud be performed
3. Credtor refuses the performance without just cause
5ee also Art 1268 When the debt of a thng certan and determnate proceeds from a criminal offense, the
debtor sha not be exempted from the payment of ts prce, whatever may be the cause for the oss, UNLE55 the
thng havng been offered by hm to the person who shoud receve t, the atter refused without justification to
accept t.
c. Compensatio morae - partes n a batera contract can reguate the order n whch they sha
compy wth ther recproca prestatons. Otherwse, the fufment must be SIMULTANEOUS and
RECIPROCAL
GENERAL RULE: Fufment of partes shoud be smutaneous
EXCEPTION: Contrary stpuaton (e.g. nstament pans)
Effects of Mora
A. Mora solvendi
1. When t has for ts ob|ect a determnate thng, the deay paces the rsk of the thng on the
debtor
2. Debtor becomes abe for damages of the deay
B. Mora accipiendi
1. Responsbty of the debtor for the thng s reduced and mted to fraud and gross
neggence
2. Debtor s exempted from the rsks of oss of thng, whch automatcay pass to the credtor
3. A expenses ncurred by the debtor for the preservaton of the thng after the mora sha be
chargeabe to the credtor
4. If the obgaton bears nterest, the debtor does not have to pay t from the moment of the
mora
5. The credtor becomes abe for damages
6. The debtor may reeve hmsef of the obgaton by the consgnaton of the thng
C. Compensation morae
1. Exceptio non adempleti contractus - one s not compeed to perform hs prestaton when the
other contractng party s not yet prepared to perform hs prestaton; defaut of one
compensates the defaut of the other
Cessation of effects of mora
1. Renuncaton by the credtor
a. Express
b. Imped: when after deay has been ncurred, the credtor grants an extension of time
to the debtor or agrees to a novation of the obgaton
2. Prescrpton
4 CONTRAVENTlON OF TENOR - any ct act whch mpars the strct and fathfu fufment of the
obgaton or every knd of defectve performance
! Macous or neggent violation of the terms and conditions stpuated n the obgaton
! Must not be due to fortutous even or force ma|eure, otherwse there woud be no abty
! Immatera whether or not the actor s n bad faith or negligent, what s requred s that t s
hs faut or the act done contravenes ther agreement
5 ABSOLUTE NON-PERFORMANCE
REMEDlES OF CREDlTOR lN CASE OF BREACH
Acton for performance (specfc performance or obtan compance)
Acton for rescsson
Acton for damages (excusvey OR n addton to ether of the frst actons)
A. ACTlON FOR PERFORMANCE
1. Acton for specific performance
(n obgaton to gve specfc thng)
Art 1165 Par 1 When what s to be devered s a determnate thng, the credtor, n addton to the
rght granted hm by Art 1170 (ndemnfcaton for damages), may compe the debtor to make the
delivery.
ROC 39, Sec 10 Executon, satsfacton and effect of |udgment.
Impes that the bass s a contractua reaton between pantff and defendants.
2. Acton for substituted performance
(n obgaton to gve generc thng )
Art 1165 Par 2 If the thng s ndetermnate or generc, he may ask that the obgaton be complied
with at the expense of the debtor.
Devery of anythng beongng to the speces stpuated w be suffcent.
Debtor cannot avod obgaton by payng damages f the credtor nssts on the performance.
3. Acton for substituted performance or undoing of poor work
(n obgaton to do)
Art 1167 If a person obged to do somethng fails to do it, the same sha be executed at his cost.
Ths same rue sha be observed f he does t n contravention of the tenor of the obligation.
Furthermore, t may be decreed that what has been done poorly be undone.
The court has no dscreton to merey award damages to the credtor when the act can be done n
spte of the refusa or faure of debtor to do so.
EXCEPTION: Imposton of persona force or coercon upon the debtor to compy wth hs obgaton #$
tantamount to nvountary servtude and mprsonment for debt
4. Acton for undoing
(n obgaton not to do)
Art 1168 When the obgaton conssts n not dong, and the obgor does what has been forbdden
hm, t sha aso be undone at his expense.
EXCEPTION: When the ony feasbe remedy s indemnification for the damages caused:
" If has become mpossbe to undo the thng physcay or egay
" If the act s defnte and w not cease even f undone
B. ACTlON FOR DAMAGES
Art 1170 Recoverabe damages ncude any and all damages that a human beng may suffer.
Responsbty for damages s indivisible.
C. ACTlON FOR RESClSSlON
Art 1191 The power to rescind obligation s implied in reciprocal ones, n case one of the obgors
shoud not comply wth what s ncumbent upon hm.
The n|ured party may choose between FULFlLLMENT and the RESClSSlON of the obgaton, wth
the payment of damages n ether case. He may aso seek rescsson, even after he has chosen
fulfillment, f the atter shoud become lMPOSSlBLE.
The court sha decree the rescsson camed UNLESS there be a just cause authorizing the fixing of
a period.
Ths s understood to be without prejudice to the rights of third persons who have acqured the
thng, n accordance wth Artces 1385 and 1388 and the Mortgage Law.
Art 1192 In case both parties have committed breach of obligation, the abty of the frst
nfractor sha be equitably tempered by the courts. If t cannot be determned whch of the partes
frst voated the contract, the same sha be extinguished and each shall bear his own damages.
The remedy s alternative. Party seekng rescsson can ony eect one between fufment and
rescsson. There can be no parta performance and parta rescsson.
Ony appes to recproca obgatons, where there s "recprocty" between the partes .e. credtor
debtor reatons arse from the same cause or "dentty of cause"
Recproca obgatons have a "TAClT RE5OLUTORY CONDlTlON."
Power to rescind:
! Pertans to the n|ured party, party who dd not perform not entted to nsst upon the
performance of the contract by the defendant or recover damages by reason of hs own
breach
" Rghts of n|ured party subordnated to the rghts of a 3
rd
person to whom bad fath s
not mputabe
! Not absoute, not permtted n casua/sght breach, may ony be camed n substanta
breach (5ong Fo v. Hawaiian Philippines)
! Rescsson requres judicial approval to produce legal effect
" EXCEPTION: ob|ect s not yet devered AND obgaton has not yet been performed
" If the obgaton has not yet been performed: extra|udca decaraton of party wng
to perform woud suffce; can refuse to perform f the other party s not yet ready to
compy
" If the n|ured party has aready performed: cannot extra|udcay rescnd IF the other
party opposes the rescsson (otherwse, rescsson produces ega effect). In the case
the other party mpugns rescsson, the court comes n ether to:
a. Decare the rescsson as propery made
b. Gve a perod to the debtor n whch to perform
Effects of Rescission
1. Extngushes obgatory reaton as f t had never been created, extncton has a retroactve
effect. Equvaent to nvadate the |urdca te, eavng thngs n ther status before the
ceebraton of the contract
2. Mutua resttuton
EXPRE55 RE5OLUTORY CONDlTlON: automatc resouton f one of the partes does not compy wth
hs obgaton. Often found n nsurance contracts. Its nature s a "facutatve resoutory condton"
(Taylor v Uy Tieng)
SUBSlDlARY REMEDlES OF CREDlTOR
1 Accion Subrogatoria (subrogatory action)
Art 1177 The credtors after havng pursued the property n possesson of the debtor to satisfy their
claims, may exercise all the rights and bring all the actions of the atter for the same purpose,
save those whch are inherent in his person; they may aso impugn the acts whch the debtor may
have done to defraud them.
Concept Acton whch the credtor may exercse n pace of the neggent debtor n order to preserve or
recover for the patrmony of the debtor the product of such acton, and then obtan therefrom the
satsfacton of hs own credt.
Prevous approva of court s not necessary
EXTENT: Pantff entted ony to so much as s needed to satsfy hs credt, any baance sha pertan
to the debtor
Patrmony of the debtor (ncudes both present and future property) s abe for the obgatons he
may contract by beng a ega guaranty n favor of hs credtors. Hence, he cannot macousy
reduce such guaranty.
Doube functon:
! Conservng the patrmony of the debtor by brngng nto t property abandoned or neglected
by hm
! Makng executon on such property thereafter
Rights of Creditors
1. Levy by attachment and executon upon a the property of the debtor, except such as exempt by
aw from executon
2. Exercse a the rghts and actons of the debtor, except such as are nherenty persona to hm
3. To ask for rescsson of the contracts made by the debtor n fraud of ther rghts
REUlSlTES OF ACClON SUBROGATORlA
1. Credtor has an nterest n the rght or acton not ony because of hs credt but because of
nsovency of the debtor
2. Macous or neggent nacton of the debtor n the exercse of hs rght or acton of such
serousness as to endanger the cam of the credtor
3. The credt of the debtor aganst a thrd person s certan, demandabe and qudated
! It s not essenta that the credtors cam be pror to the acquston of the rght by the
debtor
4. The debtors rght aganst 3
rd
person must be patrmona, or susceptbe of beng transformed to
patrmona vaue for the beneft of the credtor
EXCEPTlONS TO ACClON SUBROGATORlA
1. Inherent rghts of debtor
a. Rght to exstence, exemptng from the reach of credtors whatever he may be recevng
as support
b. Rghts or reatons of a pubc character
c. Rghts of an honorary character
d. Rghts consstng of powers whch have not been used
. Power to admnster e.g. debtor fas to have some property eased the credtor
cannot gve t n ease for hm
.Power to carry out an agency or depost because purey persona acts
.Power to accept an offer for a contract
e. Non-patrmona rghts e.g. acton to estabsh the credtors status as a egtmate or
natura chd, acton for ega separaton or annument of marrage, and other rghts
arsng from famy reatons
f. Patrmona rghts not sub|ect to executon e.g. rght to a government gratuty or penson
g. Patrmona rghts nherent n the persons of the debtor e.g. rght to revoke a donaton by
reason fo ngrattude, rght to demand the excuson of an unworthy her
2. Art 772 Ony those who at the tme of the donor's death have a rght to the egtme and ther
hers and successors n nterest may ask for the reducton or noffcous donatons.
Those referred to n the precedng paragraph cannot renounce ther rght durng the fetme of
the donor, ether by express decaraton, or by consentng to the donaton.
The donees, devsees and egatees, who are not entted to the egtme and the credtors of the
deceased can nether ask for the reducton nor ava themseves thereof.
3. Sec 13, Rue 39, Rues of Court
2 Accion Pauliana
Art 1177 ".they may aso impugn the acts whch the debtor may have done to defraud them"
Art 1381 Par 3 Those undertaken n fraud of credtors when the atter cannot n any other manner
coect the cams due them. (Found under Rescssbe Contracts)
Concept Credtors have the rght to set asde or revoke acts whch the debtor may have done to
defraud them. A acts of the debtor whch reduce hs patrmony n fraud of hs credtors, whether by
gratutous or onerous tte, can be revoked by ths acton.
Payments of pre-existing obligations already due, whether natura or cv, cannot be mpugned by
an accon pauana.
REUlSlTES OF ACClON PAULlANA
1. Pantff askng for rescsson (subsdary acton) has a credt pror to the aenaton, athough
demandabe ater
2. Debtor has made subsequent contract, gvng advantage to a 3
rd
person
3. Credtor has no other remedy but to rescnd the debtors contract to the 3
rd
person (ast resort)
4. Act beng mpugned s frauduent
! Presumpton of fraud may be found n Art 1387 (gratutous transfer wthout eavng
suffcent funds for obgatons OR gratutous transfers by a |udgment debtor) More detas
n page __
5. 3
rd
person who receved the property s an accompce n the fraud
! See Rescssbe Contracts for more deta dscusson on the effects of good fath and bad
fath of the thrd party transferee (Page 82)
Distinction between accion subrogatoria and accion pauliana
ACClON SUBROGATORlA ACClON PAULlANA
Not essenta that credt s pror to the
acquston of debtors rght
Credt must exst before frauduent act
Intent to defraud credtors s not requred If contracts rescnded s onerous, there must
be frauduent ntent
No perod of prescrpton Acton prescrbes wthn 4 years of the
dscovery of the fraud
3 Other specific remedies (Accion Derecta)
Art 1652 Lessor vs. sub-essee
Art 1729 Laborers vs. owner
Art 1608 Vendee a retro vs. vendee a retros transferee
Art 1893 Prncpa vs. substtuton approprated by prncp
EXTlNGUlSHMENT OF LlABlLlTY lN CASE OF BREACH DUE TO FORTUlTOUS EVENT
Art 1174 Except n cases expressy specfed by law, or when t s otherwse decared by stipulation, or
when the nature of obgaton requres the assumption of risk, no person shall be responsible for
those events whch coud not be foreseen or whch, though foreseen, were n s evtabe .
Concept of Fortuitous Event |Force Majeure, Fuerza Mayor, Caso Fortuito|
A. Act of God - by nature e.g. earthquakes, storms, foods, epdemcs, fres, etc; a human agences
excuded
B. Act of Man - by acts of man, e.g armed nvason, attack by bandts, governmenta prohbtons,
robbery, etc; for as ong as that they have a force of an mposton whch the debtor coud not
have ressted
Incudes unavodabe accdents, even f there has been nterventon of human eement, provded
that the fault or negligence cannot be imputed to the debtor
Requisites of Fortuitous Event
1. Cause of the unforeseen and unexpected occurrence or the faure of the debtor to compy wth
hs obgaton must be independent of human will
2. Impossbe to foresee the event whch consttute the caso fortuto (ordnary) OR f t can be
foreseen, must be mpossbe to avod (extraordnary)
3. Occurrence must be such as to render t impossible for the debtor to fulfill his obligation in a
normal manner
4. Obgor must be free from any participation n the aggravaton of the n|ury resutng to the
credtor (no concurrent neggence)
Effect of CONCURRENT FAULT of the Debtor
! When the neggence of a person concurs wth an act of God n producng a oss, such person s
not exempt from liability by showng that the mmedate cause of the damage was the act of
God.
! If he creates a dangerous condition or neggence athough the act of God was the mmedate
cause, he cannot escape abty for the natura and probabe consequence thereof.
! There must be NO fraud, negligence, delay or violation/contravention in any manner of the tenor
of the obgaton.
! When the effect s found to be partly resutng from the partcpaton of man, whether due to hs
actve nterventon or negect or faure to act, the whoe occurrence s then humanized and
removed from the rues appcabe to the acts of God (NPC v CA - the case of Wemng and the
expodng dam)
Extinguishment of Liability
GENERAL RULE: No abty f there fortutous events ntervene
SPECIFIC APPLICATION:
Non performance
Deay
Loss and deteroraton of a specific thing
Art 1189 Loss wthout the faut of debtor n suspensive condton
Art 1190 Loss wthout the faut of debtor n resolutory condton
Art 1194 Loss wthout the faut of the debtor n suspensive perod
Art 120 4 Loss of a aternatve prestatons
Art 1205 In aternatve obgatons, n case of oss of one aternatve, credtor chooses from
remander
EXCEPTIONS:
a. Cases specfed by law
Art 552 Par 2 Possessor n bad fath
Art 1165 Debtors deay
Art 1942 Obgaton of baee n
commodatum
Art 1268 Proceeds n a crmna offense
Art 1979 & Art 1993 Depostary
Art 2001 Act of a thef
Art 2147 Offcous management
Art 2148 Negotorum gesto
Art 2159 Accepts undue payment n bad
fath
Art 1198 Loss of beneft to make use perod
b.
c. Express stipulation by the partes
d. Assumption of risk
- The prncpe s based on soca |ustce, an ethco-economc sensbty of modern
socety whch has noted the n|ustces whch ndustra cvzaton has created
- Appes to a knds of pubc servces but mted to rsks and events that are typca of
the busness concerned
USURlOUS TRANSACTlONS
Art 1175 Usurous transactons sha be governed by speca aws.
Art 1413 Interest pad n excess of the nterest aowed by the usury aws may be recovered by the
debtor, wth nterest thereon from the date of the payment.
Art 1961 Usurous contracts sha be governed by the Usury Law and other speca aws, so far as they
are not nconsstent wth ths Code.
lNTERE5T - the ncome produced by money n reaton to ts amount and to the tme that t cannot be
utzed by ts owner. It can ether be moratory or compensatory.
! MORATORY - pad n contractua obgatons to pay a sum of money, ether as prce for the
use of the money OR as stpuated advanced determnaton of the damages due to the deay
n the fufment of the obgaton. *mora = delay
! COMPEN5ATORY - nterests on obgatons whch have an extra-contractua or dectua orgn
U5URY - contractng for or recevng somethng n excess of the amount aowed by the aw for the oan
or forbearance of money, good or chattes. It s aso takng more nterest for the use of money, goods or
chattes or credts than the aw aows.
TWO CONCEPTS ON PAYMENT OF lNTEREST (from Sr Labtags handout)
A. lnterest for the use or loan or forbearance of money, goods or credit
If no stpuaton re: payment of nterest:
No interest for use or forbearance
* No nterest sha be due uness t has been expressy
stpuated n wrtng (Art 1956)
If there s express stpuaton (whch must be n wrtng
to be vad) for payment of nterests, but no rate
mentioned
Interest sha be 12% per annum (Sec. 2, Monetary
Board Crcuar 905, 10 Dec 1982)
If there s stpuaton n wrtng and rate of interest is
agreed upon (ncudng commssons, premums, fees
and other charges)
Such nterest sha not be subject to ceiling
prescrbed under the Usury Law (Sec. 1, Monetary
Board Crcuar 905, 10 Dec 1982))
B. lnterest as damages for breach or default in payment of loan or forbearance of money,
goods, credit
No stpuaton as to nterest for use of money
In case of DEFAULT, oan or forbearance sha earn
ega nterest, at rate of 12% per annum from date
of judicial or extrajudicial demand, sub|ect to Art
1169 (deay/mora)
If rate of nterest stpuated, e.g. 24% per annum
Loan + stpuated nterest, sha earn 12% per
annum from date of judicial demand
* Interest due sha earn ega nterest from the tme t s
|udcay demanded, athough the obgaton may be sent
upon ths pont (Art 2212)
C. lf obligation NOT consisting of a loan or forbearance of money, goods or credit is
breached, e.g. obligation to give, to do, not to do
! Interest may be mposed at the discretion of court at the rate of 6% per annum.
! No nterest ad|udged on unliquidated claims or damages, unt demand can be
estabshed wth reasonable certainty.
! After thus estabshed wth reasonabe certanty , nterest of 6% per annum sha begn to
run from the date of judicial or extrajudicial demand.
! But f obgaton cannot be estabshed wth reasonabe certanty at time of demand, 6% per
annum nterest sha begn to run ony from date of judgment - on amount finally
adjudged by court.
D. When judgment of court awardng money becomes final and executory, money |udgment s A, B
and C (above) sha earn 12% per annum from finality of judgment until full payment -
money |udgment sha be consdered as forbearance of credit (Eastern 5hipping Lines vs. CA, 1994)
Monetary Board Circular # 905 lifting the interest rate ceiling vs. Art 2209
MB 905 Interest can now be charged as ender and borrower may agree upon. It sha not be subject
to any ceiling prescrbed under or pursuant to the Usury Law as amended.
Art 2209 If the obgaton conssts n the payment of a sum of money, and the debtor ncurs n
DELAY, the indemnity for damages, there beng no stpuaton to the contrary, sha be the payment
of the nterest agreed upon, and n the absence of stpuaton, the ega nterest, whch s six per cent
per annum.
FULFlLLMENT OF OBLlGATlONS
See Chapter 4: Payment
Presumptions in payment of interests and installments
Art 1176 The recept of the prncpa by the credtor, wthout reservaton wth respect to the nterest,
sha gve rse to the presumption that interest has been paid.
The recept of a ater nstament of a debt wthout reservaton as to pror nstaments, sha kewse
rase the presumption that such installments have been paid.
GENERAL RULE: If the debt produces nterests, payment of the prncpa sha not be deemed to have
been made uness the nterests have been covered.
PRESUMPTIONS are rebuttabe by evdence
TRANSMlSSlBlLlTY OF RlGHTS
Art 1178 Sub|ect to the aws, a rghts acqured n vrtue of an obgaton are transmissible, f there
has been no stpuaton to the contrary.
EXCEPTIONS:
1. Not transmssbe by ther very nature e.g. purey persona rghts
2. There s a stipulation of the partes that they are not transmssbe # not be easy mped but
ceary estabshed or at the very east, ceary nferabe
3. Not transmssbe by law
Chapter lll. Different Kinds of Civil Obligations
I. Pure and Conditional obligations
A. PURE OBLlGATlONS
Art 1179 Par 1 Every obgaton whose performance DOES NOT depend upon a future or uncertain
event OR upon a past event unknown to the partes s demandable at once.
! Contans no term or condton whatever upon whch depends the fufment of the obgaton
contracted by the debtor. Immedatey demandabe and nothng woud exempt that debtor from
compance therewth.
B. CONDlTlONAL OBLlGATlONS
Art 1181 In condtona obgatons, the acquisition of rghts, as we as extinguishment or loss of
those aready acqured, sha depend upon the happening of the event whch consttutes the
condton.
CONDlTlON
" every future and uncertan event upon whch an obgaton or provson s made to depend
" even though uncertan, t shoud be possbe
" must be mposed by the w of a party and NOT a necessary ega requste of the act e.g.
promse to gve donaton propter nuptias f a person gets marred s not condtona (DPN
presupposes marrage)
" "past event" cannot be a condton because t s not a future and uncertan event, more propery
caed as "bass"; athough proof of a past event may be a condton
" TERM - not uncertan but must necessary happen e.g. death of a person
CONDlTlON PERlOD}TERM
Determnes existence of an obgaton Determnes demandability of an obgaton
Kinds of Conditions
1. As to effect on obligation
Art 1181 Acquisition of rights" and extinguishment or loss of those already acquired"
SUSPENSlVE RESOLUTORY
When condton fufed Obgaton arses Obgaton s extngushed
When condton not
fufed
The |urdca or ega te does not appear Te of aw s consodated, becomes
absoute
Unt t takes pace Obgaton s a mere hope The effect fow, but over t hovers
possbty of termnaton ke Sword of
Damoces
Effect Acquston of rghts Extngushment or oss of those aready
acqured
Aso known as Condton precedent/antecedent Condton subsequent
SUSPENSlVE (condton precedent/antecedent)
the obgaton arses, but f the condton does not happen, obgaton does not come nto exstence
Retroactive effect when "suspensive" condition is fulfilled - The bndng te of condtona
obgaton s produced from the tme of perfecton, not happenng of condton.
! Can aso be seen as "Rghts of credtor and debtor after fufment of the condton"
A rt 1187 The effects of a condtona obligation to give, once the condton has been fufed sha
retroact to the day of the constitution of the obgaton. Nevertheess, when the obgaton mposes
reciprocal prestations upon the partes, the fruts and nterests durng the pendency of the condton
sha be deemed to have been mutuay compensated. If the obgaton s unilateral, the debtor sha
approprate the fruts and nterests receved, UNLESS from the nature and crcumstances of the
obgaton t shoud be nferred that the ntenton of the person consttutng the same was dfferent.
In obligations to do or not to do, the courts shall determine, n each case, the retroactve effect of
condton that has been comped wth.
OBLlGATlON TO GlVE OBLlGATlON TO DO or NOT TO DO
8ilateral (recproca obgaton)
- deemed to have been mutuay compensated
Unilateral
- debtor sha approprate fruts
and nterests receved, UNLESS
there was a dfferent ntenton
Courts sha determne the retroactve effect of the
condton
Unt the fufment of suspensve condton, credtor cannot enforce the obgaton as hs rght then
was merely an expectancy. However, upon happenng, the debtor can be compeed to perform.
REASON FOR RETROACTIVITY: Condton s ony accdenta and not an essenta eement of the
obgaton. The obgaton s consttuted when the essenta eements whch gve rse there to concur.
Contracts entered nto PENDENTE CONDlTlONE (before happenng of suspensve condton)
! CREDITOR transfers hs rghts pror to happenng of condton e.g. mortgage over the
property to be devered to hm # Effect: consodate or makes effectve the act performed.
! DEBTOR: cannot aenate or dspose the thng, f he does so, a such contracts are abrogated
and cease to have any effect upon happenng of the suspensve condton. But because
devery transfers rea rght over the thng:
3
rd
person n good fath # retans ownershp; debtor becomes abe to credtor for
damages.
3
rd
person s n bad fath he may be compeed to dever the thng to the credtor.
LIMITATIONS ON RETROACTIVITY (as dctated by |ustce and requred by practcabty or
convenence):
of the thng by fortutous event, debtor suffers the oss because he s st the owner
! acts of administration before fufment not affected by retroactvty; however abuse of rghts
n guse of admnstraton are not aowed to defeat rghts of credtor
! usufructuary rights not wthn the prncpe of retroactvty of condtona obgatons
Rights of creditor and debtor before fulfillment of condition
Art 1188 The credtor, may before the fulfillment of the obligation, brng the approprate acton for the
preservation of hs rght.
The debtor may recover what durng the same tme he has paid by mistake n case of a suspensve
condton.
No preference of credt s granted to the credtor but ony aows hm to brng proper acton for the
preservaton of hs rghts.
PAYMENT BEFORE HAPPENING OF CONDITION: Debtor may ony recover what he pad by mstake
before happening of suspensve condton, hence f condton has been fufed, he can no onger
cam because of retroactvty of the condton.
- If the payment was for a determnate thng: accion reivindicatoria (for nexstent
contracts)
- Otherwse (not a determnate thng): solutio indebiti
- If the payment was wth knowedge of condton: mped waver of condton and
cannot recover
- If the payment was wth knowedge but the condton dd not happen: debtor can
recover est the credtor w be un|usty enrched.
- The aw s sent as to whether fruts may be recovered ke n Art 1195, but Toentno
says we can appy prncpe of souto ndebt, especay f credtor s n bad fath
(knew that the debtor s payng before the suspensve condton has happened). 5ir
Labitag says yes, though. lt follows the same rules.
RESOLUTORY (condton subsequent)
extngushes rghts and obgatons aready exstng
2. As to cause or origin
Art 1182 When the fulfillment of the condition depends upon the sole will of the debtor the
condtona obgaton sha be VOID. If t depends upon chance or upon the will of a 3
rd
person, the
obgaton sha TAKE EFFECT n conformty wth the provsons of ths Code.
POTESTATlVE - One whch depends upon the w of one of the contractng partes; n the power of one
of the partes to reaze or prevent
llND5 OF POTE5TATlVE CONDlTlON
1. Simple potestative - presupposes not ony a manfestaton of w but aso the reazaton of an
externa act
- On the part of the debtor: Does not prevent formaton of vad obgaton because n
part depends on contngences over whch he has no contro
2. Purely potestative - depends soey and excusvey upon the w
- Destroys the effcacy of the ega te
- Effect if fulfillment of condition depends solely on the will of the debtor
VOID because t s a drect contraventon of Art 1308 on mutuaty of contracts and to
do so s to sancton usory condtons
- If depends excusvey on the w of credtor # VALID
- Appcabe ony to SUSPENSIVE and NOT to RESOLUTORY
- Hence, resoutory potestatve (facutatve) condtons are perfecty vad, even f made
to depend upon the obgor/debtor, snce the obgaton s aready n force
Debtor's promise to pay when he can is not a conditional obligation
Art 1180 When the debtor bnds hmsef to pay WHEN hs means permt hm to do so, the obgaton
sha be deemed to be one wth a perod sub|ect to the condtons of Art 1197 (perod was ntended).
- Credtor w have to ask the court to fx a perod because an mmedate acton to
enforce the obgaton woud be premature.
CASUAL - depends excusvey upon chance, w of a thrd person or other factors, and not upon the
w of the contractng partes
MlXED - depends upon the w of one of the contractng partes and other crcumstances, ncudng the
w of thrd persons
3. As to possibility
Art 1183 IMPOSSIBLE CONDITIONS, those contrary to good customs or pubc pocy and those
prohbted by aw sha annul the obligation whch depends upon them. If the obgaton s
DIVISIBLE, that part thereof whch s not affected by the impossible or unlawful condition sha be
valid.
The condton not to do an impossible thing sha be consdered as not having been agreed upon.
lMPOSSlBLE - may ether be physical (contrary to the aw of nature) or juridical (contrary to aw,
moras, good customs, and pubc pocyAND restrcts certan rghts whch are necessary for the free
deveopment of human actvty .e. potca rghts, famy rghts and consttutona rghts and bertes
e.g. condton not to change domce, regon or contract marrage)
lLLlClT CHARACTER - determned not by the facts but by the effect upon one of the partes. Thus, the
crteron s sub|ectve. Not the act but the ntenton and ts effect that determne the ct character of
the condton.
- Why? Impossbty of fufment mpes he does not intend to be bound, thus the nuty of
the promse
Effect of lmpossible Conditions
Annus ony obgatons whch are POSITIVE and SUSPENSIVE. In the case of a negative
impossible condition, ts consdered as not wrtten and the obgaton s converted to a pure and
smpe one.
Appes ony to contracts and not to smpe and testamentary donatons and to testamentary
dspostons
Impossbty of condton must exst at the tme of the creaton of the obgaton (not exstence of
a vad obgaton subsequenty rendered mpossbe under Art 1266 on "subsequent
mpossbty")
DIVISIBLE OBLIGATION: part not affected by the mpossbe condton sha reman vad
GENERAL RULE: Impossbe condton annus the obgaton dependent upon them
EXCEPTIONS:
!
! Pre-exstng obgaton
! Dvsbe obgaton
! Smpe or remuneratory obgaton
! Testamentary dsposton
! Negatve mpossbe thngs
4. As to mode
POSlTlVE (suspensive)
Art 1184 The condton that some event happen at a determinate time sha EXTINGUISH the
obgaton as soon as the time expires OR f t has become indubitable that the event will not take place.
If there s no perod fxed, the rue n Par 2 of Art 1185 s appcabe. Intenton of the partes s
controng, and the tme sha be that whch the partes may have probaby contempated, takng
nto account the nature of the obgaton.
NEGATlVE (suspensive)
Art 1185 The condtons that some event w not happen at a determinate time sha render the
obgaton EFFECTIVE from the moment the time indicated has elapsed OR f t has become evident that
the event cannot occur.
If no time has been fixed, the condton sha be deemed fulfilled at such tme as may have probaby
been contempated, bearng n mnd the nature of obgaton.
LOSS, DETERlORATlON or lMPROVEMENT pending happening of the condition
Art 1189 When the condtons have been mposed wth the ntenton of SUSPENDlNG the effcacy of an
obligation to give, the foowng rues sha be observed n case of the mprovement, oss or
deteroraton of the thng durng the pendency of the condton:
1. Loss wthout faut of debtor: obgaton extngushed
2. Loss through the faut of debtor: obged to pay damages. A thng s oss when t:
a. Pershes
b. Goes out the commerce of man
c. Dsappears n such a way that ts exstence s unknown or t cannot be recovered
3. Deterorates wthout faut of the debtor: mparment to be borne by the credtor
4. Deterorates through the faut of debtor: credtor may choose between the rescsson of the
obgaton and ts fufment wth ndemnty for damages n ether case
5. Improved by ts nature, tme: nure to the credtor
6. Improved at the expense of the debtor: no other rght than that granted to the usufructuary
Appcabe ony to obgatons to dever a determnate or specfc thng. NO appcaton to generc
ob|ects (genus never pershes).
Appy ony n case suspensive condition is fulfilled.
Art 1190 When the condtons have for ther purpose the EXTlNGUlSHMENT of an obligation to give,
the partes, upon the fufment of the sad condtons, sha return to each other what they have
receved.
In case of the oss, deteroraton, or mprovement of the thng, the provsons whch wth respect to the
debtor, are ad down n the precedng artce sha be applied to the party who is bound to return.
As for obligations to do or not to do, the provsons of 2
nd
par of Art 1187 (courts shall determine)
sha be observed as regards the effect of the extngushment of obgaton.
LOSS 1. Pershes
2. Goes out of the commerce of man
3. Dsappears n such a way that ts exstence s unknown or t cannot be recovered
DETERlORATlON Any reducton or mparment n the substance or vaue of a thng whch does not amount to
a oss. The thng st exsts at the tme the condton s fufed, but t s no onger ntact, OR
s ess than what t was when the obgaton was consttuted.
lMPROVEMENT Anythng added to, ncorporated n, or attached to the thng that s due.
Effect of loss or deterioration
LOSS DETERlORATlON
Wthout debtors faut Extngushed, uness there s a stpuaton
to the contrary. Mode of extngushment Art
1262 Par 1
Not abe for damage, credtor must accept
the thng n mpared condton
Wth debtors faut Labe to damages upon fufment of
condton
May demand the thng OR ask for
rescsson, n ether case, credtor may
recover damages
Effect of improvement
MODE
By nature or tme Inures to the beneft of the credtor by vrtue of prncpe of retroactvty of condtona
obgatons
At debtors expense Ony usufructuary rghts; Governed by Art 579 (usefu mprovements or for mere
peasure, remove f possbe to remove wthout damage to property) and Art 580 (set off
the mprovements he may have made aganst any damage)
Effect of prevention of the fulfillment of the condition by the obligor
Art 1186 The condton sha be deemed fulfilled when the obgor vountary prevents fufment.
CON5TRUCTlVE FULFlLLMENT - a condton whch athough not excusvey wthn the w of the debtor,
may n some way be prevented by the debtor from happenng.
REOUISITES:
a. Intent of the obgor to prevent the fufment of the condton ESSENTIAL!
b. Actua preventon of the compance
Why? Party to a contract may not be excused from performng hs promse by the non-
occurrence of the event whch he hmsef prevented.
Aso appcabe to provocation of resolutory conditions
C. REClPROCAL OBLlGATlONS
Art 1191 The power to rescnd obgaton s implied in reciprocal ones, n case one of the obgors
shoud not compy wth what s ncumbent upon hm.
The n|ured party may choose between FULFlLLMENT and the RESClSSlON of the obgaton, wth
the payment of damages n ether case. He may aso seek rescsson, even after he has chosen
fufment, f the atter shoud become IMPOSSIBLE.
The court sha decree the rescsson camed UNLESS there be a just cause authorizing the fixing of
a period.
Ths s understood to be without prejudice to the rights of third persons who have acqured the
thng, n accordance wth Artces 1385 and 1388 and the Mortgage Law.
Art 1192 In case both parties have committed breach of obgaton, the abty of the frst
nfractor sha be equtaby tempered by the courts. If t cannot be determned whch of the partes
frst voated the contract, the same sha be extinguished and each shall bear his own
damages.
Concept REClPROClTY arses from dentty of cause and necessary, two obgatons are created at the
same tme. Each party s a credtor and debtor of the other and they are to perform smutaneousy.
Recognzed "mped or tact resoutory condton" mposed excusvey by aw, even f there s no
correspondng agreement between partes # ts aso caed RE5OLUTlON
Power to rescnd s gven to the n|ured party
Alternative remedies of injured party in case of breach # n|ured party shoud choose ony one,
cannot ask for parta rescsson and parta fufment
a. Acton for Fufment # When fufment no onger possbe, rescsson takes pace
b. Acton for Rescsson
Requisites for rescission
a. One of the credtors failed to comply wth what s ncumbent upon hm
b. Obgor who performed chose rescsson over fufment or performance s impossible
c. The breach s substantial so as to defeat the ob|ect of the partes n makng the
agreement - t w not be granted n sght or casua breach
How made - Rescsson requres |udca approva to produce ega effect
" EXCEPTION: ob|ect s not yet devered AND obgaton has not yet been performed
" If the obgaton has not yet been performed: extra|udca decaraton of party wng
to perform woud suffce; can refuse to perform f the other party s not yet ready to
compy
" If the n|ured party has aready performed: cannot extra|udcay rescnd IF the other
party opposes the rescsson (otherwse, rescsson produces ega effect). In the case
the other party mpugns rescsson, the court comes n ether to:
a. Decare the rescsson as propery made
b. Gve a perod to the debtor n whch to perform
Effects of Rescission
1. Extngushes obgatory reaton as f t had never been created # Equvaent to nvadate
the |urdca te, eavng thngs n ther status before the ceebraton of the contract
2. Mutua resttuton
Rescission Art 1380 Distinguished from Resolution Art 1191
Art 1191 Resolution Art 1380 Rescission
Smartes 1. Presuppose contracts vady entered nto and exstng
! Rescsson v. Annument: the atter there s a defect whch vtates/nvadates the contract
2. Mutua resttuton when decared proper
Who may
demand
Ony by a party to the contract Party to the contract sufferng eson
Thrd partes pre|udced by the contract
Grounds Non-performance (mped tact condton n
recproca obgaton)
Varous reasons of equty provded by the
grounds, many economc n|ury or esons
Scope of
|udca contro
Court determnes suffcency of reason to |ustfy
extenson of tme to perform obgaton
(whether sght or casua breach)
Suffcency of reason does not affect rght to
ask for rescsson (cannot be refused f a the
requstes are satsfed)
Knd of ob Ony to recproca Unatera, recproca
appcabe to Even when contract s fuy fufed
Character Prncpa Remedy Secondary/Subsdary
II. Obligation with a Period
Art 1193 Obgatons whose fufment a day certain has been fxed, sha be demandabe ony when
that day comes.
Obgatons wth a resolutory period take effect at once but termnate upon arrva of the day certan.
A "day certan" s understood to be that whch must necessarily come, athough t may not be
known when.
If the uncertanty conssts n whether the day will come or not, the obgaton s CONDlTlONAL, and
t sha be reguated by the rues of the precedng Secton.
Art 1180 When the debtor bnds hmsef to pay WHEN his means permit hm to do so, the obgaton
sha be deemed to be one with a period, sub|ect to the provsons of Art 1197.
Concept A space of tme whch, exertng an nfuence on obgatons a s a consequence of a |urdca
act, suspends their demandability or determines their extinguishment.
! Requisites of Period
1. Future
2. Certan
3. Possbe
Period}Term vs. Condition
AS TO TERM}PERlOD CONDlTlON
Fufment Event must necessary come, whether known
before hand OR at a tme whch cannot be
predetermned
Event s uncertan
Infuence on
the obgaton
No effect on the exstence, but ony on ther
demandabty or performance, HENCE, does
not carry wth t any retroactve effect
Gves rse to an obgaton or extngushes one
aready exstng
Tme Aways to the future May refer to past event not know to the partes
W of the
debtor
If dependent on w of debtor, merey
empowers court to fx such perod
If dependent on w of debtor, ANNUL
Kinds of Period}Term
1. As to effect
SUSPENSlVE (Ex de)
Art 1193 Par 1 Obgatons whose fulfillment a day certain has been fixed, sha be demandable
only when that day comes.
! Must apse before the performance of the obgaton can be demanded
! Thnk: ncubatng perod
! The obgor has the burden of provng any extenson of the perod by satsfactory evdence
! SUSPENSION OF PERIOD: If a fortutous event supervenes, the obgor s merey reeved of
the obgaton to fuf at that tme, and does not stop the runnng of the perod because n
effect that woud be an extenson of the term of the contract. Force ma|eure cannot be
deducted from the perod stpuated.
! MORATORIUM LAWS: postponement of the fufment of an obgaton, an extenson of the
perod for the performance of the obgaton, decreed by the statute. However, to meet
consttutona requrements: The suspenson shoud be definite and reasonable.
RESOLUTORY (In dem)
Art 1193 Par 2 Obgatons wth a resolutory period take effect at once but terminate upon arrva
of the day certan.
! Perod after whch the performance must termnate
! Thnk: expry date
2. As to expression
EXPRESS - when specfcay stated
lMPLlED - when partes "ntended a perod"
E.g. Art 1197 Par 3 (perod has been contempated by the partes), Art 1180 (promse to pay when
abe), or when a person undertakes to do some work whch can be done ony durng a partcuar
season
3. As to definiteness
DEFlNlTE - refers to a fxed known date or tme
lNDEFlNlTENESS - event whch w necessary happen but the date of ts happenng s unknown
! The uncertanty of the date of occurrence n ndetermnate perod DOES NOT convert t nto a
condton, so ong as there s no uncertainty as whether it will happen or not.
! E.g. death of a person, movabe regous hodays (Hoy Week), events n cv or potca fe (age
of ma|orty or becomng a quafed voter)
! Debtor promses to "pay when abe" or "tte by tte" or "as soon as possbe"
! Two steps in dealing with an indefinite period (from Sir Labitag's lecture)
1. Make the ndefnte perod defnte by askng for payment or makng an extra|udca
demand
2. Make |udca demand, then ask the courts to fx the perod
! No need to fe to actons, |ust ask for two prayers to avod mutpcty of suts: (1) fx perod and
(2) requre the debtor to compy on the fxed perod (acton for specfc performance)
! The 2-n-1 acton dscussed by Sr Labtag s actuay contradctory wth Toentnos commentary.
4. As to source
CONVENTlONAL/ VOLUNTARY - stpuated by the partes
LEGAL - perod fxed by aw; spread n the CC e.g. Art 1682 ease of rura and and Art 1687 ease of
urban and; Franchse agreement n the Consttuton (for 25 years)
jUDlClA L - set by the courts n case of mped and ndefnte perods (5ee: When courts may fix
period)
Rules in case of loss, deterioration or improvement before arrival of period
Art 1194 In case of oss, deteroraton or mprovement of the thng before the arrva of the day certan,
the rues n Art 1189 sha be observed.
! 5ame as Art JJ89
Effect of loss or deterioration
LOSS DETERlORATlON
Wthout debtors faut Extngushed, uness there s a stpuaton
to the contrary. Mode of extngushment Art
1262 Par 1
Not abe for damage, credtor must accept
the thng n mpared condton
Wth debtors faut Labe to damages upon fufment of
condton
May demand the thng OR ask for
rescsson, n ether case, credtor may
recover damages
Effect of improvement
MODE
By nature or tme Inures to the beneft of the credtor by vrtue of prncpe of retroactvty of condtona
obgatons
At debtors expense Ony usufructuary rghts; Governed by Art 579 (usefu mprovements or for mere
peasure, remove f possbe to remove wthout damage to property) and Art 580 (set off
the mprovements he may have made aganst any damage)
Effect of payment in advance
Art 1195 Anythng pad or devered before the arrva perod, the obgor beng unaware of the perod
OR beevng that the obgaton has become due and demandabe, may be RECOVERED, with the fruits
and interests.
! Ony appes to obligations to give
! The acton ony es before the arrva of the day certan, when the day certan comes cannot
recover
! If the credtor refuses, debtor w have to go to the court, but when |udgment comes, the day
certan has aready arrved. Poor hm. (Sr Labtag)
! Manresa: good fath/bad fath of the credtor n acceptng the premature payment s
mmatera
! Toentno: In accordance wth solutio indebiti, good fath of credtor makes hm abe to
restore the fruts and nterests nsofar as t benefted hm.
! The same prncpe as regards fruts and nterest s true for payment before happenng of
suspensive condition n Art 1188 Par 2
! Fruts and nterests not recoverabe n these cases:
" Recproca obgaton and there has been a premature performance on both sdes
" When the obgaton s a oan on whch the debtor s bound to pay nterest
" When the perod s excusvey for the beneft of the credtor, because the debtor who
pays n advance oses nothng
" If payment was wth knowedge of the term, t cannot be recovered because t s
consdered as tact waver of the beneft of the term (not ony fruts and nterest, but
aso prncpa)
Note Art 1197 Par 3 In every case, the court sha determine such period as may under the
crcumstances have been probably contemplated by the parties. Once fixed by the courts, the
period cannot be changed by them.
Benefit of Period
1. For whose benefit and its effects
Credit
or
May demand performance anytme, but not compeed to accept before perod expres
E.g. payment of nterest, wants to keep hs money safey nvested nstead of havng t n hs
hands, protects hmsef from sudden decne n purchasng power of the currency oaned
Debtor May oppose a premature demand, but may vady pay any tme before perod expres
E.g. tme to rase money
Both Presumpton n absence of stpuaton or n case of doubt
Credtor must gve consent frst before debtor may pay n advance especay when credtor
receves other benefts by reason of the term
2. Presumption for the beneft of BOTH the credtor and debtor
Art 1196 Whenever n an obgaton a perod s desgnated, t s presumed to have been estabshed
for the beneft of BOTH credtor and debtor, UNLE55 from the tenor of the same or other
circumstances t shoud appear that the perod has been estabshed n favor of one or the other.
3. When debtor loses right to make use of period
Art 1198 The debtor sha ose every rght to make use of the perod:
1) When after the obgaton has been contracted, he becomes insolvent UNLE55 he gves a
guaranty or securty for the debt doveta wth accion pauliana (pror credt athough
demandabe ater)
2) When he does not furnsh to the credtor the guaranties or securities which he has
promised
3) When by hs own acts he has impaired said guaranties or securtes after ther
estabshment, and when through a fortuitous event they dsappear, UNLE55 he mmedatey
gves new ones equay satsfactory
4) When the debtor violates any undertaking n consderaton of whch the credtor agreed to
the perod
5) When the debtor attempts to abscond shows bad fath
Par 1: "nsovency" need not be decared n an nsovency proceedng, enough that he s n a state of
fnanca dffcuty that he s unabe to pay hs debts
Par 3: "mpared" need not be tota; "dsappear through fortutous event" tota, used n the sense of
"oss"
Obgaton becomes mmedatey due and demandabe even f perod has not yet expred; converted
to a pure obgaton
Does not appy to extenson of perod fxed by moratorum statutes
When court may fix period
Art 1197 If the obgaton does not fx a perod, but from ts nature and crcumstance t can be inferred
that a period was intended, the courts may fx the duraton thereof.
Par 2 The courts sha aso fx the duraton of the perod when t depends upon the will of the
debtor.
Par 3 The courts sha determne whch perod as may under the crcumstances have been probably
contemplated by the partes. Once fixed by the courts, the period cannot be changed by them.
1. Perod s mped a perod was ntended; aso lNDEFlNlTE PERlOD
2. Perod depends soey on w of debtor
! If t were condition: vod
III. Alternative obligations - puraty of ob|ects
Concept
1. Conjunctive - a prestatons must be performed to extngush obgaton
2. Disjunctive - one or some prestatons must be performed to extngush obgaton
a. Alternative - Debtor must perform one of severa aternatves, choce beongs to debtor
UNLESS expressy gven to credtor
b. Facultative - One prncpa prestaton but one or more substtutes, choce beongs to
DEBTOR ONLY
Absent ndcaton that t s facutatve, the presumption is that it is ALTERNATlVE because
credtor woud be at a dsadvantage f facutatve. Facutatve s never presumed.
Art 1199 A person aternatvey bound by dfferent prestatons sha competey perform one of them.
Par 2 The credtor cannot be compeed to receve part of one and part of the other undertakng.
Right of choice debtor uness expressy granted to credtor
Art 1200 The rght of choce beongs to the debtor, UNLE55 t has been expressly granted to the
credtor.
Par 2 The debtor sha have no rght to choose those prestatons whch are mpossbe, unawfu or whch
coud not have been the ob|ect of the obgaton
! Grant to credtor cannot be mped
! Choce may aso be entrusted by the partes to a thrd person
! LIMITATIONS ON RIGHT OF CHOICE
" Rght to choose s ndvsbe (cannot choose part of one and part of the other)
" Cannot choose prestatons whch are mpossbe, unawfu or coud not have been the
ob|ect of the obgaton (Art 1200, Par 2)
Effect of notice of choice
The effect of notce of choce s to limit the obligation to the object or prestation selected,
wth a the consequences whch the aw provdes.
The obgaton s converted to a simple obligation to perform the prestaton chosen.
Once the seecton has been communcated, t becomes irrevocable.
When notice produces effect
Art 1201 The choce sha produce no effect except from the time it has been communicated.
! Notce of seecton/choce may be n any form provded t s suffcent to make the other party
know that election has been made.
! Oray
! In wrtng
! Tacty # tacit declaration of the selection may be done:
" performance by the debtor who has the rght to choose or n the acceptance of
a prestaton by the credtor when he has the rght of seecton
" when the credtor sues for the performance of one of the prestaton
! Any other unequvoca terms
! Law does not requre the other party to consent to the choce made by the party entted to
choose. A mere decaraton of the choce, communcated to the other party s suffcent #$
unatera decaraton of w
! Ony possbe EXCEPTION: Debtor has chosen a prestaton whch coud not have been the ob|ect
of the obgaton; credtors consent thereto woud brng about a novaton of the obgaton
! PLURALITY OF SUB|ECT
! |ont: choce must be consented by a, as none of them can extngush the obgaton
aone
! Sodary: choce by one w be bndng personay upon hm, but not as to other
(bakeeet?!)
! Rght to choose s not ost by the mere fact that the party entted to choose deays n makng hs
seecton.
! Sr Labtag: Substituted performance # when the debtor does not want to make a
choce, credtor can ask the court for a 3
rd
party e.g. cerk of court, sherff, or any other
knowedgeabe 3
rd
person to choose
Effect of loss or impossibility of one or all prestations
Art 1202 The debtor sha ose the rght of choce, when among the prestatons whereby he s
aternatvey bound, ony one s practcabe.
! Converted to a simple and pure obligation; The mpossbty of the act must not be due to
creditors act where Art 1403 sha appy.
! Credtor cannot cam damages, because ts the debtors ca
Art 1203 If through the creditor's act, the debtor cannot make a choice accordng to the terms of
the obgaton, the atter may rescind the contract with damages.
! Impossbty due to credtor
Art 1204 The creditor sha have a rght to indemnity for damages when, through the fault of the
debtor,
a. ALL THE THINGS whch are aternatvey the ob|ect of the obgaton have been LOST or
b. COMPLIANCE of the obgaton has become lMPOSSlBLE.
Par 2 The indemnity sha be fxed takng as a bass the VALUE of the last thing which disappeared OR
that of the service which last became impossible.
Par 3 Damages other than the vaue of the ast thng or servce may aso be awarded.
! Appes to cases where the debtor has the right to choose
! If ony some of the prestatons are ost/mpossbe, not abe for damages because he can st
compy by performng the remanng prestatons even f there s ony one (Art 1202)
! LOSS THROUGH FORTUITOUS EVENTS: obgaton s extngushed, debtor not abe for damages
Art 1205 When the choice has been expressly given to the creditor, the obgaton sha cease to
be alternative from the day when the selection has been communicated to the debtor.
Par 2 Unt then, the responsbty of the debtor sha be governed by the foowng rues:
1. If ONE of the thng s LOST through fortuitous event, he sha perform the obgaton by
deverng that whch the credtor shoud choose from the remander, or that whch remans f
ony one subssts.
2. If the LOSS of ONE of the thngs occurs through the fault of the debtor, the credtor may cam
any of those subsstng, or the prce of that whch, through the faut of the debtor has dsappear,
wth a rght to damages.
3. If ALL the thngs are LOST through the fault of the debtor, the choce by the credtor sha fa
upon the prce of any of them, aso wth ndemnty for damages.
Par 3 the same rues sha be apped to obligations to do or not to do, n case ONE, OR 5OME OR
ALL of the prestatons shoud become lMPOSSlBLE.
FACULTATlVE OBLlGATlON
Art 1206 When only one prestation has been agreed upon, but the obligor may render another in
substitution, the obgaton s caed facultative.
Par 2 The LOST or DETERlORATlON of the thing intended as a substitute through the negligence of
the obgor, does not render hm abe. BUT once the substtuton has been made, the obgor s liable
for the oss of the substtute on account of hs delay, negligence or fraud.
Concept Ony one prestaton s due, but the obgor reserved the rght to render another n
substitution
Distinguished from Alternative Obligation
AS TO ALTERNATlVE FACULTATlVE
Contents of
the
obgaton
Varous prestatons a of whch consttute parts
of the obgaton
Ony the prncpa consttutes the obgaton ,
the accessory beng ony a means to factate
payment
Nutyof
prestaton
Nuty of one prestaton does not nvadate the
obgaton whch s st n force wth respect to
those whch have no vce
Credtor can choose from the remander
Nuty of the prncpa prestaton (e.g. when the
ob|ect s unawfu or outsde the commerce of
man) nvadates the obgaton.
Credtor cannot demand the substtute even
when ths s vad.
Choce Rght to choose may be gven to the credtor Ony the debtor can choose the substtute
prestaton
Effect of Loss
(fortutous
event)
Ony the IMPOSSIBILITY OF ALL the prestatons
due without fault of the debtor extngushes the
obgaton
Impossbty of the prncpa prestaton s
suffcent to extngush the obgaton, even f
the substtute s possbe.
Loss of substtute does not make debtor abe,
uness substtuton has been made
Effect of Loss
(through
faut)
Debtor not abe f other prestaton st
avaabe
If choce beongs to credtor, oss of one
aternatve gves rse to abty
Debtor s abe
Loss of the substtute before substaton does
not render debtor abe
Effects of Substitution
! Before the substtuton s effected, the substtute s not the prestaton that s due.
! IF the substtute prestaton becomes mpossbe due to the faut or neggence of the debtor
# obgaton s not affected, and he cannot be hed for damages, even f he acts wth bad
fath n renderng the substtute mpossbe.
! From the tme the debtor communcates to the credtor that he eects to perform the
substtute prestaton, substtuton s effectve.
IV. ]oint and Solidary obligation - puraty of sub|ects, the |urdca te that bnds them
jOlNT OBLlGATlONS
Concept Each of the debtors s abe ony for a proportonate part of the debt, and each credtor s
entted ony to a proportonate part of the credt. Each credtor can recover ony hs share of the
obgaton and each debtor can be made to pay ony hs part. Sr Labtag descrbes t as a "thn pastc
rope or strng" that bnds the partes.
! Requisites of ]oint Obligations
1. Puraty of sub|ects
2. Determnaton of the shares n the demandabty of the fufment of the obgaton
! Words used to indicate joint obligations
! Mancomunada
! Mancomunada Smpe
! Pro rata
! "We promse to pay." used by two or more sgners
Presumptions in ]oint Obligations
Art 1207 The concurrence of two or more credtors or of two or more debtors n one and the same
obgaton does not imply that each one of the former has a rght to demand, OR that each one of
the atter s bound to render entre compance wth the prestatons. There s a SOLlDARY
LlABlLlTY ony when the obgaton expressly so states OR when the law OR the nature of the
obgaton requires sodarty.
Art 1208 If from the aw, or the nature or the wordng of the obgatons to whch the precedng
artce refers the contrary does not appear, the credt or debt sha be presumed to be divided as
many equal shares as there are credtors or debtors, the credts or debts beng consdered dstnct
from one another, sub|ect to the Rues of Court governng the mutpcty of suts.
! |ont character s presumed
! Equa shares
Effects of ]oint Obligation
a. Extent of abty of debtor
1.Ony wth respect to hs partcuar share n the debt
2.Vces of each obgaton arsng from the persona defect of a partcuar debtor or credtor does
not affect the obgaton or rghts of the others
3.The nsovency of a debtor does not ncrease the responsbty of hs co-debtors nor does t
authorze a credtor demand anythng from hs co-credtors
4.|OINT DIVISIBLE OBLIGATION: defense of res judicata s not extended from one debtor to
another
b. Extent of rght of credtor
1.Demand by one credtor upon one debtor produces the effects of defaut ony wth respect to
the credtor who demanded and the debtor on whom the demand was made, but not wth
respect to others
2.Interrupton of prescrpton by the |udca demand of one credtor upon a debtor does not
beneft the other credtors nor nterrupt the prescrpton as to other debtors
c. In case of:
Novation: Affects ony the share of the |ont co-debtor n whom the novaton s created
Compensation: Affects ony the share of the |ont co-debtor n whom the compensaton takes
pace
Confusion: Art 1277 Confuson does not extinguish a |ont obgaton except as regards the
share correspondng to the credtor or debtor n whom the two characters concur.
Remission: Benefts ony the |ont co-debtor n whom the remsson s granted, obgaton
extngushed
SOLlDARY OBLlGATlONS
Concept Each of the debtors s abe for the entre obgaton, and each credtor s entted to demand
the whoe obgaton. Each credtor may enforce the entre obgaton and each debtor may be obged to
pay t n fu. Sr Labtag descrbes t as a "sod stee cabe" that bnds the partes.
! Sodary obgatons exst ony by:
! Stpuaton of the partes
! Law
! Nature of obgaton
! Charge of condton s mposed upon egatees or hers
! Imputed by fna |udgment upon severa defendants
! Requisites of ]oint Obligations
2. Determnaton of the shares n the demandabty of the fufment of the obgaton
! Words used to indicate joint obligations
! Mancomunada sodara
! |ont and severa
! In sodum
! "I promse to pay." foowed by the sgnature of two or more persons
! "Indvdua and coectvey"
! Sir Labitag's magic shortcut formula (appcabe ony to joint liability on both sides)
! # of debtors x # of credtors = dvsor of the tota amount of obgaton
KlNDS OF SOLlDARY OBLlGATlONS
a. As to source
Art 1208 From aw, or the nature or the wordng of the obgaton.
LEGAL
Art 1915 Two or more prncpas apponted an agent for common transacton, sodary abe to
agent
Art 1945 Two or more baees to whom a thng s oaned n the same contracts (commodatum)
Art 2194 |ont tortfeasors
Art 2146 |ont offcous management, two or more managers
Art 2157 |ont payees n souto ndebt (payment s not due)
Art 119 , RPC
CONVENTlONAL by stpuaton of partes
REAL nature of the obgaton requres
b. As to parties bound
ACTlVE - sodarty of creditors; each has rght to coect the whoe of the prestaton from the
common debtor
" Mutua representaton # Each credtors represents the other n the act of recevng
the payment and n a other acts whch tend to secure the credt or make t more
advantageous
" Death of sodary credtor does not transmt the sodrty to each of hs hers but
a of them taken together
" The credt and ts beneft are dvded equay among the credtors UNLESS there s
an agreement among them to dvde dfferenty
PASSlVE - sodarty of debtors; each s abe to pay the whoe to the common credtor
" Mutua guaranty
MlXED - smutaneousy actve and passve
c. As to uniformity
UNlFORM - same terms and condton for a
VARlED/NON-UNlFORM
Art 1211 Sodarty may exst athough the credtors and the debtors may not be bound n the same
manner and by the same perods and condtons.
! Effects of non-uniform solidary liability ony the porton due at the tme of the demand s
coectbe from any of the debtors or by anyone of the credtors
EFFECTS OF SOLlDARY OBLlGATlONS
a. SOLlDARY CREDlTOR n reaton to:
. Common debtor
Right to demand
Debtor may pay to any sodary credtor, but f a |udca demand s made aganst hm, he
must pay ony to the pantff. (Art 1214)
" |udca demand revokes the tact mutua representaton of co-credtors, though
not perpetuay: ony unt such tme the acton exsts.
" Payment to credtor who dd not sue s a payment to 3
rd
person.
" Same effect granted to extra|udca demand.
" DEMAND BY SEVERAL CREDITORS: Pay the one who notfed hm frst. If
smutaneous, debtor reserves the rght to choose.
" Does not appy to MIXED SOLIDARITY: sodary co-debtor may pay n behaf of the
one to whom demand has been made AND to any of the sodary credtors
The credtor may proceed aganst ANY ONE of the sodary debtors or SOME or ALL of them
simultaneously. (Ouiombing v CA) The demand made against one of them sha not be an
obstacle to those whch may be subsequently be directed against others, so ong as the debt
has not been fully collected. (Art 1216)
Payment made by one of the sodary debtors extngushes the obgaton. If two or more
solidary debtors offer to pay, the creditor may choose which to accept. (Art 1217,
Par 1)
Each credtor may renounce hs rght even aganst the w of the debtor, and the atter need
not thereafter pay the obgaton to the former.
ln case of novation, compensation, confusion, remission by a creditor
Novaton, compensaton, confuson or remsson of the debt, made by any of the sodary
credtors OR with any of the sodary debtors, sha extinguish the obgaton, wthout
pre|udce to the provsons of Art 1219 .e. responsbty of a sodary co-debtor wth respect
to rembursement pror to hs remsson (Art 1215 Par 1)
.Solidary co-creditor}s
ln case of novation, compensation, confusion, remission
The credtor who may have executed any of these acts, as we as he who coects the debt,
sha be liable to others for the share n the obgaton correspondng to them (Art 1215
Par 2)
! Remsson done by severa but not a of the credtors: those who made t do not have
acton aganst each other, but a of them abe for the share of one who does not
remt
Prejudicial acts prohibited
Each one of the sodary credtors may do whatever s usefu to the others, but not anythng
whch may be pre|udca to the atter. (Art 1212)
! E.g. remsson, novaton, compensaton and merger/confuson
! Take note that the same act s permtted by Art 1215, wherefore Toentno concudes
that the provson s "unhappy naccurate".
! To harmonze wth Art 1215: The pre|udca acts are vad as to the debtor, but not
wth respect to the co-credtors whose rghts subssts and can be enforced aganst the
credtor who performed pre|udca acts
Assignment of rights not allowed
Sodary credtor cannot assgn hs rghts wthout the consent of others (Ar t 1213 )
! Why? As a sodary credtor, he s an agent of others, cannot assgn that agency
wthout the consent of hs prncpas. Impes mutua confdence may take nto account
the persona quafcaton of each credtor.
! Assgnment of rghts aowed as to co-credtor
b. SOLlDARY DEBTOR n reaton to:
. Common creditor
Obligation to perform
Each one of the sodary co-debtor s bound to render entire compliance wth the
prestatons (Art 1207)
ln case of novation, compensation, confusion, remission by a creditor
Extinguishes the obligation wthout pre|udce to the responsbty of a sodary co-debtor
wth respect to rembursement pror to hs remsson (Art 1215 Par 1)
.Solidary co-debtor
ln case of payment by a co-debtor
Payment by one of the sodary co-debtors extngushes the obgaton. (Art 1217 , Par 1 )
Sodary co-debtor who pad may remburse from hs co-debtors ony the share whch
corresponds to each, wth the nterest for the payment aready made, but f the payment s
made before debt s due, no nterest for the ntervenng perod may be demanded. (Art 1217 ,
Par 3)
# Converted nto a |ont Obgaton as to co-debtors, but no rea case of subrogaton
because the od one s extngushed and the new one s created
# Parta payment: may recover ony nsofar as the payment exceeded hs share of the
obgaton
When one of the sodary debtors s nsovent and cannot remburse, hs share w be borne
by a hs co-debtors n proporton to the debt of each. (Art 1217, Par 3)
Payment by co-debtor does not entte hm to remburse from co-debtors f such payment s
made after the obgaton has prescrbed or become ega. (Art 1218)
# Aso appes to pror tota remsson n favor of one debtor
The remsson made by the credtor of the share whch affects one of the sodary debtors
does not reease the atter from hs responsbty towards the co-debtors, n case debt had
been totay pad by anyone of them before remsson was effected. (Art 1219)
# Appes when one of the debtors has aready pad the obgaton n fu (n such a
case, the obgaton as to the credtor s aready extngushed and nothng more to
remt even partay)
# Reatonshp of the credtor wth the sodary debtor does not extend to the
reatonshp among sodary co-debtors
The remsson of the whoe obgaton, obtaned by one of the sodary debtors, does not
entte hm to rembursement from hs co-debtors. (Art 1220)
ln case of fortuitous event
If the thng has been LOST OR f the prestaton has become IMPOSSIBLE without the fault
of the sodary debtors, the obgaton sha be extinguished (Art 1221 , Par 1 )
If there was faut on the part of any one of them, ALL sha be responsbe to the credtor, for
the prce and payment of damages and nterests, wthout pre|udce to ther acton aganst
the guty or neggent debtor. (Art 1221, Par 2)
# Guty credtor who pays ndemnty cannot recover from hs co-debtors.
# Other co-debtors who pay the ndemnty can recover the full amount from the guty
co-debtor.
If through a fortuitous event, the thng s LOST or the performance of the prestaton has
become IMPOSSIBLE after one of the sodary debtors has incurred in delaythrough the
|udca or extra-|udca demand upon hm by credtor, the provsons of the precedng
paragraph sha appy. (Art 1221, Par 3)
LOST or IMPOSSIBLE wthout faut / fortutous
event
Obgaton s extngushed
LOST or IMPOSSIBLE wth faut of any one
A abe for damages and nterest, but co-
debtors have rght aganst guty debtor
LOST or IMPOSSIBLE wthout faut / fortutous
event but after any one incurred in delay
A abe for damages and nterest, but co-
debtors have rght aganst guty debtor
DEFENSES AVAlLABLE TO A SOLlDARY DEBTOR AGAlNST THE CREDlTOR
Art 1222 A sodary debtor may, n actons fed by the credtor, ava hmsef of a defense whch are of
four types:
1. Those derved from the nature of the obgaton
Connected wth the obgaton and derved from ts nature
Consttutes a total defense
E.g. non-exstence of the obgaton because of ct cause, ob|ect or absoute smuaton,
nuty due to defect n capacty or consent of a the debtors (mnorty, fraud or voence),
unenforceabty because of ack of proper proof under the Statute of Fraud, non-performance
of suspensve condton or non-arrva of perod affectng the entre obgaton,
extngushment of the obgaton such as by payment and remsson, a other means of
defense whch may nvadate the orgna contract
Sr Labtag: Look for these thngs because t w gve you a tota defense:
. Vces of consent
.Cause of acton has prescrbed
.Entre obgaton s vod
v.Vodabe at the nstance of "a of them", BUT f |ust one, you can use the defense
as we
2. Persona defenses
Total defense e.g. mnorty, nsanty, fraud, voence, ntmdaton (suffcent causes to annu
consent)
Partial defense e.g. speca terms or condtons affectng hs part of the obgaton
3. Defenses pertanng to hs share
Partial defense
E.g. may share s not yet due, so you can ony compe me to gve the share of the co-debtors
4. Those personay beongng to the other co-debtors # ava hmsef thereof ony as regards that
part of the debt for whch the atter are responsbe
Partial defense ony for the debtor-defendant
E.g. the co-debtors share s not yet due, so you can ony compe me to gve my share
EFFECTS OF THE DEFENSES
1. If derved from the nature: a the sodary co-debtors are benefted
2. If persona one: ony hm benefted (excusvey)
3. If personay to the co-debtor: parta defense
]OlNT lNDlVlSlBLE OBLlGATlONS
Concept Ther te s |ont, but the performance s ndvsbe. One n whch the ob|ect of the ob|ect or
prestaton s ndvsbe, not susceptbe of dvson; whe the te between the partes s |ont, that s
abe ony to a proportonate share. (Art 1209)
! Severa credtors or debtors but the prestaton s ndvsbe, obgaton s |ont uness sodary has
been stpuated
! Mdway between joint (no credtor can do pre|udca acts to others, no debtor can be made to
answer for the others) and solidarity (fufment requres the concurrence of a the debtors,
coectve acton s expressy requred for pre|udca acts)
! Sr Labtags exampe: obgaton to assembe a |eepney between three dfferent specast:
mechanc, weder, uphosterer or car panter.
lndivisibility distinguished from solidarity
Art 1210 The ndvsbty of an obgaton does not necessary gve rse to sodarty. Nor does sodarty
of tsef mpy ndvsbty.
lNDlVlSlBlLlTY SOLlDARlTY
Each credtor cannot demand more than hs share and
each debtor s not abe for more than hs share
Each credtor may demand the fu prestaton and each
debtor has the duty to compy wth the entre prestaton
Indvsbty refers to the prestaton that s not capabe
of partial performance
Sodarty refers to the legal tie or vinculum defnng the
extent of abty
Ony the debtor guty of breach of obgaton s abe
for damages, thereby termnatng the agency
A of the debtors s abe for the breach of obgaton
commtted by any one of the debtors
Can exst even f there s ony one debtor or ony one
credtor
Can ony exst when there s at east credtor or debtors
(requres puraty of sub|ects)
The other debtors are not abe n case of nsovency of
one debtor
The other debtors are proportonatey abe n case of
nsovency of one debtor
Effects of ]oint lndivisible Obligation
Art 1209 If the dvson s mpossbe, the rght of the credtors may be pre|udced ony by ther coectve
acts
1. Credtors pre|udced ony by ther coectve acts
2. Co-debtors not abe for the share of the nsovent debtor
3. Credtor must proceed aganst a the |ont debtors, because the compance of the obgaton
s possbe ony f a the |ont debtors woud act together.
4. If one of the debtors cannot compy, the obgaton s converted nto monetary consderaton
(abty for osses and damages). One who s ready and wng to compy w pay hs
proportonate share pus damages when hs fnanca condton mproves.
5. Debtor must dever to a the credtors. If he devers to ony one, abe for non-performance
as to other credtors. Damages are dvsbe and each credtor can recover separatey hs
proportonate share.
Liability for damages in case of breach
Art 1224 A |ont ndvsbe obgaton gves rse to ndemnty for damages from the tme anyone of the
debtors does not comply with his undertaking. The debtors who may have been ready to fulfill
ther promses sha not contribute to the indemnity beyond the correspondng porton of the prce
of the thng or of the vaue of the servce whch the obgaton conssts.
1. Gves rse to ndemnty for damages, non-compance wth undertakng
2. Debtors ready to fuf sha not be abe
V. DlVlSlBLE AND lNDlVlSlBLE OBLlGATlON - performance of the prestaton and not to
the thng whch s the ob|ect thereof
DlVlSlBLE OBLlGATlONS
Concept One whch s susceptbe of partial performance; debtor can egay perform the obgaton
by parts and the credtor cannot demand a snge performance of the entre obgaton.
! DIVISIBILITY OF THINGS dfferent from DIVISIBILITY OF OBLIGATIONS
! Divisible Thing: When each one of the parts nto whch t s dvded forms a homogenous
and anaogous ob|ect to the other parts as we as to the thng tsef
! lndivisible Thing: When f dvded nto parts, ts vaue s dmnshed dsproportonatey
! Test of Divisibility
1. W or ntenton of the partes
2. Ob|ectve or purpose of the stpuated prestaton
3. Nature of the thng
4. Provsons of aw affectng the prestaton
Effects of Divisible Obligations
1. Art 1223 The dvsbty or ndvsbty of the thngs that are the ob|ect of obgatons n whch
there s only one debtor and only one creditor does not alter or modify the provsons of
Chapter 2 of ths Tte (Nature and Effect of Obgatons).
2. Art 1233 A debt sha not be understood to have been pad uness the thng or servce n whch
the obgaton conssts has been completely delivered or rendered as the case may be.
lNDlVlSlBLE OBLlGATlONS
Concept Whatever may be the nature of the thng whch s the ob|ect thereof, when t cannot be vady
performed n parts.
Distinguished from Solidary Obligations
lNDlVlSlBlLlTY SOLlDARlTY
Each credtor cannot demand more than hs share and
each debtor s not abe for more than hs share
Each credtor may demand the fu prestaton and each
debtor has the duty to compy wth the entre prestaton
Indvsbty refers to the prestaton that s not capabe
of partial performance
Sodarty refers to the legal tie or vinculum defnng the
extent of abty
Ony the debtor guty of breach of obgaton s abe
for damages, thereby termnatng the agency
A of the debtors s abe for the breach of obgaton
commtted by any one of the debtors
Can exst even f there s ony one debtor or ony one
credtor
Can ony exst when there s at east credtor or debtors
(requres puraty of sub|ects)
The other debtors are not abe n case of nsovency of
one debtor
The other debtors are proportonatey abe n case of
nsovency of one debtor
Kinds of lndivisible Obligations
NATURAL
Art 1225 Par 1 For the purposes of the precedng artces, obligations to give definite things and
those whch are not susceptible of partial performancesha be deemed to be ndvsbe.
1.Obgaton to gve defnte thngs
2.Not susceptbe of parta performance
LEGAL
Art 1225 Par 3 However, even though the ob|ect or servce may be physcay dvsbe, an obgaton s
ndvsbe f so provided by law or ntended by partes.
CONVENTlONAL
Art 1225 Par 3 However, even though the ob|ect or servce may be physcay dvsbe, an obgaton s
ndvsbe f so provded by aw or intended by parties.
Presumptions in lndivisible Obligations
OF lNDlVlSlBlLlTY
Art 1225 Par 1 For the purposes of the precedng artces, obligations to give definite things and
those whch are not susceptible of partial performance sha be deemed to be indivisible.
! Presumpton of ndvsbty aso appes n obgatons to do
OF DlVlSlBlLlTY
Art 1225 Par 2 When the obgaton has for ts ob|ect the executon of certan number of days of work,
the accompshment of work by metrca unts or anaogous thngs whch by ther nature are
susceptible of partial performance, sha be divisible.
Divisibility and indivisibility in obligations not to do
Art 1225 Par 4 In obgatons not to do, dvsbty or ndvsbty sha be determned by the character
of the prestation n each partcuar case.
Effects of lndivisible Obligations
1. Art 1223 The dvsbty or ndvsbty of the thngs that are the ob|ect of obgatons n whch
there s only one debtor and only one creditor does not alter or modify the provsons of
Chapter 2 of ths Tte (Nature and Effect of Obgatons).
2. Art 1233 A debt sha not be understood to have been pad uness the thng or servce n whch
a. EXCEPTIONS:
a. Obgaton has been substantay performed n good fath (Art 1234)
b. When the credtor accepts performance, knowng ts competeness, and
wthout protest, the obgaton s deemed fuy performed (Art 1235)
3. Art 1224 A |ont ndvsbe obgaton gves rse to indemnity for damages from the tme anyone
of the debtors does not comply with his undertaking. The debtors who may have been
ready to fuf ther promses sha not contribute to the indemnity beyond the correspondng
porton of the prce of the thng or of the vaue of the servce whch the obgaton conssts.
4. 5ee joint lndivisible Obligations
Cessation of lndivisibility
a) Natural lndivisibility: converson of the obgaton to pay damages
b) Conventional/Legal lndivisibility: novaton, death of credtor (dvson among hers)
Entire and 5everable Contracts - depends upon the consideration to be pad, not upon ts ob|ect
Not n the syabus but Sr mentoned n passng durng ecture
ENTIRE - consderaton s entre and snge; e.g. Sr Labtag: yeary subscrpton to Herad Trbune
SEVERABLE - consderaton s expressy or by mpcaton apportoned; e.g. part to be performed
by one party conssts n severa dstnct and separate tems, and the prce s apportoned to each
of them
Vl.OBLlGATlONS WlTH A PENAL CLAUSE
Concept An accessory undertakng to assume greater responsbty n case of breach. Attached to an
obgaton to nsure performance.
! "Ad terrorem cause"
! Generay a sum of money, but can be any other thng stpuated by the partes, ncudng an act
or abstenton
! Doube functon: (1) provde for qudated damages and (2) strengthen the coercve force of the
obgaton by the treat of greater responsbty n the event of breach
! Mere non-performance of the prncpa obgaton gves rse to damages
! PENAL CLAUSE consttutes an excepton to the genera rues on the recovery of osses and
damages.
PRlNClPAL OBLlGATlON ACCESSORY OBLlGATlON
Can stand aone, ndependent of other obgatons Attached to the prncpa n order to compete t or take
ther pace n case of breach
OBLlGATlONS WlTH A PENAL CLAUSE CONDlTlONAL OBLlGATlON
There s aready an exstng obgaton (the prncpa)
from the very begnnng
No obgaton before the suspensve condton happens,
t s the fufment of the condton that gves rse to the
obgaton
Accessory obgaton (penaty) s dependent upon non-
performance of the prncpa obgaton
Prncpa obgaton tsef s dependent upon an
uncertan event
OBLlGATlONS WlTH A PENAL CLAUSE ALTERNATlVE OBLlGATlON
Ony one prestaton and t s ony when ths s not
performed that the pena cause s enforceabe
Two or more obgatons are due, but fufment of one of
them s suffcent
Impossbty of the prncpa obgaton aso extngushes
the penaty
Impossbty of one of the obgatons, wthout the faut
of the debtor, st eaves the other subsstng
He cannot choose to pay the penaty to reeve hmsef
of the prncpa obgaton, uness that rght s expressy
granted to hm
The debtor an choose whch prestaton to fuf
OBLlGATlONS WlTH A PENAL CLAUSE FACULTATlVE OBLlGATlON
Payment of the penaty n eu of the prncpa can be
made ony by express stpuaton
Power of the debtor to make substtuton s absoute
Credtor may demand both prestaton as ong as such
rght s granted to hm (.e. compementary penaty)
Credtor can never demand both prestatons
OBLlGATlONS WlTH A PENAL CLAUSE GUARANTY
Contract by vrtue of whch a person, caed the
guarantor, bnds hmsef to fuf the obgaton of the
prncpa debtor n case the atter shoud fa to do so.
SlMlLARlTlES
1. They are both ntended to nsure the performance of the prncpa obgaton.
2. They are both accessory and subsdary obgatons.
3. Can be both assumed by a thrd person.
To pay the penaty s dfferent from the prncpa
obgaton
The ob|ect of the obgatons of the prncpa debtor and
the guarantor s the same.
Prncpa obgaton and the penaty can be assumed by
the same person.
Prncpa debtor cannot be the guarantor of the same
obgaton
Penaty s extngushed by the nuty of the prncpa
obgaton, except when the pena cause s assumed by
a thrd person
Guaranty subssts even when the prncpa obgaton s
vodabe or unenforceabe or s a natura one. However,
f the pena cause s assumed by a thrd person, the
same prncpe w appy as n the case of a guaranty.
Kinds of Penal Clause
1. As to effect
SUBSlDlARY - ony the penaty may be enforced
Presumed n Art 1227: Cannot demand the fulfillment of the obligation and the satisfaction of
the penalty at the same time"
COMPLEMENTARY - both prncpa obgaton and penaty may be enforced
Ony occurs by express stpuaton of the partes
2. As to source
CONVENTlONAL - by express stpuaton of the partes
LEGAL - by aw
3. As to purpose
PUNlTlVE - the rght to damages, besdes the penaty subssts; the queston of ndemnty for
damage s not resoved, but remans subsstng
Ony occurs by express stpuaton of the partes
Sr Labtag: vaue of the pena cause s much more than the vaue of the prncpa, ts
purpose s to budgeon the debtor nto performng the obgaton
The Courts are authorzed to reduce the damages f:
! They fnd that the breach was not one that s wanton (noodes) or done n caous
dsregard for the rghts of the credtor
! Trebe damages
REPARATORY - substtutes the damages suffered by credtor; the matter of damages s
generay resoved, and t represents the estmate of the damages that a party mght suffer from
non-performance of the obgaton, thereby avodng the dffcutes of provng such damages
Presumpton n Art 1226, Par 1: 5hall substitute the indemnity for damages and the payment of
interests in case of non-compliance"
Sr Labtag: pre-agreed measure pror to the breach
Cases when damages and interest may be recovered in addition to the penalty
1. There s an express provson to that effect
2. Debtor refuses to pay the penaty
3. Debtor s guty of fraud n the non-fufment of the obgaton
Demandability of penalty
Art 1226 Par 2The penaty may be enforced ony when t s demandabe n accordance wth the
provsons of Code.
a. Ony when the non-performance s due to the faut or fraud of the debtor
b. Non-performance gves rse to the presumpton of faut #credtor does not need to prove the
faut of the debtor. Burden of proof for the excuse on the debtor. (Art 1228)
c. When credtor eected fufment but the same has become mpossbe (Art 1227)
HOWEVER, penalty not enforceable when the principal obligation becomes
lMPOSSlBLE:
Due to fortutous event
Because the credtor prevents the debtor from performng the prncpa obgaton
Effects of penal clause
1. Substitute for ndemnty for damages and payment of nterest (Art 1226)
EXCEPTION: Uness there s a stpuaton to the contrary e.g. becomes a facutatve obgaton
2. Not exempt debtor from performance - penaty s not a defense for eavng obgaton unfufed
Art 1227 The debtor cannot exempt hmsef from the performance of the obgaton by payng the
penaty
EXCEPTION: Where ths rght to substtute penaty has been expressy reserved for hm
3. Credtor cannot demand both performance and penaty at the same tme
Art 1227 Nether can the credtor demand the fufment of the obgaton and the satsfacton of the
penaty at the same tme"
EXCEPTION: Uness ths rght has been ceary granted hm
4. Credtor cannot collect other damages n addton to penaty
Art 1226 Substtute the ndemnty for damages and the payment of nterest n case of non-
fufment * EXCEPTIONS:
1. There s an express provson to that effect
2. Debtor refuses to pay the penaty
3. Debtor s guty of fraud n the non-fufment of the obgaton
When penalty shall by equitably reduced
Art 1229 The |udge sha equtaby reduce the penaty when the prncpa obgaton has been partly or
irregularly complied wth by the debtor. Even f there s no performance, the penaty may aso be
reduced by the courts f t s iniquitous or unconscionable.
Partial" - quantty or extent of fufment
lrregular" - form of fufment
Ony appes to penates prescrbed n contracts and not to coecton of the surcharge on
taxes that are due, whch s mandatory on the coector
Effects of Nullity of Principal Obligation or Penal Clause
Art 1230 The nullity of the penal clause does not carry wth t that of the prncpa obgaton. The nullity
of the principal obligation carres wth t that of the pena cause.
GENERAL RULES:
1. Nullity of principal obligation Also nullifies the penal clause
! EXCEPTIONS: Pena cause may subsst even f the prncpa obgaton cannot be enforced
When the penaty s undertaken by a 3
rd
person precsey for an obgaton whch s
unenforceabe, natura or vodabe assumes a form of guaranty whch s vad under
Art 2052
Nullity of principal obligation itself gves rse to abty of debtor for damages e.g.
vendor knew that the thng was nexstent at the tme of the contract, vendor
becomes abe for the damages athough contract tsef s vod
2. Nullity of penal clause Does not affect the principal obligation
! In the case of non-performance, damages sha be determned by the same rues as f no
penaty had been stpuated
! Pena cause may be vod because t s contrary to aw, moras, good customs, pubc order or
pubc pocy
! Ratonae: Penaty s merey an accessory to the prncpa obgaton
Chapter lV. Extinguishment of Obligations
I. Modes of Extinguishment
Art 1231 Obgatons are extngushed:
A. Payment or performance - most natura way of extngushng obgaton
B. Loss of the thng due or Impossbty of performance
C. Condonaton or Remsson of the debt
D. Confuson or Merger of the rghts of the credtor and debtor
E. Compensaton
F. Novaton
G. Other causes of extngushment of obgatons
- Annument
- Rescsson
- Fufment of resoutory condton
- Proscrpton
Addtona msceaneous causes from Sr Labtag and Toentno
- Arrva of resoutory perod
- Compromse
- Mutual dissent (opposte of mutua agreement)
- ` Death - extngushes obgatons whch are of a purey persona character, apart from ts
extnctve effect n some contracts such as partnershp and agency
- Renuncaton by the credtor
- Abandonment e.g. Art 662 (abandonment of nterest n a party wa) and abandonment of a
vesse under the code of commerce
- Insovency - does not extngush obgaton uness |udcay decared and a dscharge was
gven hm.
ll. Payment or performance
CONCEPT Fufment of the prestaton due, a fufment that extngushes the obgaton by the
reazaton of the purposes for whch t was consttuted.
! |urdca act whch s VOLUNTARY, LICIT, and MADE WITH THE INTENT TO EXTINGUISH THE
OBLIGATION
! Requisites of a Valid Payment
1. Person who pays
2. Person to whom payment s made
3. Thng to be pad
4. Manner, tme and pace of payment
! Kinds of Payment
a. Normal debtor vountary performs the prestaton stpuated
b. Abnormal when debtor s forced by means of |udca proceedng, ether to
compy wth the prestaton or pay ndemnty
! Why do you pay7 Bgger consequences f you dont pay, the credtor w fe acton for
coecton then the sherff w evy upon your other propertes
! What are the elements}characteristics of a valid payment7
1. ldentity - what s to be pad, payment shoud be the very same obgaton/prestaton
promsed to be performed/not performed
2. lntegrity - how payment shoud be made, t shoud be compete (not ony specfc thng
but a of ts accessons and accessores)
! Can anybody pay7 YES, as ong as hs payment has ntegrty and dentty and the credtor
accepts t as a vad tender of payment
J. Who can pay
a. ln general (credtor cannot refuse vad tender of payment)
1. Debtor
2. Anyone actng on hs behaf
a. Duy authorzed agent or representatves
b. Hers (means that debtor s dead, f ave, they woud be thrd persons nterested
n obgaton)
c. Successors n nterest and assgnees
b. Third person who is an lNTERESTED PARTY (credtor cannot refuse vad tender of payment)
Meanng of lNTERE5TED PARTY - nterested n the extngushment of the obgatons such as
Co-debtors
Suretes
Guarantors
Owners of mortgaged property or pedge
Art 1302 (3) When even without the knowledge of the debtor, a person interested in the
fulfillment of the obgaton pays, wthout pre|udce to the effects of confuson as to the atters
share.
Effects of Payment by 3
rd
Person - lnterested
1. Vad payment; obgaton extngushed
2. Debtor to remburse fuy 3
rd
person nterested
3. 3
rd
person subrogated to the rghts of the credtor
c. Third person who is NOT AN lNTERESTED PARTY but WlTH CONSENT of debtor
Art 1302 (2) When a thrd person, not nterested n the obgatons, pays wth the express or tact
approva of the credtor.
Art 1236 Par 1 The creditor is not bound to accept payment or performance by a thrd person
who has no nterest n the fufment of the obgaton, uness there s a stpuaton to the
contrary.
rd
Person - Not lnterested - With Debtors Consent
1. 3
rd
person s entted to fu rembursement
" Demand from the debtor what he has pad
2. Lega subrogaton (novaton) - 3
rd
person s subrogated/steps nto the shoes of credtor
" Payor can exercse a the rghts of the credtor arsng from the very obgaton
tsef, whether aganst the debtor or thrd person
3. Credtor may refuse to accept payment
d. Third person who is NOT AN lNTERESTED PARTY and WlTHOUT THE KNOWLEDGE OR
AGAlNST THE WlLL OF THE DEBTOR
Art 1236 Par 1 The creditor is not bound to accept payment or performance by a thrd person
who has no nterest n the fufment of the obgaton, uness there s a stpuaton to the
contrary.
Art 1236 Par 2 Whoever pays for another may demand from the debtor what he has pad, except
that f he pad wthout the knowedge or aganst the w of the debtor, he can recover only
insofar as the payment has been beneficial to the debtor.
Art 1237 Whoever pays on behaf of the debtor without the knowledge or against the will of the
latter, cannot compel the creditor to subrogate him in his rights, such as those arsng
from a mortgage, guaranty or penaty.
rd
Person - Not lnterested - Without lnowledge or Against the Will
1. 3
rd
person can ony be rembursed nsofar as payment has been benefca to debtor
Burden of proof of payment on the 3
rd
person
Beneft to the credtor need not be proved n the foowng cases:
a. If after the payment, the thrd person acquires the creditor's right
b. If the credtor ratifies the payment to the thrd person
c. If by the creditor's conduct, the debtor has been ed to beeve that the
thrd person had authorty to receve the payment
d. Assgnment of credt wthout notce to debtor (Art 1626)
2. 3
rd
person cannot compe credtor to subrogate hm n the atters rghts
e. Third person who does NOT lNTEND TO BE RElMBURSED # DEBTOR MUST GlVE
CONSENT
Art 1238 Payment by thrd person who does not ntend to be rembursed by the debtor s
deemed to be a donation, whch requires the debtors consent. But the payment s n any
case valid as to the creditor who has accepted t.
rd
person - lnterested or not - Does not intend to be reimbursed
1. Payment s deemed as a donaton/offer of donaton
2. Donaton must be n proper form (.e. f above P5K t must be n wrtng)
f. ln obligation to give
A rt 1239 In obgaton to gve, payment made by one who does not have free disposal of the
thng due and capacty to aenate t sha not be valid, wthout pre|udce to the provsons of Art
1427 under Tte on Natura Obgatons.
A rt 1427 When a mnor 18-21 entered nto a contract wthout the consent of the parent or
guardan, vountary pays a sum of money or delivers a fungible thing n fufment of an
obgaton, there sha be no right to recover the same from the obge who has spent or
consumed it in good faith.
Effect of lncapacity of the payor
1. No free dsposa and no capacty to aenate
! Payment s nvad, but wthout pre|udce to natura obgatons
2. Mnor who entered
contract wthout consent
of parent/guardan
! No rght to recover fungbe thng devered to the credtor who spent or consumed t n good
fath
g. ln case of active solidarity
Art 1214The debtor may pay any one of the sodary credtors, but f any demand, |udca or
extra|udca has been made by one of them, payment shoud be made to hm.
Z. To whom payment can be made
a. ln general
Art 1240 Payment sha be made to the person in whose favor the obgaton has been
consttuted, or hs successor in interest, or any person authorized to receve t.
1. Credtor/person n whose favor obgaton was consttuted
2. Hs successor n nterest
3. Any person authorzed to receve t
Payment to a wrong third party
GENERAL RULE: Not vad, obgaton s not extngushed, even f n good fath of the debtor
EXCEPTION:
1. Extngushed f the mstake s mputabe to the faut or neggence of the credtor (PAL v
CA)
2. Payment n good fath to person n possesson of credt (Art 1242)
lncapacitated person
Art 1241 Par 1 Payment to a thrd person ncapactated to admnster hs property sha be vad f
he has kept the thng devered or nsofar as the payment has been benefca to hm.
GENERAL RULE: Payment not vad
EXCEPTION - When payment to an incapacitated person is valid:
a) If credtor has kept the thng devered
b) Insofar as payment benefted credtor
! Benefit to the creditor need not be proved n the foowng cases:
e. If after the payment, the thrd person acquires the creditor's right
f. If the credtor ratifies the payment to the thrd person
g. If by the creditor's conduct, the debtor has been ed to beeve that the
thrd person had authorty to receve the payment
h. Assgnment of credt wthout notce to debtor (Art 1626)
b. Third person
Art 1241 Par 2 Payment to a thrd person sha aso be vad nsofar as t has redounded to the
beneft of the credtor.
GENERAL RULE: VALID f thrd person proves that t redounded to credtors beneft; otherwse
VOID
EXCEPTION; When proof of benefit not required aso appcabe to INCAPACITATED
PERSONS
Art 1241 Par 3 Such beneft to the credtor need not be proved n the foowng cases:
1. If after the payment, the thrd person acquires the creditor's right
2. If the credtor ratifies the payment to the thrd person
3. If by the creditor's conduct, the debtor has been ed to beeve that the thrd person
had authorty to receve the payment
4. Assgnment of credt wthout notce to debtor (Art 1626)
5. Payment n good fath to any person n possession of the credit sha reease the
debtor (Art 1242) # EFFECT: Debtor s reeased
Art 1243 Debtor pays credtor after beng |udcay ordered to retan debt
EFFECT: Payment not vad f the property s attached or garnshed
c. ln case of active solidarity
Art 1214The debtor may pay any one of the sodary credtors, but f any demand, |udca or
extra|udca has been made by one of them, payment shoud be made to hm.
If no demand s made, debtor may pay to any of the sodary credtors
If any |udca/extra|udca demand s made by any of the credtors who made
the demand
3. What is to be paid ("identity")
a. ln general
The very prestaton (thng or servce) due
b. ln obligations to.
- GlVE a specific thing
Art 1244 Par 1 The debtor of a thng cannot compe the credtor to receve a dfferent one,
athough the atter may be of the same vaue as, or more vauabe than whch s due.
1. Gve specfc thngs tsef
2. Accessons and accessores
3. If wth oss, mprovements, deteroraton # Appy Art 1189
- GlVE a generic thing
Art 1246 When the obgaton conssts n the devery of an ndetermnate or generc thng,
whose quaty and crcumstances have not been stated, the credtor cannot demand a thng
of superor quaty. Nether can the debtor dever a thng of nferor quaty. The purpose of
obgaton and other crcumstances sha be taken nto consderaton.
GENERAL RULE: Credtor cannot demand a superor quaty; Debtor cannot dever a thng of
nferor quaty
EXCEPTION: Uness quaty and crcumstances have been stated, purpose and other
crcumstances of obgaton consdered.
- Pay money
Art 1249 The payment of debts n money sha be made n the currency stpuated, and f t s
not possbe to dever such currency, then n the currency whch s the ega tender n the
Phppnes.
The devery of promssory notes payabe to order, or bs of exchange or other mercante
documents sha produce effect of payment ony when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantme, the acton derved from the orgna obgaton sha be hed n abeyance.
EXCEPTION; RA 4100, RA 8183: Foregn currency f agreed to by partes
Art 1250 In case of an extraordinary inflation or deflation of the currency stpuated
shoud supervene, the vaue of the currency at the time of the establishment of the
obligation sha be the bass of the payment, uness there s an agreement to the contrary.
RA 529
RA 4100
- DO or NOT TO DO
Art 1244 Par 2 In obgatons to do or not to do, an act or forbearance cannot be substtuted
by another act or forbearance aganst the obgees w.
Substtuton cannot be done aganst the w of credtor
c. Payment of interest
Art 1956 No nterest sha be due uness t has been expressy stpuated n wrtng.
Art 1253 Interest must be satsfed frst before capta
4. How is payment to be made ("integrity")
a. ln general
Art 1233 A debt sha not be understood to have been pad uness the thng or servce n whch

GENERAL RULE: Parta payment s not aowed # Credtor cannot be compeed to receve parta
prestatons; Debtor cannot be compeed to gve parta payments
EXCEPTIONS:
1. Contrary stpuaton
! Art 1248 Par 1 Uness there s an express stipulation to that effect, the credtor cannot be compeed
partay to receve the prestatons, n whch the obgaton conssts. Nether may the debtor be requred to
make parta payments.
2. Debt s party qudated and party unqudated
! Art 1248 Par 2 However, when the debt s in part liquidated and in part unliquidated, the credtor may
demand and the debtor may effect the payment of the former wthout watng for the qudaton of the
atter.
3. When there are severa sub|ects/partes are bound under dfferent terms and condtons
4. Compensaton
b. Substantial performance in good faith
Art 1234 If the obgaton has been substantay performed n good fath, the obgor may
recover as though there had been a strict and complete fulfillment, ess damages
suffered by the obge.
Requisites of 5ubstantial Performance
1. Attempt n good fath to perform, wthout any wfu or ntentona departure
2. Devaton from the obgaton must be sght
3. Omsson or defect s unmportant and technca
4. Must not be so matera that ntenton of the partes s not attaned
c. Estoppel
Art 1235 When obge accepts the performance, knowng ts ncompeteness or rreguarty, and
without expressing any protest or objection, the obgaton s deemed fully complied with.
- Consttutes a "waver of defect n performance" # there must however be an ntentona
renqushment of a known rght. Waver w not resut from mere faure to assert a cam for
defectve performance when the thng or work s receved
- Appes ony when he knows the ncompeteness or rreguarty of the payment, obgaton s
deemed extngushed. Estopped from companng
d. Presumptions in payment of interests and installments
lNTEREST
Art 1176 The recept of the prncpa by the credtor, wthout reservaton wth respect to the
nterest, sha gve rse to the presumpton that sad nterest has been pad.
Art 1253 If the debt produces nterest, payment of the principal sha not be deemed to have
been made unt the interests have been covered.
If prncpa amount s receved wthout reservaton as to nterest
nterest s presumed to have been pad
lNSTALLMENTS
Art 1176 Par 2 The recept of a ater nstament of debt, wthout reservaton as to pror
nstaments sha kewse rase the presumpton that such nstaments have been pad.
If a atter nstament s receved wthout reservaton to pror nstaments
pror nstaments are presumed to have been pad
5. When is payment to be made
! When obgaton s due and demandabe but debtor may pay before due date f perod s for the
beneft of debtor. If for the beneft of both the debtor and credtor, debtor may ony pror to the
due date f credtor consents thereto.
a. ln general
Art 1169 Debtor ncurs n deay from the tme credtor judicially or extrajudicially demands
fufment of the obgaton
b. See Chapter Z: Delay
6. Where payment is to be made
a. In the designated place n the obgaton (Art 1251 Par 1)
b. If no place is expressly designated
Ar t 1251 Par 2 There beng no express stipulation and f the undertakng s to deliver a
determinate thing the payment sha be made wherever the thing might be at the moment
the obligation was constituted.
Art 1251 Par 3 In any other case (not to dever a determnate thng), the pace of payment sha
be at the domicile of the debtor.
Art 1251 Par 4 If the debtor changes his domicile in bad faith, or after he has incurred in delay,
the additional expenses shall be borne by him. (Absent such crcumstances, t w be borne
by the credtor)
7. Expenses of making payment
Art 1247 Uness t s otherwse stpuated, the extra-judicial expenses required by the payment sha
be for the account of the debtor wth regard to the |udca costs, the Rues of Court sha govern.
SPEClAL FORMS OF PAYMENT
APPLlCATlON OF PAYMENTS
Art 1252 He who has various debts of the same kind n favor of one and the same creditor, may
decare at the tme of makng the payment, to whch of them the same must be apped. UNLE55 the
partes so stipulate, or when the application of payment is made by the party for whose benefit the
term has been constituted, appcaton sha not be made as to debts that are not yet due.
If the debtor accepts from the creditor a recept n whch an application of the payment is made,
the former cannot complain of the same, UNLE55 there s a cause for nvadatng the consent.
Concept Desgnaton of the debt whch s beng pad by a debtor who has 5EVERAL O8LlCATlON5 OF
THE 5AME llND, n favor of one creditor to whom payment s beng made
Requisites for Application of Payment
1. Same debtor
2. Same credtor
3. Varous debts are of same knd, generay monetary character
! Cannot appy to prestaton to gve specfc thng
! Can appy to prestaton to gve generc thng
4. A obgatons must be due
! EXCEPTIONS:
" Mutua agreement of partes
" upon consent of the party n whose favor the term was estabshed
5. Payment s not enough to extngush a debts
6. Debtor has preferenta rght to choose the debt whch hs payment s to be apped
! Not absoute; LIMITATIONS:
" Cannot make parta payments
" Cannot appy to unqudated debts
" Cannot choose a debt whose perod s for the beneft of the credtor, and
perod has not yet arrved
" Rght to appy debts must be exercsed at the tme when debt s pad
Rules in Application of Payment
1. Rght to appy must be exercsed at the tme of the payment (Art 1252)
2. Credtor may undertake appcaton, sub|ect to the debtors approva. Once the atter accepts
recept of appcaton, he cannot compan UNLESS there s a cause for nvadatng the contract.
(Art 1252)
3. Appy to nterest frst. BOTH (1) nterest stpuated and (2) nterest due because of debtors deay
Art 1253 If debt produces nterest, payment of the prncpa sha not be deemed to have been
made until the interest are covered.
lf rules are inapplicable and application cannot be inferred
Art 1254 When payment cannot be applied in accordance with preceding rules, or f application can not
be inferred from other circumstances, the debt whch s MOST ONEROUS TO THE DEBTOR among
those due, sha be deemed to have been satsfed.
If the debts are of the same nature and burden, the payment sha be applied to all of them
proportionately.
Meanng of MO5T ONEROU5 TO DE8TOR"
! Fundamentay a queston of act, whch courts must determne on the bass of crcumstances of
each case eg.
! Co-debtor (especay f sodary) vs. soe debtor
! Same amount, younger vs. oder
! Secured vs. unsecured
PAYMENT BY CESSlON
Art 1255 The debtor may cede or assgn hs property to hs credtors n payment of hs debts. Ths
cesson, UNLESS there s stpuaton to the contrary, sha ony reease the debtor from responsbty for
the net proceeds of the thing assgned. The agreements whch on the effect of the cesson, are made
between the debtor and hs credtors sha be governed by aw.
Concept Abandonment of the unversaty of the property of the debtor for the beneft of hs credtors,
n order that such property may be apped to the payment of hs credts.
! Debtor transfers a the propertes not sub|ect to executon n favor of credtors that the atter
may se them and thus appy the proceeds to ther credts
! Intatve comes from the debtor but must be accepted by the credtors n order to become
effectve
! Usuay done by debtors n state of nsovency
Requisites for Payment by Cession
1. Puraty of debts
2. Puraty of credtors
3. Compete or parta nsovency of the debtor
4. Abandonment of a debtors property not sub|ect to executon
5. Acceptance or consent on the part of the credtors
Effects of Payment by Cession
1. Credtors do not become the owner; they are merey assignees wth authorty to se
2. Debtor s reeased up to the amount of the net proceeds of the sae, uness there s a stpuaton
to the contrary # not tota extngushment
3. Credtor w coect credts n the order of preference agreed upon, or n defaut of agreement, n
order ordnary estabshed by aw.
DATlON lN PAYMENT (Dacion en Pago)
Art 1245 Daton n payment, whereby property s aenated to the credtor n satsfacton of a debt n
money, sha be governed by aw of saes.
Concept Devery and transmsson of ownershp of a thng by the debtor and to the credtor as an
accepted equivalent of the performance of the obligation.
! An onerous contract of aenaton because ob|ect s gven n exchange of credt
! Speca form of payment because one eement of payment s mssng: "dentty"
Distinguished from payment by cession
DATlON lN PAYMENT PAYMENT BY CESSlON
Transfers the ownershp over the thng aenated
to the credtor
Ony the possesson and admnstraton (not the
ownershp) are transferred to the credtors, wth
an authorzaton to convert the property into
cash wth whch the debts sha be pad
May totay extngush the obgaton and reease
the debtor
Ony extngushes the credts to the extent of the
amount reazed from the propertes assgned,
uness otherwse agreed upon
Cesson of ony some specfc thng Invoves ALL the property of the debtor
Transfer s ony n favor of one credtor to satsfy a
debt
There are varous, puraty of credtors
Both are substtuted performances of obgatons
Requisites for Dation in Payment
1. Consent of credtor # sae presupposes the consent of both partes
2. Dacon w not pre|udce of other credtors
3. Debtor s not decared |udcay nsovent
4. Not a pactum commissorium (a stpuaton enttng the credtor to approprate automatcay the
thng gven as securty n case debtor fas to pay)
Effects of Dation in Payment
1. Extngushes payment to the extent of the vaue at the thng to be devered, ether as agreed
upon by the partes, or as may be proved, uness the partes by agreement expressy or
mpedy or by ther sence, consder the thng as equvaent to the obgaton n whch case the
obgaton s totay extngushed.
2. If property devered to the credtor assumpton that t s a PLEDGE, as t nvoves ess
transmsson of rghts uness t s ceary the ntenton of partes
TENDER OF PAYMENT AND CONSlGNATlON
1. TENDER OF PAYMENT
Concept The act of offerng the credtor what s due hm together wth a demand that the credtor
accept the same
! When credtor refuses wthout |ust cause to accept payment, he s n mora accipiendi and debtor
s reeased from responsbty f he consgns the thng due
! Manfestaton made by debtor to credtor of desre to compy wth obgaton
! Preparatory act to consgnaton; does not cause extngushment of obgaton uness competed
by consgnaton
! Requred ONLY when the creditor refuses without just cause to accept payment
! What are the exampes of unjust cause for refusal
1. Therewas a prevous tender of payment, wthout whch the consgnaton s neffectve
2. Tender of payment was of the very thng due, or n case of money obgatons, that the
ega tender currency was offered
3. Tender of payment was uncondtona
4. Credtor refused to accept payment wthout |ust cause
! What are the exampes of just cause for refusal
1. Debt s not yet due and the perod s for the beneft of the credtor
2. Payment by thrd persons not nterested n the fufment of the obgaton # because to
begn wth, tender presupposes capacty of the payor
3.
! Accrua of nterest w be suspended from the date of such tender f mmedatey deposted wth
the court
Requisites of a Valid Tender of Payment
1. Made n awfu currency
2. Shoud ncude nterest due
3. Must be uncondtona; but the credtor cannot vary the terms of a tender accepted by
hm
4. Unaccepted offer n wrtng to pay s equvaent to actua producton and tender of money
or property
2. CONSlGNATlON
Concept The act of depostng the thng due wth the court or |udca authortes whenever the credtor
cannot accept or refuses to accept payment.
! Generay requres pror tender of payment
! Made by depostng the thngs due at the dsposa of |udca authorty (ncudes sherff)
Purpose Avod performance of an obgaton becomng more onerous to the debtor by reasons not
mputabe to hm
! Duty of attendng ndefntey to ts preservaton, wthout remedy to be reeved from the debt
Requisites of Consignation
1. There s a debt due
2. The consgnaton of the obgaton was made because of some legal cause
! Prevous vad tender was un|usty refused
! Other crcumstances makng prevous tender exempt
3. Prior notice of consgnaton had been gven to the person nterested n the obgaton (1
st
notce)
4. Actual deposit/consgnaton wth proper |udca authorty
5. Subsequent notice of consgnaton (2
nd
notce)
! May be comped wth by the servce of summons upon the defendant credtor
together wth a copy of the compant
! Gven to a nterested n the performance of obgatons: passive (co-debtors,
guarantors, suretes) or active (sodary co-credtors, possbe tgants)
a. When tender and refusal not required
Art 1256 Par 2 Consgnaton aone sha produce the same effect n the foowng cases:
1. Credtor s absent or unknown or does not appear at pace of payment
2. Incapactated to receve payment at the tme t s due need not be egay decared
3. Wthout |ust case, he refuses to gve a recept
4. Two or more persons cam the same rght to coect
5. Tte of the obgaton has been ost
b. Two notice requirement
FIRST NOTICE: Art 1257 Par 1 In order that the consgnaton of the thng due may reease the
obgor, t must FlRST be announced to the persons interested n the fufment of the
obgaton.
Why?
SECOND NOTICE: Art 1258 Par 2 The consignation having been made, the nterested partes
sha aso be notfed thereof.
Why?
Effects of non-compliance
Art 1257 Par 2 The consgnaton sha be ineffectual f t s not made strictly in consonance
wth the provsons whch reguate payment. (5oco v Militante)
c. Effects of Consignation # when propery made, charge aganst the credtor
Art 1260 Par 1 Once the consgnaton has been duy made, the debtor may ask the |udge to
order the canceaton of the obgaton.
1. The debtor s released in the same manner as if he had performed the obligation
at the tme of consgnaton, because ths produces the effect of a vad payment.
2. The accrual of interest on the obgaton s suspended from the moment of the
consgnaton.
3. The deteroratons or oss of a thng or amount consgned occurrng wthout faut of the
debtor must be borne by the credtor, because the rsks of the thng are transferred to the
credtor from the moment of depost.
4. Any ncrement or ncrease n vaue of the thng after the consgnaton nures to the
beneft of the credtor.
d. Withdrawal by debtor BEFORE acceptance by creditor OR approval by the C ourt
- Before the consgnaton s effected, the debtor s st the owner and he may wthdraw t.
(TLC v Flores)
Art 1260 Par 2 Before the credtor has accepted the consgnaton, or before a |udca
decaraton that the consgnaton has been propery made, the debtor may withdraw the
thing or sum deposited aowng the obligation to remain in force.
Effects of withdrawal before consignation is final
1. Obgaton remans n force
2. Debtor bears a the expenses ncurred because of the consgnaton
e. Withdrawal by debtor AFTER proper consignation
Art 1261 If the consignation having been made, the credtor shoud authorize the debtor
to withdraw the same, he sha lose every preference which he may have over the thing.
The co-debtors, guarantors, and suretes sha be reeased.
- With creditor's approval
EFFECTS: revva of the obgaton and reatonshp between credtor and debtor s
restored to the condton n whch t was before the consgnaton
- Without creditor's approval
EFFECTS:
f. Expenses of consignation
Art 1259 The expenses of consgnaton, when propery made, sha be charged against the
creditor.
! Consgnaton s propery made when:
" After the thng has been deposted n the court, the credtor accepts the
consgnaton wthout ob|ecton and wthout reservaton of hs rght to contest t
because of faure to compy wth any of the requstes for consgnaton
" When the credtor ob|ects to the consgnaton but the court, after hearng
decares that the consgnaton has been vady made.
III. Loss or lmpossibility
LOSS OF THE THlNG DUE
Concept Not mted to obgatons to gve but extends to those whch are persona, embracng
therefore a causes whch may render mpossbe performance of the prestaton.
! Generay appes to determnate thngs
! Must be subsequent to the executon of the contract n order to extngush the obgaton
! If mpossbty aready exsted when the contract was made, the resut s not extngushment but
neffcacy of the obgaton under Art 1348 (mpossbe thngs or servces cannot be ob|ect of
contracts) and Art 1493 (Saes; oss ob|ect of contract, contract wthout any effect).

Art 1189 (2) If the thng s ost through the faut of the debtor, he sha be obged to pay damages; t s
understood that the thng s oss when t:
a. Pershes
b. Goes out of the commerce of man
c. Dsappears n such a way that ts exstence s unknown or t cannot be recovered
Kinds of Loss
a. As to extent
TOTAL
PARTlAL
Requisites of Loss of the Thing Due
Art 1262 In order to extngush obgaton:
1. Loss or destroyed wthout the faut of the debtor
2. Before the debtor ncurs n deay
3. After the obgaton s consttuted
Presumption in Loss of the Thing Due
Art 126 5 Whenever the thng s lost in the possession of the debtor, t sha be presumed that
the loss was DUE TO HlS FAULT, UNLESS there s proof to the contrary, and wthout pre|udce to the
provsons of Art 1165.
! Burden of expanng the oss of the thng n the possesson of the debtor, rest upon hm.
Art 1165 Acton for specfc performance or substtuted performance
! When not appcabe # In case of earthquake, flood, storm or other natural calamity.
Effects of Loss of the Thing Due
a. ln obligation to give a specific thing
Art 1262 Loss or destructon of determnate thng without fault of debtor AND before he incurs in
delay EXTlNGUlSHES OBLlGATlON
Art 1268 When the debt of a thng certan and determnate proceeds from a criminal
offense, the debtor sha NOT BE EXEMPTED from the payment of ts prce, whatever may
be the cause for the loss, UNLE55 the thng havng been offered by hm to the person who
shoud receve t, the atter refused wthout |ustfcaton to accept t.
EXCEPTlON5:
1. Debtor s at fault .e. n bad fath, neggence, deay
2. Debtor s made liable for fortuitous event by aw, contractua stpuaton or nature of
obgaton requres assumpton of rsk on part of debtor
b. ln obligation to give a generic thing # not extngushed
Art 1263 In an obgaton to dever a generc thng, the oss or destructon of anythng of the
same knd does not extinguish the obgaton.
Cenus nunquam perit or "The genus never pershes"
Sr Labtag: Faacy! The genus may be egay oss!
EXCEPTlON5:
1. Demted generc thngs: mtaton of the generc ob|ect to a partcuar exstng mass or a
partcuar group of thngs; become determnate ob|ects whose oss extngushes the
obgaton
2. Generc thng has been segregated
3. Monetary obgaton
c. ln case of partial loss
Art 1264 The courts sha determne whether, under the crcumstances, the partial loss of the
ob|ect of the obgaton s so important as to extinguish the obligation.
Provded that parta oss s not mputabe to the faut or neggence of the
debtor but to fortutous events or crcumstances
Intenton of the partes s the controng factor n the souton of each case of
parta oss
E.g. by Sr: When Tyson bt off Hoyfeds ear whch dd not undermne the
atters boxng prowess hehe
d. Action against third persons
Art 1269 The obligation having been extinguished by the loss of the thing, the credtor
sha have a rights of action whch the debtor may have against third person by reason of the
loss.
Refers not ony to the rghts and actons whch the debtor may have aganst
thrd persons but aso to any ndemnty whch the debtor may have aready
receved.
E.g. money pad to the debtor upon expropraton of the property whch s the
ob|ect of obgaton; nsurance receved by owner of company wth respect to
vctms of sunk vesse
lMPOSSlBlLlTY OF PERFORMANCE
Concept
Art 1266 The debtor n obligations to do sha aso be released when the prestaton becomes legally
or physically impossible without the fault of the obligor.
! Refers to "5U85EOUENT lMPO55l8lLlTY" # arses AFTER the obgaton has been consttuted. If
exstng BEFORE, the obgaton consttuted s under VOID contracts
Art 1267 When the servce has become so difficult as to be manifestly beyond the contemplation of
the parties, the obgor may aso be released therefrom, n whoe or n part.
! Doctrne of unforeseen events, "rebus sc stantbus" : the partes stpuate n the ght of certan
prevang condtons, and once these condtons cease to exst, the contract aso ceases to exst.
! Requisites for application of Art J267
1. Event or change n crcumstances coud not have been foreseen at the tme of the executon of the
contract
2. Makes the performance of the contract extremey dffcut but not mpossbe
3. Event must not be due to the act of any of the partes
4. Contract s for a future prestaton
Kinds of lmpossibility
1. As to extent
TOTAL
PARTlAL - sgnfcant n Art 1264 (extngushment due to parta oss sub|ect to the courts
determnaton)
2. As to source
LECAL
a. Drect - prohbted by aw
b. Indrect - prevented by supervenng ega duty such as mtary servce
PHY5lCAL - By reason of ts nature, cannot be accompshed
Requisites of lmpossibility
Art 1266
1. Obgaton used to be possbe at the consttuton of obgaton
2. Subsequent mpossbty
3. Wthout the faut of the debtor
Effects of lmpossibility
a. In obgatons to do
Art 1266 reeases debtor from obgaton f prestatons has become egay or physcay
mpossbe
Art 1267 reeases debtor f performance has become so dffcut to be so manfesty beyond the
contempaton of the partes
A rt 1262 Par 2 (by anaogy) Impossbty due to fortutous events does not extinguish
obgaton f:
! By aw
! By stpuaton
! Nature of the obgaton requres assumpton of rsk
! In case of partial performance by the debtor: credtor must pay the part done so ong as he
benefts from such parta compance.
! If debtor receved anythng from credtor pror to oss or mpossbty: return anythng n excess
of what corresponds to the part aready performed when the mpossbty supervened.
lmpossibility vs. Difficulty
! Manfest dsequbrum n the prestatons, such that one party woud be paced at a
dsadvantage by the unforeseen event.
b. In case of parta mpossbty
Art 1264 The courts sha determne whether, under the crcumstances, the partial loss of the
ob|ect of the obgaton s so important as to extinguish the obligation.
IV. Condonation or Remission
Concept An act of liberality by vrtue of whch, without receiving any equivalent, the credtor
renounces the enforcement of obligation, whch s extngushed n ts entrety or n that part or
aspect of the same to whch the remsson refers.
! It s an essenta characterstc of remsson that t be gratuitous , that there s no equvaent
receved for the beneft gven; once such equvaent exsts, the nature of the act changes
Daton n payment - receve a thng dfferent from that stpuated
Novaton - ob|ect or prncpa condtons of the obgaton shoud be changed
Compromse - when the matter renounced s n tgaton or dspute and n
exchange of some concesson whch the credtor receves
Kinds of Condonation
1. As to extent
TOTAL
PARTlAL - refer to the amount of indebtedness, or to an accessory obligation (such as pedge or
nterest) or to some other aspect of the obligation (such as sodarty)
2. As to form
Art 1270 Par 1 Condonaton or remsson s essentay gratutous, and requres the acceptance
by the obgor. It may be expressly or impliedly.
EXPRE55 - when made formay, accordance wth the forms of ordnary donatons
lMPLlED - nferred from the acts of partes
Requisites of Condonation
1. Debts must be exstng and demandabe at the tme remsson s made
2. The renuncaton of the debt must be gratutous or wthout any equvaent or consderaton
3. Debtor must accept the remsson
Unatera renuncaton s possbe under Art 6 and nothng prevents hm from abandonng
hs rghts
Partes must be capactated and must consent; requres acceptance by the obgor,
mped n mortis causa (effectve upon the death of the credtor) and express inter vivos
(effectve durng the fetme of the credtor)
When formalities required
Art 1270 Par 2 One and other knd sha be sub|ect to the rues whch govern inofficious donation.
EXPRE55 condonaton, sha furthermore, compy wth the forms of donation.
! Batera acts whch requres acceptance by the debtor
! Sub|ect to the rues on donatons wth respect to acceptance, amount and revocaton
! Formates of a donaton are requred n the case of an express remsson
! Revocabe - sub|ect to the rue on noffcous donaton (excessve, egtme s mpared),
ngrattude and condton not foowed
Presumptions in Condonation
1. Art 1271 The DELlVERY of a private document evidencing a credit, made vountary
by a credtor to the debtor, lMPLlES the renunciation of the action whch the former
had aganst the atter.
! Not appcabe to pubc documents because there s aways a copy n the archves whch can be
used to prove the credt.
! Surrender of weapon of enforcement of hs rghts
2. Art 1272 Whenever the private document in which the debt appears s found n the POSSESSlON
of the debtor, t sha be presumed that the creditor delivered it voluntarily, uness the
contrary s proved.
! Ony prma face and may be overcome by contrary evdence to show that notwthstandng the
possesson by the debtor of the prvate document of credt, t has not been pad.
3. Art 1274 It s presumed that the accessory obligations of pledge has been REMlTTED when the
thng pedged, after its delivery to the creditor, s found in the possession of the debtor, or a
third person who owns the thing.
Effects of Condonation
1. In genera # extngushes ether totay or partay
2. In case of |ont or sodary obgatons # affects the share correspondng to the debtor n whose
beneft the remsson was gven
Governing Rules in Condonation
Art 1270 Rues n noffcous donatons
Effects of Renunciation of Principal or Accessory Obligation
Art 1273 The renuncaton of the principal debt sha extinguish the accessory obligations; but the
waiver of the latter sha leave the former in force.
! Why? Accessory merey foows prncpa
V. Confusion or Merger of Rights
Concept Merger or confuson s the meetng n one person of the quates of the credtor and the
debtor wth respect to the same obgaton.
! Erases the puraty of sub|ects of the obgaton and extngushes the obgaton because t s
absurd that a person shoud enforce an obgaton aganst hmsef.
! May be revoked, as a resut of whch the obgaton s recreated n the same condton that t had
when merger took pace
! CAUSE OF MERGER: Anythng that brngs about successon to the credt e.g. debtor nherts
credt from the credtor. However, cannot be the other way around because under the present
aw, hers do not nhert the debts of ther predecessors.
Requisites for Confusion
1. Must take pace between the creditor and the principal debtor (Art 1276)
2. Very same obligation must be nvoved, for f the debtor acqures rghts from the
credtor, but not partcuar obgaton n queston, there w be no merger
3. Confuson must be total or as regards the entre obgaton
Effects of Confusion
1. In genera # extngush the obgaton
2. In case of
joint obligations - Art 127 7 Confuson does not extinguish a joint obligation EXCEPT
as regards the share correspondng to the credtor or debtor in whom the two
characters concur.
5olidary obligations - Art 1215 ". confuson. made by any of the sodary credtors or
wth any of the sodary debtors shall extinguish the obligation, wthout pre|udce to
the provsons of Art 1219." (Sodary co-debtor who has been remtted s st abe to co-
debtors f one of the had pad the obgaton n fu pror the remsson)
Confusion in Principal or Accessory Obligation
Art 1276 Merger whch takes pace n the person of the prncpa debtor or credtor benefits the
guarantors. Confuson whch takes pace in the person of any of the latter does not extinguish
the obligation.
! Merger reeases the guarantor because they are merey accessory obgatons
! Guarantor acqures the credt, hs obgaton as guarantor s extngushed, but the prncpa
obgaton subssts whch he can enforce aganst the debtor and other co-guarantors.
! When mortgaged property beongs to a thrd person, mortgagee acqures a part of the property,
the same s reeased from the encumbrance. The obgaton merey becomes a party (f the
acquston s not tota) unsecured obgaton.
Vl.Compensation
Concept It s a mode of extngushng the obgaton to the concurrent amount, the obgatons of those
persons who n ther own rght are recprocay debtors and credtors of each other.
! Abbrevated payment
! Offsettng of two obgatons whch are recprocay extngushed f they are of equal value or
extngushed to the concurrent amount f of different values.
! Baancng between two obgatons, nvoves a fguratve operaton of weghng two obgatons
smutaneousy n order to extngush them to the extent n whch the amount of one s covered
by the other.
! Payment s smpfed and assured between persons who are ndebted to each other.
! Athough t takes pace by operaton of aw, t must be aeged and proved by the debtor who
cams ts benefts. Once proved, ts effect retroacts to the moment when the requstes provded
by aw concur.
! Distinguished from payments
PAYMENT COMPENSATlON
Capacty to dspose of the thng pad and
capacty to receve are requred for debtor and
credtor
Such capacty s not necessary, because t takes
pace by operaton of aw and not by the acts of
partes
Performance must be compete There may be parta extngushment of an
obgaton
Advantage of Compensation over Payment
1. Smpe, takng effect wthout acton by ether party to extngush ther respectve obgatons
2. More guaranty n makng the credt effectve, because there s ess rsk of oss by the credtor
due to nsovency or fraud of the credtor
Art 1278 Compensaton sha take pace when two persons, n ther own rght are credtors and debtors
of each other.
Distinguished from Confusion
CONFUSlON COMPENSATlON
Invoves ony one obgaton There must aways be two obgatons
There s ony one person n whom the characters
of credtor and debtor meet
Two persons who are mutuay debtors and
credtors of each other n two separate
obgatons, each arsng from a dfferent cause
Kinds of Compensation
1. As to extent
TOTAL - when two obgatons are of the same amount
PARTlAL - when the amounts are not equa
2. As to origin
LEGAL - takes pace by operaton of aw because a the requstes are present
VOLUNTARY/ CONVENTlONAL - when the partes agree to compensate ther mutua obgatons
even f some requste s ackng, such as that provded n Art 1282
Art 1279 Requstes of ega compensaton s nappcabe
Art 1282 The partes may agree upon the compensaton of debts whch are not yet due.
Requisites of Voluntary Compensation
1. Each of the partes can dspose of the credt he seeks to
compensate
2. They agree to the mutua extngushment of ther credts
jUDlClAL - when decreed by the court n a case where there s a countercam e.g. defendant s
the credtor of the pantff for an unqudated amount, sets up hs credt as a countercam
aganst the pantff and hs credt s qudated by |udgment, thereby compensatng t wth the
credt of the pantff. Lega compensaton s not possbe because the cam s unqudated
Art 1283 If one of the partes to a sut over an obgaton has a cam for damages aganst
the other, the former may set t off by provng hs rght to sad damages and the amount
thereof.
FACULTATlVE - when t can be camed by one of the partes who, however, has the right to
object to it, such as when one of the obgatons has a perod for the beneft of one party aone
and who renounces that perod so as to make the obgaton due
When ega compensaton cannot take pace for want of some ega requstes
As compared wth conventona: facutatve s unatera, whe conventona depends
upon agreement of both partes
LEGAL COMPENSATlON
Requisites for Legal Compensation
A rt 1279 In order that compensaton may be proper t s necessary that:
1. Each one of the obgors be bound principally and that at the same tme a principal creditor
of the other
"Prncpas" not appcabe f ony a guarantor
Sodary debtor cannot set up the obgaton of the credtor n favor of a co-debtor,
except as regards the share of the atter
2. That both debts conssts n a sum of money, or f the thngs due are consumabe, they be of the
same kind and aso of the same quality f the atter has been stated
3. That the two debts are due
4. That they be liquidated and demandable
"Lqudated debts" - when ts exstence and amount are determned
"Demandabe" - enforceabe n court
What are not sub|ect to compensaton
! Perod whch has not yet arrved
! Suspensve condton has not yet happened
! Obgaton cannot be sued upon e.g. natura obgaton
5. That over nether of them there be any retention or controversy, commenced by thrd
persons and communcated n due tme to the debtor
Not appcabe to facutatve obgatons, but appcabe to those wth pena cause
Art 1280 Notwthstandng the provsons of the precedng artce, the guarantor may set up
compensation as regards what the creditor may owe the principal debtor.
! Labty of the guarantor s ony subsdary; t s accessory to the prncpa obgaton of the
debtor
! If debtors obgaton s compensated, t woud mean the extngushment of the guaranteed debt
and benefts the guarantor
Effects of Legal Compensation
1. Both debts are extngushed to the concurrent amount (Art 1290)
2. Interests stop accrung on the extngushed obgatons or the part extngushed
3. Perod of prescrpton stops wth respect to the obgaton or part extngushed
4. A accessory obgatons of the prncpa whch has been extngushed are aso extngushed
5. If a person shoud have aganst hm several debts which are susceptible of compensation, the
rules on application of payments sha appy to the order of the compensation. (Art 1289)
When compensation is not allowed
1. Depostum (Art 1287)
2. Commodatum (Art 1287)
3. Support due gratutous tte (Art 1287)
4. Cv abty arsng from a pena offense (Art 1288)
Art 1287 Compensaton sha not be proper when one of the debts arses from a depositum or from the
obgatons of a depostary or of a baee n a commodatum.
Nether can compensaton be set up aganst a credtor who has a cam for support due by
gratuitous title, wthout pre|udce to the provsons of Art 301 (support n arrears can be
compensated).
Why? A depost s made or a commodatum s gven on the bass of confdence of the
owner. It s therefore, |ust that the depostary or borrower shoud n fact perform hs
obgaton; otherwse the trust of the depostor or ender woud be voated.
Art 1288 Nether sha there be compensaton f one of the debts conssts n cv abty arsng from a
penal offense.
Why? Satsfacton of such obgaton s mperatve
No compensation may occur even when all the requisites concur:
1. When there s renuncaton of the effects of compensaton by a party # rests upon a
potestatve rght and unatera decaraton of renuncaton s suffcent
2. When the aw prohbts compensaton
a. Art 1287
b. Art 1288
Compensation of debts payable in different places
Art 1286 Compensaton takes pace by operation of law, even though the debts may be payable at
different places, but there sha be an ndemnty for expenses of exchange or transportaton to the
pace of payment.
! Appes to ega compensaton but not to vountary compensaton
Effects of Nullity of debts to be compensated
Art 1284 When one or both debts are rescissible or voidable, they may be compensated against
each other BEFORE they are judicially rescinded or avoided.
Effects of Assignment of Credit
A. Made AFTER compensaton took pace: no effect; compensaton aready perfected, nothng to assgn
at a
- Assgnee s eft wth an acton for evcton or for damages for fraud aganst assgnor
B. Made 8EFORE compensaton took pace
1. With consent of debtor cannot set up aganst assgnee UNLESS debtor reserved hs rght to
compensaton when he gave hs consent
Art 1285 Par 1 The debtor who has consented to the assgnment of rghts made by a credtor n favor of a
thrd person, cannot set up against the assignee the compensaton whch woud pertan to hm aganst
the assgnor, UNLE55 the assignor was notified by the debtor at the time he gave his consent, that he
reserved hs rght to the compensaton.
2. With knowledge but without consent of debtor # ony debts prior to assignment, not
subsequent
Art 1285 Par 2 If the credtor communcated the cesson to hm but the debtor did not consent thereto,
the atter may set up the compensaton of debts previous to the cession, but not of subsequent ones.
3. Without the knowledge of debtor a debts maturng prior to his knowledge
Art 1285 P ar 3 If the assgnment s made without the knowledge of the debtor, he may set up the
compensaton of a credts prior to the same and also later ones until he had knowledge of the
assgnment.
Rationale: As far as the debtor s concerned, the assgnment does not take effect except from
the tme he s notfed thereof.
Vll.Novation
Concept The extngushment of an obgaton by the substtuton or change of the obgaton by a
subsequent one whch extngushes or modfes the frst ether by:
1. Changng the ob|ect or prncpa condtons
2. Substtutng the person of the debtor
3. Subrogatng a thrd person n the rghts of the credtor
! Unke other acts of extngushng obgaton, novaton s a juridical act of dual function n that
at the tme t extinguishes an obligation, t creates a new one in lieu of the old.
! Does not operate as absoute but ony as a reatve extncton.
Art 1291 Obgatons may be modfed by:
1. Changng the ob|ect or prncpa condtons
2. Substtutng the person of the debtor
3. Subrogatng a thrd person n the rghts of the credtor
Kinds of Novation
1. As to form
EXPRESS - partes decare that the od obgaton s extngushed and substtuted by the new
obgaton
lMPLlED - ncompatbty between the od and the new obgatons that they cannot stand
together
2. As to origin
CONVENTlONAL - by express stpuaton of the partes
LEGAL - by operaton of aw
3. As to object
OBjECTlVE/REAL - change n the cause, ob|ect or prncpa
SUBjECTlVE/PERSONAL - modfcaton of obgaton by the change of the sub|ect
! passve - substtuton of debtor
! actve - subrogaton of a thrd person n the rghts of the credtor
MlXED - both ob|ectve and sub|ectve novaton
4. As to effect
PARTlAL - ony a modfcaton or change n some prncpa condtons of the obgaton
TOTAL - obgaton s competey extngushed
Art 1292 In order that obgaton may be extngushed by another whch substtutes the same, t s
mperatve that
1. It be so decared n unequvoca terms (express)
2. Od and the new obgatons be on every pont ncompatbe wth each other (mped)
! Novaton s not presumed
! Express novaton: expressy dscose that ther ob|ect n makng the new contract s to extngush
the od contract
! Imped novaton: no specfc form s requred, a that s needed s ncompatbty between
orgna and subsequent contracts
! Test of ncompatbty: If the two contracts can stand together and each one havng ndependent
exstence
! The change must refer to the ob|ect, the cause or the prncpa condtons of the obgatons.
Accdenta changes do not produce novaton.
Requisites of Novation
1. Prevous vad obgaton
2. The agreement of a partes to the new contract
3. Extngushment of the od contract
4. Vadty of the new one
5. Animus novandi or ntent to novate (especay for implied novation and substitution of debtors)
Effects of Novation
1. In genera extngushment of the orgna obgaton and creaton of a new one
2. When accessory obgaton may subsst # ony nsofar as they may beneft thrd person who dd
not gve the consent to the novaton
Why? Mortgage, pedge, guaranty was gven to any for a partcuar obgaton or for
the nsovency of a partcuar debtor; any change n ether of ths destroys the basis
of the consent of the mortgagor, pedgor, surety or guaranty
Effect of the Status of the Original or the New Obligation
1. Nullity of the orgna obgaton new obgaton s VOID
One of the requstes of novaton s a previous valid obligation
Aso appes to vodabe that are aready annued/extngushed
Voidability of the orgna obgaton
# new obgaton s VALID f ratified before novation
# new obgaton s VALID even f not ratified, but vodabe at the instance of the debtor
Consent of debtor consttutes mped waver of the acton for nuty
Defect s not competey cured n expromision wheren debtor has not ntervened or
consented
Art 1298 The novaton s vod f the orgna obgaton was vod, except when annument may be camed
ony by the debtor, or when ratfcaton vadates acts whch are vodabe.
2. Nullity of the new obgaton orgna SUBSlSTS, UNLE55 ntends extngushment of former n
any event
Voidability of the new obgaton # new obgaton s VALID
BUT f new obgaton s annued and set asde, orgna SUBSlSTS
Art 1297 If the new obgaton s vod, the orgna one sha subsst, uness the partes ntended that the
former one sha be extngushed n any event.
3. Suspensve or resoutory condition of orgna obgaton New s pure
If ntenton s merey to suppress the condton, no novation
# If ntenton s extngush the orgna obgaton tsef by the creaton of a new obgaton,
the novation does not arise except from fufment of the condton from orgna
obgaton.
Where the orgna obgaton s condtona, novaton tsef must be hed to be
condtona aso and ts effcacy depends upon whether the condton whch affects the
former s comped wth or not
Suspensve condton of the orgna not performed, obgaton does not come nto
exstence, cause for the new obgaton s wantng
Resoutory condton, same category as vod obgaton or one whch has been
extngushed
Orgna obgaton s pure # New obgaton s conditional
If the ntenton s merey to attach the condton to the orgna obgaton, there s no novation.
If the new condtona obgaton s ntended to substtute the orgna and pure
obgaton, novation (and consequent extinguishment of the original) is
subject to the condition.
Pendng the happenng of the condton, the od obgaton s enforceabe
Art 1299 If the orgna obgaton was sub|ect to a suspensve or resoutory condton, the new obgaton
sha be under the same condton, uness t s otherwse stpuated.
OB]ECTlVE NOVATlON - change n the ob|ect of prestatons
Meanng of PRlNClPAL CONDlTlON5" - prncpa condtons or terms (e.g. makng the debt absoute
nstead of condtona and vce-versa)
! Sr Labtag ecture notes
- Dacion en pago s an ob|ectve novaton
- Increase n amount and you can prove that the ntenton to novate, then t w be an mped
novaton, but usuay, ts not a novaton f you change the amount.
- Extenson of tme does not mpy novaton. But f the tme stuaton s reversed (shortenng of
the perod), that s a novaton. E.g. Ynchausti v Yulo
- Converton of an obgaton to some other obgaton e.g. obgaton for contract of depost for
one of oan, or a contract of depost to one of commodatum.
SUB]ECTlVE NOVATlON
! In a knds of sub|ectve novaton, the consent of the credtor s requred.
1. By change of debtor
! CONSENT OF THE THIRD PARTY ALWAYS REOUIRED. Why? Because he assumes the obgaton
! CONSENT OF THE CREDITOR IS LIKEWISE INDISPENSABLE. Why? Substtuton of one debtor for
another may deay or prevent the fufment of the obgaton by reason of the nabty or
nsovency of the new debtor
! Consent may be mped or express as ong as t s gven.
! However, t cannot be presumed from hs acceptance of payments by a 3
rd
party for
the beneft of the debtor wthout further acts; no novaton because no consent to the
transfer of the debt tsef
! It s not enough to extend the |urdca reaton to a 3
rd
person, t s necessary that the od debtor
be reeased from the obgaton and the 3
rd
person or new debtor takes hs pace.
! Wthout the reease, there s no novaton, the person who assumed the obgaton of the debtor
merey becomes a co-debtor or a surety
! No agreement to sodarty, the frst and the new debtor are consdered obgated |onty.
a. EXPROMlSlON
- May be done at the nstance of the credtor or the thrd party hmsef
Requisites of Expromision
1. Consent of two partes (new debtor and credtor)
2. Knowedge or consent of the debtor s not requred
Art 1293 Novaton whch conssts n substituting a new debtor n the pace of the orgna one, may
be made even without the knowledge or against the will of the orgna debtor, but not without the
consent of the creditor. Payment by the new debtor gves hm the rghts mentoned n Art 1236 and
Art 1237.
Art 1236 Par 2 Whoever pays for another may demand from the debtor what he has paid, except that f he
pad wthout the knowedge or aganst the w of the debtor, he can recover ony nsofar as the payment has been
benefca to the debtor.
Art 1237 Whoever pays on behaf of the debtor without the knowledge or against the will of the atter, cannot
compel the creditor to subrogate him in his rights, such as those arsng from a mortgage, guaranty, or
penaty.
Effects of Expromision
1. The debtor s reeased from obgaton
2. Credtor generay cannot recourse from the od debtor f the new debtor s nsovent
3. If substtuton s wthout hs knowedge or consent
a. Od debtor s not abe for the nsovency or non-fufment of the new debtor (Art
1294)
b. The new debtor can ony compe od debtor to remburse nasmuch as the
payment has been benefca to hm # No subrogaton takes pace (Art 1237)
4. If substtuton s wth knowedge and consent
a. New debtor s entted to fu rembursement of the amount pad and subrogaton
Art 1294 If the substtuton s without the knowledge or against the will of the debtor, the new
debtor's insolvency or non-fulfillment of the obgaton sha NOT gve rse to any abty on the
part of the debtor.
b. DELEGAClON
Debtor offers and the credtor accepts a thrd person who consents to the substtuton
so that the consent of the three s necessary
Delegante (od debtor), delegatario (credtor) and delegado (thrd person new debtor)
Requisites of Delegacion (vs. Art 1293)
1. Intatve for substtuton must emanate from the od debtor
2. Consent of the new debtor
3. Acceptance by the credtor
Effects of Delegacion
1. Orgna debtor s reeased from the obgaton
2. The new debtor s subrogated n the rghts of the credtor. He may demand from the od debtor
the entre amount of what he has pad for the obgaton. (Art 1302 Par 2)
3. GENERAL RULE: Od debtor s not abe for the nsovency or non-fufment of the new debtor
(Art 1295)
EXCEPTION:
. He s aware of the nsovency at the tme he deegated hs debt (Art 1295)
.At the tme of the deegaton, the new debtors nsovency s aready exstng and of
pubc knowedge (Art 1295)
Art 1295 The insolvency of the new debtor who has been proposed by the original debtor and accepted
by the creditor sha NOT REVlVE the acton of the atter aganst the orgna obgor, EXCEPT when sad
nsovency was already existing and of public knowledge OR known to the debtor when he
delegated his debt.
2. By change of creditor: subrogation of a third person in the rights of the creditor
Art 1300 Subrogaton of a thrd person n the rghts of a credtor s ether ega or conventona. The
former s not presumed, except n cases expressy mentoned n ths Code; the atter must be ceary
estabshed n order that t may take effect.
! The transfer of a the rghts of the credtor to a thrd person who substtutes hm n a hs rghts.
a. CONVENTlONAL SUBROGATlON
- Takes pace by agreement of the partes
Requisites of Conventional Subrogation (Art 1301)
1. Consent of the od credtor # because hs rght s extngushed
2. Consent of the debtor # od s extngushed and he becomes abe to a new obgaton
3. Consent of the thrd person new credtor # becomes a party to the new reaton
Distinguished from Assignment of Credits
CONVENTlONAL SUBROGATlON ASSlGNMENT OF CREDlTS
Debtors consent s necessary Debtors consent not requred
Extngushes the od obgaton and gves rse to a new
one
Refers to the same rght whch passes from one person
to another
The nuty of an od obgaton may be cured by Nuty of an obgaton s not remeded by the
subrogaton such that the new obgaton w be
perfecty vad
assgnment of the credtors rght to another
Effects of Conventional Subrogation
1. Art 1303 Subrogaton transfers to the person subrogated the credt wth all the rights
thereto appertanng, ether against the creditor or against third persons, be they guarantors or
possessors of mortgages, sub|ect to stpuaton n a conventona subrogaton.
! If suspensve condton s attached, that condton must be fufed frst n order the
new credtor may exercse hs rghts.
2. Art 1304 A credtor, to whom partial payment has been made, may exercse hs right for the
remainder and he sha be preferred to the person who has been subrogated n hs pace
n vrtue of the parta payment of the same credt.
b. LEGAL SUBROGATlON
- Takes pace wthout agreement but by operaton of aw because of certan acts
- GENERAL RULE: Not presumed, EXCEPTION: Art 1302
- The thrd person s caed legal subrogee"
Requisites of Legal Subrogation
When is Legal Subrogation presumed
Art 1302 It s presumed that there s ega subrogaton:
1. When a credtor pays another credtor who s preferred, even wthout the debtors
knowedge
! Refers to herarchy of credts whch w be taught next sem hehe
! Debtor can st use any defenses he may have aganst the orgna credtor such as
compensaton
2. When a 3
rd
person, not interested in the obligation, pays wth the express}tacit approval of
the debtor
3. When, even wthout the knowedge of the debtor, a person interested in the fulfillment
of the obligation pays, wthout pre|udce to the effects of confusion as to the atters share
! Sodary co-debtor may remburse to the extent of the debtors share
! Guarantors, mortgagors and suretes
Effects of Legal Subrogation
1. Art 1303 Subrogaton transfers to the person subrogated the credt wth all the rights
thereto appertanng, ether against the creditor or against third persons, be they guarantors or
possessors of mortgages, sub|ect to stpuaton n a conventona subrogaton.
! If suspensve condton s attached, that condton must be fufed frst n order the
new credtor may exercse hs rghts.
2. Art 1304 A credtor, to whom partial payment has been made, may exercse hs right for the
remainder and he sha be preferred to the person who has been subrogated n hs pace
n vrtue of the parta payment of the same credt.
Title ll. CONTRACTS
Chapter l. General Provisions
A. DEFlNlTlON
Art 1305 A contract s a meetng of mnds between two persons whereby one bnds hmsef, wth
respect to the other, to gve somethng or to render some servce.
- Sanchez Roman: "a |urdca conventon manfested n ega form, by vrtue of whch one or
more persons bnd themseves n favor of another or others, or recprocay, to the fufment
of a prestaton to gve, to do or not to do."
- Lmted to that whch produces patrimonial liabilities
- Bndng effect of contract based on the foowng prncpes
! Obgatons arsng from the contract have the force of aw between the
contractng partes
! There must be mutuaty between the partes based on ther essenta equaty, to
whch s repugnant to have one party bound by the contract eavng the other free
therefrom
B. ELEMENTS OF A CONTRACT
1. Essential elements (Chapter II, infra) - wthout whch there can be no contract
a. Consent
b. Ob|ect
c. Cause
2. Natural elements - exst as part of the contract even f the partes do not provde for them,
because the aw, as suppetory to the contract, creates them. E.g. warranty aganst hdden
defects or evcton n the contract of purchase and sae
3. Accidental elements - agreed upon by the partes and whch cannot exst wthout beng
stpuated e.g. mortgage, guaranty, bond
C. CHARACTERlSTlCS OF A CONTRACT
1. Obligatory force - consttutes the aw as between the partes
Art 1308 The contracts must bind both contracting parties; ts vadty or compance cannot
be eft to the w of one of them.
2. Mutuality - vadty and performance cannot be eft to the w of ony one of the partes
Purpose s to render vod a contract contanng a condton whch makes
fufment dependent excusvey upon the uncontroed w of the one of the
contractng partes.
Art 1308 The contracts must bnd both contractng partes; ts validity or compliance cannot
be left to the will of one of them.
A rt 1309 The determnaton of the performance may be left to a third person, whose decson
sha not be binding unt t has been made known to both contracting parties.
Art 1310 The determnaton sha not be obgatory f t s evidently inequitable. In such case,
the courts shall decide what s equtabe under the crcumstances.
Art 1473 The fxng of the prce can never be left to the discretion of one of the
contracting parties. However, f the prce fxed by one of the partes s accepted by the other,
the sae s perfected.
CONTRACT OF ADHE5lON: A contract n whch one party has aready prepared a form of a contract
contanng stpuatons desred by hm and he smpy asks the other party to agree to them f he wants
to enter nto the contract.
3. Relativity - bndng ony upon the partes and ther successors
a. Contracts take effect ony between the parties, ther assignments and heirs
Art 1311 Par 1 Contracts take effect ony between the partes, assgns and hers EXCEPT
n case where the rghts and obgatons arsng from the contract are no transmssbe by
ther nature or by stpuaton or by provson of aw. The her s not abe beyond the vaue
of property he receved from the decedent.
lNTRAN5Ml55l8LE CONTRACT5:
a. Purey persona e.g. partnershp and agency
b. Very nature of obgaton that requres speca persona quafcatons of
the obgor
c. Payment of money debts not transmtted to the hers but to the estate
b. No one may contract n the name of another
Art 1317 No one may contract n the name of another wthout beng authorzed by the
atter or uness he has by aw a rght to represent hm.
Unenforceabe uness ratfed expressy or mpedy (Unenforceable Contracts,
Art 1302 Par 1)
Two more general principles of contracts that were not included in your book/syllabus
4. Consensuality
5. Freedom - enterng nto contracts s a guaranteed rght of the ctzens. They are free to do so as
ong as ts not contrary to aw, good moras, customs, pubc order and pubc pocy.
D. PARTlES lN A CONTRACT
1. Auto-contracts
! Necessary for the exstence of a contract that two dstnct persons enter nto t
! No genera prohbtons, ony speca prohbtons such as Art 1491 (Persons who
cannot acqure by purchase, even at a pubc or |udca aucton)
! Auto-contracts are generay VALID # Exstence of a contract s not determned by the
number of persons who ntervene n t, but by the number of parties. Not by the
number of ndvdua ws but by the number of decaratons of w.
! As ong as there are two dstnct patrmones, even f they are represented by the
same person.
2. Freedom to contract
Art 1306 The contractng partes may estabsh such stpuatons, causes, terms and condtons
as they may deem convenent, provded they are not contrary to aw, moras, good customs,
pubc order and pubc pocy.
Special disqualifications:
! Art 87, FC inter vivos donaton between spouses
! Art 1490 husband and wfe generay cannot se property to each other, sub|ect to
exceptons
! Art 1491 speca prohbton as to who cannot acqure by purchase
! Art 1782 persons prohbted from gvng each other any donaton or advantage, cannot
enter nto unversa partnershp
3. What they may not stipulate
Art 1306 ". contrary to aw, moras, good customs, pubc order and pubc pocy"
! A contract s to be |udged by ts character, courts w ook nto the substance and not to
the mere form of the transacton
a. Contrary to law
Laws a contract must not ntervene:
1. Expressy decare ther obgatory character
2. Prohbtve
3. Express fundamenta prncpes of |ustce whch cannot be overooked by the
contractng partes
4. Impose essenta requstes wthout whch the contract cannot exst

. Pactum commissorium - automatc forecosure
Art 2088 The credtor cannot approprate the thngs gven by way of pedge or mortgage,
or dspose of them. Any stpuaton to the contrary s nu and vod.
. Pactum leonina - one party bears the ons share of the rsk
Art 1799 A stpuaton ncudng one or more partes from any share n the profts or osses
s vod
. Pactum de non alienado - not to aenate
Art 2130 A stpuaton forbddng the owner from aenatng the mmovabe mortgaged
sha be vod
b. Contrary to morals
Mans nnate sense or noton of what s rght and wrong. More or ess unversa.
c. Contrary to good customs
Custom pertans to certan precepts that cannot be unversay recognzed as
mora, sometmes they ony appy to certan communtes or ocates
E.g. Liguez v CA
d. Contrary to public order
Consderaton of the pubc good, w or wea (wefare), peace and safety of the
pubc and heath of the communty
e. Contrary to public policy
Court must fnd that the contract contravenes some estabshed nterest of the
socety
E.g. Ferrazzini v Csel - stpuaton not to engage n compettve enterprse after
eavng the empoyment. Those stpuaton must be mted to time, place and
extent
E. CLASSlFlCATlON OF CONTRACTS
1. Accordng to subject matter
a. Thngs
b. Servces
2. Accordng to name
a. NOMlNATE - have ther own ndvduaty (names) and are reguated by speca provsons of
aw,
b. lNNOMlNATE - wthout partcuar names
Art 1307 Innomnate contract sha be reguated by the stpuatons of the partes, by the
provsons of Ttes I and II of ths Book, by the rues governng the most analogous
nominate contracts and by customs of the place.
. Do ut des I gve, you gve
.Do ut facias I gve, you do
.Facio ut facias I do, you do
v.Facio ut des I do, you gve
3. Accordng to perfection
a. By MERE CONSENT (consensua) - e.g. purchase and sae
Art 1315 Contracts are perfected by mere consent, and from that moment, the partes are
bound not ony to fufment of what has been expressy stpuated but aso to a the
consequences whch, accordng to ther nature, may be n keepng wth good fath, usage and
aw.
b. By DELlVERY OF THE OBjECT (rea) - commodatum
Art 1316 Rea contracts such as depost, pedge and commodatum, are not perfected unt
the devery of the ob|ect of obgaton.
4. Accordng to ts relation to other contracts , degree of dependence
a. Preparatory - e.g. agency
b. Prncpa - e.g. ease or sae
c. Accessory - e.g. pedge, mortgage or suretyshp
5. Accordng to form
a. Common or nforma - e.g. oan
b. Speca or forma - e.g. donatons and mortgages of mmovabe property
6. Accordng to purpose
a. Transfer of ownershp - e.g. sae or barter
b. Conveyance of use - e.g. commodatum
c. Rendton of servces - e.g. agency
7. Accordng to the nature of the vinculum produced , nature of obligation produced
a. Unatera - e.g. commodatum or gratutous depost
b. Batera or snaagmatco - e.g. purchase and sae
c. Recproca
8. Accordng to cause
a. Onerous
b. Gratutous or ucratve
9. Accordng to risk
a. Commutatve
b. Aeatory
F. STAGES OF CONTRACTS
a. Preparation - perod of negotaton and barganng, endng at the moment of agreement of
the partes
b. Perfection - moment when the partes come to agree on the terms of the contract
c. Consummation or death - fufment or the performance of the terms agreed upon n the
contract
G. AS DlSTlNGUlSHED FROM A PERFECTED PROMlSE AND AN lMPERFECT PROMlSE
(policitation)
CONTRACT PERFECTED PROMlSE lMPERFECT PROMlSE
Estabshes and determnes
the obgaton arsng
therefrom
Tends ony to assure and pave the way for
the ceebraton of a contract n the future;
unt the contract s actuay made, the
rghts and obgatons are not yet
Mere unaccepted offer
determned
H. WlTH RESPECT TO THlRD PERSONS
1. Stipulations in favor of third persons (stpuaton pour autrui) may demand ts fufment
provded the acceptance s made pror to revocaton
Art 1311 Par 2 If a contract shoud contan some stpuaton n favor of a thrd person, he may
demand its fulfillment provided he communicated his acceptance to the obligor before its
revocation. A mere ncdenta nterest or beneft of a person s not suffcent. The contractng partes
must have clearly and deliberately conferred favorupon thrd person.
Test of beneficial stipulation - A mere ncdenta nterest of a 3
rd
person s
not wthn the doctrne; t must be the purpose and ntent of the stpuatng
partes to beneft the thrd person
Requisites of stipulacion pour autrui
a. Stpuaton n favor of thrd person s a part, not the whole of the contract
b. Favorabe stpuaton not conditioned or compensated by any knd of obgaton
whatever
c. Nether of the contractng partes bear the legal representation or authorization of
the thrd party
d. Beneft to the 3
rd
person was ceary and deberatey conferred to by partes
e. Thrd person communcated hs acceptance to the obgor before the atter revokes the
same
2. Possession of the object of contract by third persons # ony for rea rghts
Art 1312 In contracts creatng real rights, thrd persons who come nto possesson of the ob|ect of
the contract are bound thereby, sub|ect to he provsons of the Mortgage Law and the Land
Regstraton aws.
3. Creditors of the contracting parties
Art 1313 Credtors are protected n cases of contracts intended to defraud them.
Art 1387 - n rescssbe contracts, presumpton of frauduent aenaton when
debtor does eave suffcent property to cover hs obgatons
Credtor may ask for rescsson - Art 1177 (accon subrogatora) and Art 1381
(accon pauana)
4. lnterference by third persons
Art 1314 Any thrd person who induces another to violate hs contract sha be liable for
damages to the other contractng party.
Labty for damages: thrd persons abty cannot be more than the party he
nduced (Daywalt v Recoletos)
Requisites of lnterference With Contractual Relation by Third Person
a. Exstence of a vad contract
b. Knowedge by a thrd person of the exstence of a contract
c. Interference by the thrd person n the contractua reaton without legal justification
Chapter ll. Essential Requisites of Contracts
CONSENT
Art 1319 Consent s manfested by the MEETlNG of the offer and the acceptance upon the thing and
the cause whch are to consttute the contract. The offer must be certan and the acceptance absoute.
A qualified acceptance consttutes a counter-offer.
Acceptance made by etter or teegram does not bind the offerer except from the time it came to
his knowledge. The contract, n such a case, s PRESUMED to have been entered nto n the place
where the offer was made.
REUlSlTES OF CONSENT
2. Capacty
3. Integent and free w
4. Express or tact manfestaton of w
5. Conformty of the nterna w and ts manfestaton
1. Must be MANIFESTED by the concurrence of the offer and acceptance # wth respect to object
and cause
OFFER - unatera proposton whch one party makes to the other for the ceebraton of the contract. It
must be:
a. Must be certain (Art 1319)
DEFlNlTE - so that upon acceptance an agreement can be reached on the whoe contract; not
defnte f ob|ect s not determnate
COMPLETE - ndcatng wth suffcent cearness the knd of contract ntended and defntey
statng the essenta condtons of the proposed contract, as we as the non-essenta ones
desred by the offeror
lNTENTlONAL - shoud be serous and not made for fun or n |est
b. What may be fixed by the offeror # tme, pace and manner of acceptance
Art 1321 The person makng the offer may fx the time, place and manner of acceptance, a
of whch must be comped wth.
Acceptance not made n the manner provded by the offeror s neffectve.
c. When made through the agent # accepted from the tme acceptance communcated to the
agent
Art 1322 An offer made through an agent s accepted from the tme acceptance s
communcated to hm.
d. Crcumstances when offer becomes defective death, cv nterdcton, nsanty or nsovency
Art 1323 An offer becomes neffectve upon the death, civil interdiction, insanity or
insolvency of ether party before acceptance s conveyed.
e. Business advertisements of thngs for sae not defnte offers
Art 1325 Uness t appears otherwse, busness advertsements of thngs for sae are not
definite offers, but mere invitation to make an offer.
f. Advertsement for bidders
Art 1326 Advertsements for bdders are simply invitations to make proposals, and the
advertser s not bound to accept the hghest of owest bdder, UNLE55 the contrary appears.
! Not appcabe to |udca sae wheren the hghest bd must necessary be accepted
ACCEPTANCE - an unaccepted offer does not gve rse to consent
Contract s perfect when the offeror or counter-offeror earns about the acceptance!
a. Must be absolute (Art 1319)
b. Kinds of acceptance
EXPRE55 (Art 1320)
lMPLlED (Art 1320) arse from acts or facts whch revea the ntent to accept such as the
consumpton of thngs sent to the offeree, or the fact of mmedatey carryng out the
contract offered
OUALlFlED (Art 1319) not an acceptance but consttutes a counter-offer
c. If made by letter or telegram
Art 131 9 Par 2 Acceptance made by etter or teegram does not bind the offerer except from
the time it came to his knowledge.
Four theories on when the contract is perfected
1. Manfestaton theory - counterofferee manfest hs acceptance
2. Expedton Theory - sendng of the etter, mang f by etter
3. Recepton Theory - recept of the message of acceptance
4. Cognton Theory - knowedge of offeror of the acceptance
Art 1319 Par 2 . except from the time of his knowledge"
d. Period of acceptance
Art 1324 "When the offerer has aowed the offeree a certain period to accept."
Offeree may accept any tme unt such perod expres.
Acceptance beyond the tme fxed s not egay an acceptance but consttutes a new offer.
Acceptance not made n the manner provded by the offeror s neffectve.
If offeror has not fxed the perod, the offeree must accept mmedatey wthn a reasonable
tacit period.
Offer mpes an obgaton on the part of the offeror to mantan t for such a ength of tme
as to permt the offeree to decde whether to accept t or not.
Extinguishment or annulment of offer
! Wthdrawa by the offeror
! Lapse of the tme for opton perod
! Legay ncapactated to act
! Offeree makes counter-offer
! Contract becomes ega
e. Contract of option
Art 1324 ". the offer may be withdrawn at any time before acceptance by communcatng
such wthdrawa, EXCEPT when the opton s founded upon a consideration, as somethng
pad or promsed."
Preparatory contract n whch one party grants to the other, for a fxed perod and under
specfed condtons, the power to decde whether or not to enter nto a prncpa contract
Must be supported by an ndependent consderaton and the grant must be excusve
If the opton s not supported by an ndependent consderaton, offeror can wthdraw the
prvege at any tme by communcatng the wthdrawa to the other party, even f the
"opton" had aready been accepted.
2. Necessary LEGAL CAPAClTlES of the partes
Who cannot give consent
Art 1327 The foowng cannot gve consent to a contract:
1. Unemancpated mnors
2. Insane or demented persons
3. Deaf-mutes who do not know how to wrte
When offer and}or acceptance is made
! Durng a ucd nterva # VALID
! In a state of drunkenness # VOIDABLE utter want of understandng
! Durng a hypnotc spe VOIDABLE utter want of understandng
3. The consent must be lNTELLlGENT, FREE, SPONTANEOUS and REAL
Art 1330 A contract where consent s gven through mstake, voence, ntmdaton, undue nfuence, or
fraud s VOlDABLE.
Mstake and voence - spontaneous and ntegence
Effect of Defects of Will: Contract is VOlDABLE (Art 1330)
VlCES OF CONSENT
a. Mistake or E rror - a wrong or fase noton about such matter, a beef n the exstence of some
crcumstance, fact or event whch n reaty does not exst.
Art 1331 In order that MlSTAKE may nvadate consent, t shoud refer to the substance of the thing
whch s the object of the contract, or to those conditions whch have principally moved one or both
partes to enter nto the contract.
Mistake as to the identity or qualifications of one of the partes w vtate consent ony when such
dentty or quafcatons have been the principal cause of the contract.
A simple mistake of account sha gve rse to ts correction.
KlNDS OF MlSTAKE
1. Mstake of fact - generay not a ground for annument of contracts
Ground of mstake based on error s limited to cases n whch t may reasonaby be sad that
wthout such error the consent woud not have been gven
Effect of mstake s determned by whether the partes woud st have entered nto the
contract despte knowedge of true fact # "nfuence upon party"
a. As to substance of
object
lnvalidates consent f refers to the substance of the thng
! But f mstake n ot number for nstance, remedy s
ony reformaton of the contract
b. As to principal
conditions (essenta or
substanta n character)
lnvalidates consent
c. As to identity or
qualifications of one of
the partes
For dentty/error as to person - generally not, except when
the quafcaton s the prncpa cause of the contract
especay n gratutous contracts
For quafcatons - lnvalidates consent
Sovency of the party - not a cause of nuty
d. As to quantity, as
dstngushed from
smpe mstake of
account
Error of account s a mstake n computaton # make proper
correcton
Error as to quantty - may vtate a contract f the prmary
consderaton s the quantty e.g. parce of and was actuay
ony 10 ha and not 30 ha
Mistakes that do not affect the validity of the contract
a. Error wth respect to accdenta quates of the ob|ect of the contract
b. Error n the vaue of thng
c. Error whch refers not to condtons of the thng, but to accessory matters n the contract,
foregn to the determnaton of the ob|ects
2. Error of aw - mstake as to the exstence of a ega provson or as to ts nterpretaton or
appcaton
GENERAL RULE: lgnorantia legis neminem excusat
Art 3 Ignorance of the aw excuses no one from compance therewth.
EXCEPTlON: Mutual error of law
Art 1334 Mutual error as to the ega effect of an agreement when the real purpose of the parties
is frustrated, may vitiate consent.
Requisites for mutual error of law
a. Error must be as to the ega effect of an agreement# ncudes rghts
and obgatons of the partes, not as stpuated n the contract but as
provded by aw
b. Must be mutua
c. Rea purpose of the partes s frustrated
When one of the parties is unable to read and fraud s aeged # burden of proof on party
enforcng the contract
Art 1332 When one of the partes s unable to read, or f the contract is in a language not understood by
him, and mistake or fraud is alleged, the person enforcng the contract must show that the terms
thereof have been fully explained to the former.
lnexcusable mistake # knew the doubt, contngency or rsk
Art 1333 There s no mstake f the party aegng t knew the doubt, contingency or risk affectng
the ob|ect of the contract.
Party cannot aeged error whch refers to a fact known to hm or whch he shoud have
known by ordnary dgent examnaton of the facts
Courts consder not ony the ob|ectve aspect of the case but aso the sub|ectve e.g.
nteectua capacty of the person who made the mstake
E.g. Caused by manfest neggence
b. Violence and lntimidation
Art 1335 There s VlOLENCE when n order to wrest consent, serious or irresistible force s
empoyed.
There s lNTlMlDATlON when one of the contractng partes s compelled by a reasonable and
well-grounded fear of an imminent and grave evil upon hs person or property, or upon the
person or property of his spouse, descendants or ascendants, to gve hs consent.
To determne the degree of ntmdaton, the age, sex and condition of the person sha be borne n
mnd.
A threat to enforce one's claim through competent authority, f the cam s just or legal, does NOT
vtate consent.
! DURESS: degree of constrant or danger ether actuay nfcted (violence) or threatened and
mpendng (intimidation) suffcent to overcome the mnd and w of a person of ordnary
frmness
! Serousness of the ev or wrong measured both objectively (degree of harm that the ev n
tsef s key to produce) and subjectively (determnng the effect of the threat upon the mnd
of the vctm n vew of hs persona crcumstances and hs reaton to the author of the
ntmdaton)
VlOLENCE
Physca force or compuson
Externa and generay serve to prevent an act from beng done
Requisites of Violence
1. Physca force empoyed must be rresstbe or of such a degree that the vctm has no other
course, under the crcumstances, but to submt
2. That such force s the determnng cause n gvng the consent to the contract
lNTlMlDATlON
Mora force or compuson
Interna operatng upon the w and nduces the performance of an act
Infuences the mnd to choose between two evs, between the contract and the
mmnent n|ury
Requisites of lntimidation
1. Intmdaton must be the determnng cause of the contract, or must have caused the consent
to be gven
2. That the threatened act be un|ust or unawfu
3. That the threat be rea and serous, there beng an evdent dsproporton between the ev
and the resstance whch a men can offer, eadng to the choce of the contract as the esser
ev
4. That t produces a reasonabe and we-grounded fear from the fact that the person from
whom t come has the necessary means or abty to nfct the threatened n|ury
"Person" not mted to fe and physca ntegrty but aso ncudes berty ad honor, covers a n|ures
whch are not patrmona n nature
"Reasonable fear" fear occasoned by the threat must be reasonabe and we-grounded; t must be
commensurate wth the threat
Effect of Violence and lntimidation
Art 1336 Voence or ntmdaton sha ANNUL the obgaton, athough t may have been employed by
a third person who dd not take part n the contract.
c. Undue lnfluence - any means empoyed upon a party whch, under the crcumstances, he coud
not we resst, and whch controed hs voton and nduced hm to gve hs consent to the contract
whch otherwse he woud not have entered nto.
Art 1337 There s UNDUE lNFLUENCE when a person takes improper advantage of his power over
the w of another, deprvng the atter of a reasonable freedom of choice. The foowng crcumstances
sha be consdered: the confidential, family, spiritual and other relations between the partes, or
the fact that the person aeged to have been unduy nfuenced was suffering from mental
weakness, or was ignorant or n financial distress.
! In some measure destroy the free agency of a party and nterfere wth the exercse of that
ndependent dscreton whch s necessary for determnng the advantages and dsadvantages of
a contract.
! Distinguished from intimidation
UNDUE lNFLUENCE lNTlMlDATlON
There need not be an un|ust or unawfu act Unawfu or un|ust act whch s threatened
and whch causes consent to be gven
Mora coercon
! By anaogy, undue nfuence by a thrd person may aso vtate consent (Art 1336)
d. Fraud or Dolo - every knd of decepton whether n the form of nsdous machnaton,
manpuatons conceaments, msrepresentaton, for the purpose of eadng a party nto error and
thus execute a partcuar act.
! Must have a determnng nfuence on the consent of the vctm
! Compared wth error
ERROR FRAUD
Vtate the consent ony when t refers to the
matters mentoned n Art 1331
Mstake nduced by fraud w aways vtate
consent when fraud has a decsve nfuence
on such consent
! Requisites of Fraud
1. Must have been empoyed by one contractng party upon the other (A rt 1342 and Art
1344)
If both party, they cannot have acton aganst each other, fraud s compensated
2. Induced the other party to enter nto a contract (Art 1338)
3. Must have been serous (Art 1344)
4. Must have resuted n damage or n|ury to the party seekng annument
Art 1338 There s FRAUD when, through insidious words or machinations of one of the
contracting parties, the other s induced to enter into a contract whch, wthout them, he would not
have agreed to.
"lnsidious words and machinations" consttutng decetncudes fase promses, exaggeraton of
hopes or benefts, abuse of confdence, fcttous names, quafcatons or authorty, a the thousand and
one forms of decepton whch may nfuence the consent of a contractng party, wthout necessary
consttutng estafa or some offense under the pena aws.
llND5 OF FRAUD
1. Dolo causante - determnes or s the essenta cause of the consent; ground for annument of
contract
Art 1338 ".wthout them, he would not have agreed to."
2. Dolo incidente - does not have such a decsve nfuence and by tsef cannot cause the gvng of
consent, but ony refers to some partcuar or accdent of the obgaton; ony gves rse to acton
for damages
A rt 1344 Par 2 Incdenta fraud ony obges the person empoyng t to pay damages.
Failure to disclose facts; duty to reveal them FRAUD
Art 1339 Faure to dscose facts, when there s a duty to reveal them, as when the partes are bound
by confidential relations, consttutes FRAUD.
! GENERAL RULE: Sence or conceament does not consttute a fraud
! EXCEPTIONS:
1. There s a speca duty to dscose certan facts
2. Accordng to good fath and usages of commerce the communcaton shoud have been
made
Usual exaggeration in trade; opportunity to know the facts NOT FRAUD
Art 1340 The usua exaggeratons n trade, when the other party had an opportunity to know the
facts, are NOT n themseves frauduent
! Aka "toerated fraud" or awfu msrepresentaton (dolus bonus) as ong as they do not go to the
extent of mace or bad fath such as changng the appearance of the thng by fase devces and
of preventng a verfcaton or dscovery of truth by the other party
! Caveat emptor! Do not gve rse acton for damages because of ther nsgnfcance OR because
the stupdty of the vctm s the rea cause of hs oss. mport of "opportunty to know facts"
Mere expression of an opinion # NOT FRAUD, uness made by an expert and reed upon by the
pantff
Art 1341 A mere expresson of an opnon DOES NOT sgnfy fraud, uness made by an expert and the other party
has reed on the former's speca knowedge.
Effects of Fraud
1. Nuty of the contract
2. Indemnfcaton for damages
Art 1344 In order that fraud may make a contract vodabe, t shoud be serious and shoud not have
been empoyed by BOTH contractng partes. lncidental fraud ony obges the person empoyng t to
pay damages.
e. Misrepresentation
1. By a thrd person
Art 1342 Misrepresentation by a third person does NOT vtate consent, unless such
msrepresentaton has created substantial mistake and the same s mutual.
GENERAL RULE: Fraud by thrd person does not vtate the contract
EXCEPTIONS:
a. If 3
rd
person s n couson wth one of the partes, he s consdered an accompce to the
fraud and contract becomes VOIDABLE
b. If 3
rd
person not n connvance wth any of the partes but eads them both nto error
(mutua error), the consent s vtated, contract s VOIDABLE.
VIOLENCE AND INTIMIDATION BY 3
RD
PERSON: annus the contract
FRAUD BY 3
RD
PERSON: does not annu uness t produces substanta mstake on the part of both
partes
|USTIFICATION FOR THE DIFFERENCE:
Party has nothng to do wth fraud by a thrd person and cannot be bamed for t
Intmdaton can be more easy ressted than fraud
2. Made in good faith # not frauduent but may consttute error
Art 1343 Msrepresentaton made n good fath s not frauduent but may consttute error.
3. Actve/passve
! Appcabe to ega capacty especay age
f. Simulation of Contracts - decaraton of a fcttous w, deberatey made by agreement of the
partes n order to produce, for the purposes of decepton the appearance of a |urdca act whch
does not exst or s dfferent from that whch was reay executed.
Kinds of Simulated Contracts
Art 1345 Smuaton of a contract may be ABSOLUTE or RELATlVE. The former takes pace when the
partes do not ntend to be bound at a; the atter, when the partes concea ther true agreement.
Effects of simulation of contracts
Art 1346 An absoutey smuated or fcttous contract s vod. A reatve smuaton, when t does not
pre|udce a thrd person and s not ntended for any purpose contrary to aw, moras, good customs,
pubc order or pubc pocy bnds the partes to ther rea agreement.
ABSOLUTE (simulados) RELATlVE (disimulados)
Coor of contract, wthout any substance thereof, the
partes not havng ntenton to be bound
Partes have an agreement whch they concea
under the guse of another contract
VOID - Does not egay exst. Iusory, mere
phantom, n|urng 3
rd
persons, generay frauduent
VALID except when t pre|udces 3
rd
persons or has
an ct purpose
1. Ostensible acts - apparent or fcttous;
contract that the partes pretend to have
executed
2. Hidden act - rea; true agreement between
the partes
Recovery under simulated contract in absolute simulation
1. If does not have ct purpose - prove smuaton to recover what may have been gven
2. If smuated has ega ob|ect - IN PARI DELICTO rues appy
OB]ECT OF CONTRACTS
! Thng, rght or servce whch s the sub|ect-matter of the obgaton arsng from the contract
! Ob|ect of the contract and ob|ect of the obgaton created thereby are dentca
What may be the Object of Contracts
Art 1347 A thngs whch are not outside the commerce of men, ncudng future thngs, may be the
ob|ect of a contract. A rghts whch are not intransmissible may aso be the ob|ect of contracts.
No contract may be entered nto upon future inheritance except n cases expressy authorzed by aw.
A servces whch are not contrary to aw, moras, good customs, pubc order or pubc pocy may
kewse be the ob|ect of a contract.
1. A thngs not outsde the commerce of man
Incudng "future things" do not beong to the obgor at the tme the contract s made; they
may be made, rased or acqured by the obgor after the perfecton of the contract
! Condtona - sub|ect to the comng nto exstence of the thng
! Aeatory - one of the partes bears the rsk of the thng never comng nto exstence
"Outside the commerce of man" - a knds of thngs and nterests whose aenaton or
free exchange s restrcted by aw or stpuaton, whch partes cannot modfy at w
! Servces whch mpy an absoute submsson by those who render them, sacrfcng
ther berty, ndependence or own beefs or dsregardng n any manner the equaty
and dgnty of persons e.g. perpetua servtude or savery
! Persona rghts e.g. patra postestas, marta authorty, status, capacty of persons,
honorary ttes
! Pubc offces, nherent attrbutes of the pubc authorty, potca rghts of ndvduas
e.g. rght of suffrage
! Property whe they pertan to the pubc domnon
! Sacred thngs e.g. ar and sea
2. A rghts not ntransmssbe
3. A servces not contrary to aw, moras, good customs, pubc order or pubc pocy
Requisite of Object of Contracts
1. Wthn the commerce of man (Art 1347)
2. Lct, not contrary to aw, moras, good customs, pubc pocy or pubc order (Art 134 7 )
3. Possbe (Art 134 8 )
4. Determnate as to ts knd
Art 1349 The ob|ect of every contract must be determinate as to its kind. The fact that the quantty s not
determnate sha not be an obstace to the exstence of the contract, provded t s possible to determine the
same, without the need of a new contract between the partes.
What may NOT be the Objects of Contracts
1. Contrary to aw, moras, good customs, pubc pocy or pubc order
2. Indetermnabe as to ther knd
3. Outsde the commerce of man
4. Intransmssbe rghts
5. Future nhertance, except when authorzed by aw
Art 1347 Par 2 No contract may be entered nto upon future nhertance except n cases expressy authorzed by
aw.
The successon must not have been opened at the tme of the contract
Excepton to "future thngs"
6. Impossbe thngs or servces
Art 1348 Impossbe thngs or servces cannot be the ob|ect of contracts.
E.g. of mpossbe thngs:
! Not susceptbe of exstng
! Outsde the commerce of man
! Beyond the ordnary strength of power of man
Labty for damages
! Debtor knew of mpossbty - abe for damages
! Debtor s gnorant of mpossbty and gnorance s |ustfabe - no abty for
damages
! Both partes have knowedge of mpossbty - no abty for damages
Impossbty must be actua and contemporaneous wth the makng of the contract and not
subsequent
! ABSOLUTE or ob|ectve: nobody can perform t
! RELATIVE or sub|ectve: due to the speca condtons or quafcaton of the debtor t
cannot be performed
" TEMPORARY - does not nufy the contract
" PERMANENT - nufes the contract
CAUSE OF CONTRACTS
Meaning of "CAUSE"
! Why of a contract; the mmedate and most proxmate purpose of the contract, the essenta
reason whch mpes the contractng partes to enter nto t and whch expans and |ustfes the
creaton of the obgaton through such contract
! Essenta reason that moves the partes to enter nto a contract
! Requisites of Cause
1. Exst
2. True
3. Lct
! As distinguished from object
! Ob|ect s the startng pont of agreement, wthout whch the negotatons or barganng
between the partes woud never have begun
! Ob|ect may be the same for both of the partes
! Cause s dfferent wth respect to each party
! As distinguished from consideration CONSIDERATION < CAUSE
CONSlDERATlON CAUSE
Reason or motve or nducement by whch a
man s moved nto bnd hmsef by agreement
Why of contracts; essenta reason that compes
contractng partes to ceebrate the contract
Requres a ega detrment to the promsee more
than a mora duety
Never re|ects any cause as nsuffcent; need not
be matera at a and may consst n mora
satsfacton for the promssory
Art 1350 In onerous contracts the cause s understood to be, for each contractng party, the prestation or
promise of a thing or service by the other; n remuneratory ones, the service or benefit whch s remunerated; and
n contracts of pure beneficence, the mere liberality of the benefactor.
a. Onerous Contracts
Prestaton or promse of a thng or servce by the other
Need not be adequate or an exact equvaent n pont of actua vaue especay n deang
wth ob|ects whch have rapdy fuctuatng prce
b. Remuneratory Contracts
One where a party gves somethng to another because of some servce or beneft gven or
rendered by the atter to the former where such servce or beneft was not due as a ega
obgaton
E.g. bonuses
c. Contracts of pure beneficence (Gratuitous)
Essentay agreements to gve donatons
As distinguished from motive
Art 1351 The partcuar motves of the partes n enterng nto a contract are dfferent from the cause thereof.
CAUSE MOTlVE
Ob|ectve, ntrnsc and |urdca reason for the
exstence of the contract tsef
Psychoogca, ndvdua or persona purpose of a
party to the contract
Essenta reason for the contract Partcuar reason for a contractng party, whch
does not affect the other and whch does not
mpede the exstence of a true dstnct cause
Ob|ectve of a party n enterng nto the contract Persons reason for wantng to get such ob|ectve
Aways the same for both partes Dffers wth each person
GENERAL RULE: Motve does not affect the vadty of the contract.
EXCEPTIONS:
1. When the motve of a debtor n aenatng property s to defraud hs credtors, aenaton s
rescssbe
2. When the motve of a person n gvng hs consent s to avod a threatened n|ury, n case of
ntmdaton the contract s vodabe.
3. When the motve of a person nduced hm to act on the bass of fraud or msrepresentaton by
the other party, the contract s kewse vodabe.
Defective causes and their effects
a. Absence of cause and unlawful cause # produces no effect whatever
Art 1352 Contracts wthout cause, or wth unawfu cause, produce no effect whatever. The
cause s unlawful f t s contrary to aw, moras, good customs, pubc order or pubc pocy.
E.g. smuated contracts
b. Statement of a false cause in the contract # VOID f there s no other true and awfu cause
Art 1353 The statement of a false cause n contracts sha render them VOlD, f t shoud not be
proved that they were founded upon another cause whch s true and awfu.
c. Lesion or inadequacy of cause # VALID uness fraud, mstake or undue nfuence s present
Art 1355 Except n cases specfed by aw, eson or nadequacy of cause sha not invalidate a
contract, UNLE55 there has been fraud, mistake or undue influence.
Gross nadequacy suggest fraud and s evdence thereof
Presumption of the existence and lawfulness of a cause, though it is not stated in the
contract
Art 1354 Athough the cause s not stated in the contract, t s presumed that it exists and is
lawful, uness the debtor proves the contrary.
Chapter lll. Form of Contracts
A. GENERAL RULE: Contracts sha be obligatory, n whatever form they may have been entered nto,
provded all essential requisites for ther vadty are present.
("Sprtua system" of the Spansh Code)
Art 1356 Contracts sha be obgatory, n whatever form they may have been entered nto, provded a the
essenta requstes for ther vadty are present.
B. EXCEPTION: When the law requires that a contract be n some form n order that t may be VALlD
or ENFORCEABLE
(Ango-Amercan prncpe n Statutes of Fraud) ndspensabe and absoute; partes
Art 1356 However, when the aw requres that a contract be n some form n order that t may be vad or
enforceabe, or that a contract be proved n a certan way, that requrement s absoute and ndspensabe. In
such cases, the rght of the partes stated n the foowng artce cannot be exercsed.
C. KINDS OF FORMALITIES REOUIRED BY LAW
1. Ad esentia, ad solemnitatem # Those requred for the validity of contracts, such as those
referred to n
(Sr refers to these as formal contracts)
Art 748 Donaton of movabe
Art 749 Donaton of mmovabe
Art 1874 Sae of pece of and through an agent
Art 2134 Contract of antchress; amount of prncpa and of the nterst
Art 1771 Partnershp; mmovabe property or rea rghts are contrbuted
Art 1773 Partnershp; nventory of mmovabe property contrbuted
Art 1956 Interest for usng someone eses money
Art 2140 Chatte mortgage
2. Those requred, not for the vadty, but to make the contract effective as against third
persons, such as those covered by Art 1357 (f aw requres a speca form, partes may compe
each other to observe that form upon perfecton of the contract) and Art 1358 (documents whch
must appear n a pubc document; t aso consttutes constructve devery)
(1) Acts and contracts whch have for ther object the creation, transmission, modification or
extinguishment of real rights over mmovabe property; saes of rea property or of an nterest
theren a governed by Artces 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of heredtary rghts or of those of the con|uga
partnershp of gans;
(3) The power to administer property, or any other power whch has for ts ob|ect an act appearng
or whch shoud appear n a pubc document, or shoud pre|udce a thrd person;
(4) The cession of actions or rights proceedng from an act appearng n a pubc document.
A other contracts where the amount nvoved exceeds five hundred pesos must appear n wrtng,
even a private one. But saes of goods, chattes or thngs n acton are governed by Artces, 1403,
No. 2 and 1405.
3. Ad probationem Those requred for the purpose of provng the exstence of the contract, such
as those under the Statute of Frauds n Art 1403
Chapter lV. Reformation of lnstruments
Art 1359 When, there havng been a meeting of the minds of the partes to a contract, ther true
intention is not expressed n the nstrument purportng to embody the agreement, by reason of
mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformaton of
the nstrument to the end that such true ntenton may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meetng of the mnds of the
partes, the proper remedy s not reformation of the instrument but annulment of the contract.
Reason for Reformation of lnstruments
! Equty dctates the reformaton of nstrument n order that the true ntenton of the contractng
partes may be expressed. Un|ust and unequtabe to aow the enforcement of a wrtten
nstrument whch does not refect or dscose the rea meetng of the mnds of the partes
! Court do not attempt to make a new contract for the partes, but ony to make the nstrument
express ther rea agreement
! Statute of Frauds s no mpedment to the reformaton of an nstrument
! Distinguished from Annulment
REFORMATlON ANNULMENT
Acton presupposes a vad exstng contract between
the partes and ony the document or nstrument whch
was drawn up and sgned by them does not correcty
express the terms of agreement
No meetng of the mnds or the consent of ether one
was vtated by mstake or fraud
Gves fe to the contract upon certan correctons Invoves a compete nufcaton of contracts
Requisites for Reformation of lnstruments
1. Meetng of the mnds upon the contract
2. The true ntenton of the partes s not expressed n the nstrument
3. The faure of the nstrument to express the true agreement s due to mstake, fraud, nequtabe
conduct or accdent
Causes for Reformation
1. Mutua - nstrument ncudes somethng whch shoud not be there or omt what shoud be there
a. Mutua
b. Mstake of fact
c. Cear and convncng proof
d. Causes faure of nstrument to express true ntenton
2. Unatera
a. One party was mstaken
b. Other ether acted frauduenty or nequtaby or knew but conceaed
c. Party n good fath may ask for reformaton
3. Mstake by 3
rd
persons - due to gnorance, ack of sk, neggence, bad fath of drafter, cerk or
typst
4. Others specfed by aw - to avod frustraton of true ntent
Example of cases where reformation is allowed
1. Art 1361 When a mutual mistake of the partes causes the faure of the nstrument to dscose
ther rea agreement, sad nstrument may be reformed.
2. Art 1363 When one party was mistaken and the other knew or believed that the
instrument did not state ther rea agreement, but concealed that fact from the former, the
nstrument may be reformed.
3. Art 1364 When through the gnorance, ack of sk, neggence or bad fath on the part of the
person drafting the instrument or of the clerk or typist, the nstrument does not express
the true ntenton of the partes, the courts may order that the nstrument be reformed.
Cases where no reformation is allowed
1. Ora contracts - theres nothng to reform at a!
2. Art 1366 There sha be no reformaton n the foowng cases:
(1) Smpe donatons inter vivos wheren no condton s mposed;
(2) Ws;
(3) When the rea agreement s vod.
lmplied ratification
Art 1367 When one of the partes has brought an action to enforce the instrument, he cannot
subsequently ask for ts reformaton.
There has been eecton between two nconsstent remedes, one n affrmance, the other n
dsaffrmance
Who may ask for reformation
! MUTUAL MISTAKE: ether party or successor n nterest
! MISTAKE BY ONE: n|ured party, hers or assgns
1. Art 1368 Reformaton may be ordered at the nstance of ether party or hs successors in
interest, f the mstake was mutual; otherwise, upon petton of the injured party, or his heirs
and assigns.
2. Art 1362 If one party was mistaken and the other acted frauduenty or nequtaby n such a way
that the nstrument does not show ther true ntenton, the former may ask for the reformaton of
the nstrument.
Procedure of reformation
Art 1369 The procedure for the reformaton of nstrument sha be governed by ROC to be promugated
by the Supreme Court.
Chapter V. lnterpretation of Contracts
(Compare wth Rues on Statutory Constructon)
Primacy of intention
! Verba intentione non e contradebent inservare" - words ought to be subservent to the ntent,
not the ntent to the word
! Look for the contractua ntent
Art 1370 If the terms of a contract are clear and leave no doubt upon the ntenton of the contractng
partes, the literal meaning of ts stpuatons sha contro.
Art 1372 However general the terms of a contract may be, they sha not be understood to
comprehend thngs that are distinct and cases that are different from those upon whch the partes
intended to agree.
"Ceneralia verba sunt generaliter intelligencia" # genera thngs are to understood n a
genera sense
How to determine intention
Art 1371 In order to |udge the ntenton of the contractng partes, ther contemporaneous and
subsequent acts sha be prncpay consdered.
! Aso take note of the usage and customs of the pace
How to interpret a contract
1. When t contans stpuatons that admt of severa meanngs
Art 1373 If some stpuaton of any contract shoud admt of severa meanngs, t sha be
understood as bearng that mport whch s most adequate to render it effectual.
2. When t contans varous stpuatons, some of whch are doubtfu
Art 1374 The varous stpuatons of a contract sha be nterpreted together, attrbutng to the
doubtfu ones that sense whch may result from all of them taken jointly.
3. When t contans words that have dfferent sgnfcatons
Art 1375 Words whch may have dfferent sgnfcatons sha be understood n that whch s
most in keeping with the nature and object of the contract.
4. When t contans ambgutes and omsson of stpuatons
Art 1376 The usage or custom of the place sha be borne n mnd n the nterpretaton of the
ambgutes of a contract, and sha f the omsson of stpuatons whch are ordnary
estabshed.
5. Wth respect to the party who caused the obscurty
Art 137 7 The nterpretaton of obscure words or stpuatons n a contract shall not favor the
party who caused the obscurity.
! Contracts of adheson - resoved aganst the party who prepared the contract and n
favor of the one who merey adhered to t
6. When t s absoutey mpossbe to sette doubts by the rues above
Art 1378 Par 1 When t s absoutey mpossbe to sette doubts by the rues estabshed n the
precedng artces, and the doubts refer to incidental circumstances of a gratuitous
contract, the least transmission of rights and interests sha preva. If the contract s
onerous, the doubt sha be setted n favor of the greatest reciprocity of interests.
a. In gratutous contracts, ncdenta crcumstances # east transmsson of rghts and
nterests
b. In onerous contracts greatest recprocty of nterests
7. When the doubts are cast upon the prncpa ob|ects so that the ntenton cannot be known
Art 1378 Par 2 If the doubts are cast upon the prncpa ob|ect of the contract n such a way that
t cannot be known what may have been the ntenton or w of the partes, the contract sha be
null and void.
Applicability of Rule 12, Rules of Court (now Secs. 10-19, Rue 130)
Art 1379 The prncpes of nterpretaton stated n Rue 123 of the Rues of Court sha kewse be
observed n the constructon of contracts.
Law n evdence; nterpretaton of documents)
In between VALID and DEFECTIVE contracts s RELATlVELY lNEFFECTlVE - neffectvey ony wth
respect to certan partes, but are effectve as to other persons.
Aganst vodabe contract: neffectveness s produced pso |ure
Vod or nexstent contract: can be made competey effectve by the consent of the person as
to whom t s effectve or by the cessaton of the mpedment whch prevents ts compete
neffectveness
(1) assgnment of the ease by the essee wthout the consent of the essor s neffectve ony as regards
the essor,
(2) transfer of a debt by the debtor to another, wthout the consent of the credtor s neffectve as to
the credtor,
(3) the payment by a debtor to hs credtor after the credt has been garnshed or attached by a thrd
person s neffectve to the atter
DEFECTlVE CONTRACTS
1. RESClSSlBLE - contract that has caused a partcuar damage to one of the partes or to a thrd
person and whch for EOUITABLE REASONS may be set asde even f vad
2. VOlDABLE OR ANNULLABLE (contrato nulo) - contract n whch CONSENT of one of the
partes s defectve, ether because of WANT OF CAPACITY or because t s VITIATED , but whch
contract s VALID unt |UDICIALLY set asde
3. UNENFORCEABLE - contract that for some reason CANNOT BE ENFORCED, UNLE55 RATIFIED n
the manner PROVIDED BY LAW
4. VOlD AND NON-EXlSTENT (contrato inexistente) - contract whch s an ABSOLUTE NULLITY
and produces NO EFFECT, as f t had never been executed or entered nto
Chapter Vl. Rescissible Contracts
Kinds of Rescissible Contracts
Art 1381 The foowng are rescssbe contracts:
1. Entered nto by guardians whenever the wards suffer eson by more than V of vaue of thngs
ob|ect
Guardan: authorzed ony to "manage" wards property, no power to dspose wthout pror
approva of court. Ony ncudes those whch are "ordnary course" of management of estate
of the ward, because f sae, mortgage and other encumbrance AND not approved by court, t
becomes unenforceabe.
Sr Labtag: "thn band of contracts"
2. Agreed upon n representaton of absentee, suffer eson by more than V of the vaue of thngs
ob|ect
Same prncpe n reaton to contracts by guardans
3. In fraud of creditors who cannot coect cams due them
Requisites of Accion Pauliana
1. Pantff askng for rescsson (subsdary acton) has a credt pror to the aenaton
2. Debtor has made subsequent contract, gvng advantage to a 3
rd
person
3. Credtor has no other remedy but to rescnd the debtors contract to the 3
rd
person
(ast resort)
4. Act beng mpugned s frauduent
5. 3
rd
person who receved the property s an accompce n the fraud
Credt must be existing at the time of the fraudulent alienation, athough not yet due. But at
the tme of accion pauliana, the credt must aready be due because t presupposes a
judgment and unsatisfied execution whch cannot exst when the debt s not yet
demandabe at the tme the rescssory acton s brought.
GENERAL RULE: Credt s pror to the aenaton
EXCEPTION: Credt s after aenaton but entted to accion pauliana because of some pror
rght
1. Cams were acknowedged by the debtor after aenaton, but orgn of whch
antedated the aenaton
2. Those who become subrogated, after the aenaton, n the rghts of a credtor whose
credts were pror to the aenaton
Even secured credtors are entted to AP
Conveyance was ntentonay frauduent whch may be estabshed by the presumpton n Art
1387
TEST OF FRAUD: Whether the conveyance was a bona fde transacton or a trck and
contrvance to defeat credtors or whether t conserves to the debtor a speca rght; founded
on good consderaton or s made wth bona fde ntent. Does it prejudice the right of
creditors77
Good consderaton: credtor s not pre|udced becomes the property was merey repaced or
substtuted
Badges of fraud appcabe
4. Thngs under litigation, wthout knowedge and approva of tgant or of competent |udca
authorty
To secure the possbe effectvty of a cam
Transferee of property n good fath who acqures property for vauabe consderaton, wthout
knowedge of the tgaton or cam of the pantff, cannot be deprved of property.
5. Specially declared by law to be sub|ect of rescsson
Characteristics of Rescissible Contracts
1. Ther defect consst n injury or damage ether to one of the contractng partes or to thrd
persons
LE5lON: n|ury whch one of the partes suffers by vrtue of contract that s dsadvantageous to
hm; must be known or coud have been known at the brth of contract and not due to
subsequent thereto or unknown to the partes
E.g.
Art 1098 Partton, |udca and extra-|udca may be rescnded on account of eson
Art 1539 Sae of rea estate of nferor thng
Art 1542 Sae of rea estate made for a ump sum
2. They are valid before rescission
3. They can be attacked directly only, not collaterally
4. They can be attacked ony ether by a contracting party, or by a third person who is injured or
defrauded
5. They can be convalidated only by prescription and not by ratification
RESClSSlON
Art 1380 Contracts vady agreed upon may be rescnded n the cases estabshed by aw
Definition Remedy granted by aw to the contractng partes and even to thrd persons, to secure the
reparaton of damages caused to them by a contract, even f ths shoud be vad, by means of the
restoraton of thngs to ther condton at the moment pror to the ceebraton of sad contract.
! Reef for the protecton of one of the contractng partes AND thrd persons from a n|ury and
damages the contract may cause OR protect some ncompatbe and preferent rght created by
the contract
! Impes a contract whch, even f ntay vad, produces a eson or pecunary damage to
someone
! Set asdes the act or contract for |ustfabe reasons of equty
! Grounds for rescsson can ony be for ega cause
! Vodabe contracts may aso be rescnded
! Sr Labtag: Rescssbe contracts are n between vad and vod
Rescission Art 1380 Distinguished from Resolution Art 1191
Art 1191 Resolution Art 1380 Rescission
Smartes 1. Presuppose contracts vady entered nto and exstng
! Rescsson v. Annument: the atter there s a defect whch vtates/nvadates the contract
2. Mutua resttuton when decared proper
Who may
demand
Ony by a party to the contract Party to the contract sufferng eson
Thrd partes pre|udced by the contract
Grounds Non-performance (mped tact condton n
recproca obgaton)
Varous reasons of equty provded by the
grounds, many economc n|ury or esons
Scope of
|udca contro
Court determnes suffcency of reason to |ustfy
extenson of tme to perform obgaton
(whether sght or casua breach)
Suffcency of reason does not affect rght to
ask for rescsson (cannot be refused f a the
requstes are satsfed)
Knd of ob
appcabe to
Ony to recproca Unatera, recproca
Even when contract s fuy fufed
Character Prncpa Remedy Secondary/Subsdary
MUTUAL DISSENT not the same wth rescsson, because mutua dssent s tantamount to a smpe
creaton of new contract for the dssouton of the prevous one. In order for rescsson to take pace, the
requstes must frst be satsfed:
Requisites for Rescission
1. The contract s rescissible
Art 1381 Knds of rescssbe contracts
Art 1382 Payments made in a state of insolvency for obgatons to whose fufment the
debtor coud not be compeed at the tme (has not yet matured) they were effected, are aso
rescssbe.
2. The party askng for rescsson has no other legal means to obtan reparaton
Art 1383 The acton for rescsson s subsidiary; t cannot be nsttuted except when the party
sufferng damage has no other ega means to obtan reparaton for the same.
3. He s able to return whatever he may be obged to restore f rescsson s granted
Art 1385 "Rescsson creates the obligation to return the things whch were the ob|ect of the
contract, together wth ther fruts, and the prce wth ts nterest."
4. The ob|ect of the contract has not passed legally to the possesson of a thrd person actng n
good fath
Art 1385 ".consequenty, t can be carred out ony when he who demands rescsson can
return whatever he may be obged to restore."
Art 1385 Par 3 Nether sha rescsson take pace when the thngs whch are the ob|ect of the
contract are legally in the possession of third persons who did not act in bad faith.
5. The acton for rescsson s brought wthn the prescriptive period of four years
Art 1389 The acton to cam rescsson must be commenced within four years.
For persons under guardanshp and for absentees, the perod of four years sha not begn unt
the termnaton of the formers ncapacty or unt the domce of the atter s known.
! Perod commences on the termnaton of the wards ncapacty or absentees domce s
known
Effect of Rescission
! If n fraud of the credtors: Property aenated reverts to the patrmony of the debtor and
becomes abe to credtor who sought rescsson, under ts orgna abty as a guaranty of the
debtors obgaton
! Art 1385 Rescsson creates the obgaton to return the things which were the object of
the contract, together wth ther fruts, and the prce wth ts nterest; consequenty, t can be
carred out ony when he who demands rescsson can return whatever he may be obged to
restore.
With respect to third persons who acquired the thing in good faith
Transferee of property n good fath who acqures property for vauabe consderaton, wthout
knowedge of the tgaton or cam of the pantff, cannot be deprved of property.
Art 1385 Par 2 Nether sha rescsson take pace when the thngs whch are the ob|ect of the
contract are legally in the possession of third persons who did not act in bad faith.
Art 1385 Par 3 In ths case, ndemnty for damages may be demanded from the person
causng the oss.
Right of transferee to retain alienation:
! Nature of transfer
! ONEROUS
" Good fath - no rescsson
" Bad fath - rescssbe because of hs compcty n the fraud # not entted for
rembursement because in pari delicto; f not possbe to return, ndemnfy the
pantff;
! GRATUITOUS
" Good fath - does not protect hm because he gave nothng; rescssbe, though
not requred to restore the fruts
" Bad fath - rescssbe because of hs compcty n the fraud; f not possbe to
return, ndemnfy the pantff
Who may bring action for rescission
1. Credtor n|ured
2. Hers of credtor n|ured
3. Credtors of credtor n|ured (by vrtue of accon subrogatora)
Extent of Rescission
Art 1384 Rescsson sha be only to the extent necessary to cover the damages caused.
As to the excess, aenaton s mantaned even f transferee s n bad fath
Benefts ony the pantff credtor, not everyone
BUT f transferee s wng to pay, no rescsson
Presumptions of Fraud
Art 1387 A contracts by vrtue of whch the debtor aenates property by gratuitous title are
presumed to have been entered into in fraud of creditors, when the donor did not reserve
sufficient property to pay a debts contracted before the donaton.
Aenatons by onerous title are aso presumed fraudulent when made by persons aganst whom
some judgment has been issued. The decson or attachment need not refer to the property
aenated, and need not have been obtaned by the party seekng the rescsson.
In addton to these presumptons, the desgn to defraud credtors may be proved n any other
manner recognized by the law of evidence.
! Rebutta by evdence that conveyance was made:
! In good fath
! For a suffcent cause
! Effect of Fraud: Does not necessary make the aenaton rescssbe. It s ony one of the
requstes for accon pauana. Can be overrued by a transferee n good fath and for vauabe
consderaton
Badges of Fraud (indicia of fraud) - rues by whch fraudent character of transacton may be
determned
1. Fcttous/nsuffcent consderaton
2. Conveyance s after sut s fed and whe t s pendng
3. Sae on credt by nsovent debtor
4. Evdence of nsovency or arge ndebtedness
5. Transfer of A or neary a of debtors property
6. Transfer s between father and son when some of above s present
7. Faure of vendee to take excusve possesson of the property
Liability for acquiring in bad faith the things alienated in fraud of creditors
Art 1388 Whoever acqures n bad fath the thngs aenated n fraud of credtors, sha indemnify the
latter for damages suffered by them on account of the alienation, whenever, due to any cause,
t shoud be impossible for him to return them.
If there are two or more aenatons, the first acquirer shall be liable first, and so on successively.
Chapter Vl l. Voidable or Annullable Contracts
Kinds of Voidable}Annullable Contracts
Art 1390 Athough no damage to contractng partes:
1. Want of capacty
2. Vtated consent
Characteristics of Voidable}Annullable Contracts
1. Ther defect conssts n the vitiation of consent of one of the contractng partes
2. They are binding unt they are annued by a competent court
3. They are susceptbe of convalidation by ratfcaton or by prescrpton
ANNULMENT
Annulment distinguished from Rescission
NULLlTY (Voidable) RESClSSlON (Rescissible)
Decares neffcency whch contract aready carres
n tsef (ntrnsc defect)
Merey produces neffcency, whch dd not exst
essentay n the contract (externa defect .e.
pecunary damages or pre|udce to one of the
contractng partes or 3
rd
persons)
Requres act of ratfcaton to be cured Needs no ratfcaton to be effectve
Based on a vce of the contract whch nvadates t Compatbe wth the perfect vadty of the contract
Annument s a sancton based on aw Rescsson s a remedy based on equty
Demanded ony by the partes to the contract Demanded even by thrd partes affected by t
Pubc nterest predomnates Prvate nterest predomnates
Grounds for Annulment Art 1390
1. Incapacty to consent
! Not a requste sine qua non of the contract; want s ony a ground for annument
2. Vces of consent: voence, ntmdaton, undue nfuence, mstake or fraud
Who may and may not institute an Action for Annulment Art 1397
A. MAY: A who are obged prncpay or subsdary
Art 1395: acton does not requre conformty of the other party who has no rght to brng acton for
annument
Requstes:
a. Interest n the contract - there must be ega capacty by beng bound to the contract ether
prncpay or subsdary
b. Vctm and not the party responsbe for the defect - he who comes to the court must come
wth cean hands (so not appcabe to the successor n nterest of one who has contracted
wth a mnor)
B. MAY NOT:
1. Capabe partes cannot aege the ncapacty of those wth whom they contracted
2. Partes who exerted ntmdaton, voence or undue nfuence or empoyed fraud or caused
mstake
3. Thrd person who s a stranger to the contract. UNLE55 he can prove that the contract pre|udced
hs rghts wth respect to one of the contractng partes, he may ask for annument e.g.
guarantors and suretes (5ingsong v. lsabela 5awmill)
Prescription of Action for Annulment - after prescrpton, contract can no onger be set asde
Art 1391 - Wthn 4 years
Perod sha begn:
1. Intmdaton, voence or undue nfuence: from the tme consensua defect ceases
2. Mstake or fraud: from the tme of discovery of the same
3. Incapacty: from the tme guardianship ceases
* Extnctve prescrpton appes not ony to action for annulment, but aso to the defense of nullity
* Appes to the partes of to the contract, but NOT to thrd persons
Effects of Annulment- ceanses the contract from a ts defect from the moment t was consttuted
(retroactve effect), but does not pre|udce rghts of 3
rd
persons acqure before the ratfcaton Art 1396
a. MUTUAL RESTlTUTlON Art 1398 Restore to each other thngs whch have been the sub|ect matter
of the contract, together wth fruts and the prce wth nterest,
! EXCEPT n cases provded by aw (prncpe of un|ust enrchment): compensaton, servces
rendered n contracts of servce
! ELlMlNATE5 AWARD FOR DAMACE5. But when there s oss or suffered damages, n|ured party
may be entted to recover ndemnty for damages.
b. Art 1402 as ong as one does not restore what he s bound to return, the other cannot be compelled
to return
LOSS THROUGH PLAINTIFFS (party entted to brng acton) FAULT or FRAUD: Acton s
extngushed, even f at the tme of the oss the pantff s st a mnor or nsane (Art 1401)
LOSS THROUGH FORTUITOUS EVENT, BUT PLAINTIFF WILLING TO PAY: Appy Art 1400,
defendant shoud return but not ncudng the nterest because oss not due to hs faut.
LOSS OF FRUITS AND ACCESSIONS: Appy Art 1400, pay vaue f cannot return (both pantff
and defendant)
1. When one of the partes s incapacitated
Art 1399 not obged to make any resttuton EXCEPT nsofar as he has been benefted by the
prce/thng receved
! Beneft not necessary a matera and permanent ncrease n fortune
! Proof of beneft ncumbent upon the defendant, n the absence of such proof, the presumpton s
there s no beneft/proft to the ncapactated person
! If st n the patrmony at the tme ncapacty ceases, deemed to have been benefted. If he asks
for annument, he must return t to the other party. If he squanders, t s ratfcaton.
2. When the thng s lost through the fault of the party obliged to return the same (.e. defendant)
Art 1400 return the fruts receved AND the vaue of thng at the tme of oss, wth nterest from
same date
LOSS THROUGH FORTUITOUS EVENT: pay the vaue of the thng ost but not fruts and
nterests
Extinguishment of the Action
a. Art 1392 By ratification
Confrmaton/ratfcaton: cures a defect of nuty
Acknowedgment: remedes defcency of proof
b. Art 1401 When the thng s lost through the fault of the person who has the right to file the acton
! LOSS NOT THROUGH THE FAULT, e.g. fortutous event: not extngushed because extngushment
mted ony to the oss by faut of pantff. Un|ust enrchment f the oss s returned for the
defendant to bear. Hence, the defendant cannot be obged to make resttuton to the pantff
because of Art 1402 (cannot compeed to return f the other party does not return)
! Cannot extngush acton for annument by any event not mputabe to the faut or fraud of the
pantff
RATlFlCATlON
Requisites of Ratification
a. Contract s voidable/annullable (.e. consent of one party s defectve)
b. Ratfcaton s made with the knowledge of the cause for nuty
c. At the tme of the ratfcaton, the cause of nuty has already ceased to exst
Forms of Ratification
a. Art 1393 Express or tact: execute an act whch necessary mpes an ntenton to wave hs rghts
E.g. of EXPRE55: any ora or wrtten manfestaton of the person entted to ask for annument that
he agrees to be bound by the contract or that he w not seek ts annument
E.g. of lMPLlED:
! sence or acquescence
! acts showng approva or adopton of the contract
! acceptance and retenton of benefts fowng therefrom
b. Art 1394 By the partes themseves or by the guardan n behaf of an ncapactated party
- Durng the exstence of ncapacty
- Rght to ratfy s transmtted to the hers of the party entted to such rght.
Effects of Ratification
a. Art 1392 Acton to annu s extngushed
b. Art 1396 The contract s ceansed retroactvey from a ts defects from the tme t was
consttuted
EXCEPTION: Rght of 3
rd
persons pror to ratfcaton
Chapter Vll l. Unenforceable Contracts
Characteristics of Unenforceable Contracts
1. They cannot be enforced by a proper acton n court
2. They are susceptbe of ratification
3. They cannot be assaed by third persons Art 1408
Unenforceable distinguished from Rescissible and Annullable
UNENFORCEABLE RESClSSlBLE AND ANNULLABLE
Produces NO ega effect uness ratified by competent
court
Produce ega effects uness set aside by competent
court
Kinds of Unenforceable Contracts
1. Entered nto n the name of another person by one who has no authorty or no ega representaton
OR acted beyond hs powers
2. Do not compy wth Statute of Frauds, whch are agreements unenforceabe uness n wrtten
memorandum and subscrbed by the party charged
a. Not to be performed within 1 year from the makng # If no tme s fxed and nothng to
show that t cannot be performed wthn a year, then not wthn SoF; Parta performance aso
takes t out of SOF
b. Speca promse to answer for the debt, default or miscarriage of another# Default or
Miscarriage ncude abty for tort and are not to be restrcted to defauts and mscarrages
arsng out of contracts; Must be collateral ony and not prmary abe for the debt
c. Agreement made in consideration of marriage other than "mutua" promse to marry
not mted to marryng partes but aso to promses by a thrd person to one of the partes
contempatng the marrage
d. Sale of goods, chattels or things in action, prced > P500 uness buyer accept and
receve part of such goods and chattes or the evdences or some of them or pay at the tme
some part of the purchase money. EXCEPTION: sae s by aucton and entry s made by
auctoneer n hs saes book (because t consttutes suffcent memorandum)
e. Leasing for perod onger than one year OR sale of real property or of an nterest theren
f. Representation to the credit of a 3
rd
person
3. Both partes are ncapabe of gvng consent to contract
Art 1403 Par 1 : Unauthorzed contracts
Governing rules in Unauthorized Contracts: Art 1404 Governed by Art 1317 (no one may contract
n the name of the other wthout beng authorzed or uness he has by aw a rght to represent hm;
representaton wthout authorty or ega representaton makes the contract unenforceabe) and
prncpes of Agency n Tte X of ths Book
- Does not havng bndng effect on the prncpa, UNLE55 prncpa ratifies t whch cures the
unauthorzed contract.
- Agent who bnds hs prncpa wthout authorty to do so s abe to 3
rd
persons.
Art 1403 Par 2: Contracts covered by the Statute of Frauds
Statute of Frauds: descrptve of statutes whch requres certan casses of contracts to be n wrtng.
Merey reguates the formates of the contract necessary to render t enforceabe.
NOT APPLICABLE TO: (1)Acton for specfc performance, (2) Voaton of the contract
APPLICABLE TO: Executory and not to compete or executed contracts # ntenton of the partes
become apparent by ther executon. However, parta performance must aso be proven.
Excusve st of agreements/contracts enumerated; Rue of excuson
A persona defense (hence cannot be rased by 3
rd
persons) and the same may be waved
Does not determne credbty or weght of the evdence, merey concerned wth the
admissibility thereof
Purpose of Statute: Prevent (and not to encourage t) fraud and per|ury n the enforcement of
obgatons dependng for ther evdence upon the unasssted memory of wtnesses, by requrng certan
enumerated contracts and transactons to be evdenced by a wrtng sgned by the party to be charged.
- Provdes for the manner whch contracts under t sha be proved
- Does not attempt to make contracts nvad f not executed n wrtng, ony makes ineffective
the action for specific performance
- Prncpa ams: (1) prevent commsson of n|ustce due to fauty memory, (2) dscouragng
ntentona msrepresentatons
WRlTTEN MEMORANDUM OR NOTE evdence of the agreement and s used to show the ntenton of
the partes
Mnmum requrement for wrtten memorandum:
1. Names of the partes
2. Terms and condtons of the agreement
3. Descrpton of the sub|ect matter suffcent to render t capabe of dentfcaton
4. Date and pace of the makng of the agreement
5. Sgnature of the party assumng the obgaton
How to ratify contracts under Statute of Frauds7 Art 1405
1. Faure to ob|ect to the presentaton of ora/paroe evdence to prove the same
2. Acceptance of benefts under them SoF cannot be nvoked when the contract has been party
executed
Rght of the partes when a contract s ENFORCEABLE 8UT a pubc document s NECESSARY for ts
regstraton
Art 1406 may ava of ther rghts under Art 1357 (partes may compe each other to observe the
necessary form once the contract has been perfected)
Art 1403 Par 3: Contracts executed by partes who are both ncapabe of gvng consent to a contract
Art 1407
a. Effect of ratfcaton by the parent or guardan of one of the partes: (express or mped)
! Converts the contract nto a voidable contract, at the opton of the party who has not
ratfed.
! The non-ratfyng party may: enforce the contract OR ask for the annument
b. Effect of ratfcaton by the parents or guardans of both partes: vadated from the ncepton
Chapter lX . Void or lnexistent Contracts
Characteristics of Void}lnexistent Contracts
1. Vod from the beginning
2. Produces no effect whatsoever nuty exst pso |ure, |udgment of nuty s merey decaratory
3. Cannot be confrmed or vadated (by prescrpton OR ratfcaton), nether can the rght to set up
the defense of egaty be waved Art 1409
ACClON RElVlNDlCATORlA - any person may nvoke the nexstence of the contract whenever |urdca
effects founded thereon are asserted aganst hm
Action to Declare Nullity
- necessary because nobody can take the aw nto hs own hands
- f the vod contract s st executory, no party need to brng an acton; but f one party
brngs acton to enforce t, nuty can be set up as defense
Void}inexistent contracts distinguished from other defective contracts
VOlD RESClSSlBLE
Defect s nherent n the contract tsef Defect s n ther effects, ether to one of the partes or
to a 3
rd
party
Matter of aw and pubc nterest Based on equty and more a matter of prvate nterest
No ega effects even f no acton s taken to set t asde No acton, remans vad and produces a ts effects
Acton to decare nuty of vod contracts never
prescrbes
Acton to rescnd prescrbes n 4 years
VOlD UNENFORCEABLE
Cannot be the bass of actons to enforce compance
Can never be ratfed and become enforceabe Can be ratfed and thereafter enforced
There s no contract at a There s a contract whch, however, cannot be enforced
unless propery ratfed
VOlD VOlDABLE
One of those essenta requstes s wantng, ether n
fact or n aw or s decared vod by statute
Essenta requstes for vadty s present, BUT consent
s vtated
No contract, but ony appearance of one, produces no
effect even f not set asde by drect acton (coatera
attack aowed)
Vad unt set asde, vadty may ony be assaed
drecty, never by a 3
rd
person
Not susceptbe of ratfcaton May be rendered perfecty vad by ratfcaton
Acton to decare nuty does not prescrbe, permanent,
even f the cause of nuty ceased to exst
Acton for annument prescrbes n 4 years
Kinds of Void}lnexistent Contracts Art 1409
Contracts that are VOlD
Art
1. Those whose cause, ob|ect or purpose s contrary to aw, moras, good customs,
1409
Par 1
pubc order, or pubc pocy
a. Art 1411 When the act consttutes a criminal offense (egaty of cause or ob|ect)
lN PARl DELlCTO RULE
1. BOTH are in pari delicto
" No acton aganst each other
" BOTH w be prosecuted
" RPC provson reatve to the dsposa of effects/nstruments of a crme sha appy
2. ONLY ONE s guty
" INNOCENT PARTY may cam what he has gven
" INNOCENT PARTY not bound to compy wth hs promse
b. Art 1412 When the act s unlawful but does not criminal offense
lN PARl DELlCTO RULE
1. BOTH partes at faut
" Nether party may recover what he has gven by vrtue of the contract
" Nether party may demand the performance of the others undertakng
2. ONLY ONE s guty
" INNOCENT PARTY may demand the return of what he has gven wthout obgaton
to compy wth hs promse
" PARTY AT FAULT cannot recover what he has gven by reason of the contract
" PARTY AT FAULT cannot ask for the fufment of what has been promsed to hm
! Not appcabe to fictitious contracts because they refer to contracts wth an ega cause or
sub|ect-matter (crmna offense OR ony ega), OR to contracts that are nu and vod ab nto.
Fcttous or smuated contracts dont have cause.
EXCEPTlON5 TO THE lN PARl DELlCTO RULE
Genera Statement of the Excepton (Art 1416): Agreement s not ega per se, but merey
prohbted
Prohbton s desgned for the protecton of the pantff
Pantff may recover what he pad or devered f pubc pocy s enhanced
lLLECAL PER 5E - one that by unversay recognzed standards s nherenty or by ts
very nature bad, mproper, mmora or contrary to good conscence.
OTHER 5PEClFlC EXCEPTlON5
c. Art 1414 When the PURPOSE s illegal and money s pad or property devered therefore # maybe
repudated by one of the partes before the purpose has been accomplished OR before any
damage has been caused to a 3
rd
person. Courts may aow the party repudatng the contract
to recover the money or property, f the pubc nterest w thus be subserved.
d. Art 1415 When the CONTRACT s illegal and one of the partes s INCAPABLE of gvng consent #$
courts may aow recovery of money/property devered by the ncapactated person, f nterest of
|ustce so demands
e. Art 1417 When the amount pad exceeds the maximum fixed by law any person payng n excess
of the maxmum prce may recover such excess
f. Art 1418 When by vrtue of contract a aborer undertakes to work longer than the maximum number
of hours of work fxed by aw # worked may demand addtona compensaton for servce rendered
beyond the mt
g. Art 1419 When a aborer agrees to accept a lower wage than that set by aw # entted to recover
defcency
h. Art 1420 When the contract s divisible f ega terms can be separated from ega ones, enforce
atter
In case of doubt, contract s consdered as dvsbe or separabe.
EXCEPTIONS:
1. Nature of contract requres ndvsbty e.g. contract of compromse
2. Intenton of the partes s that the contract be entre e.g. f what s vod be the essenta
part, vod the entre contract. Dvsbty w ony be foowed when the nuty affects ony
the secondary or accessory obgatons.
. Art 1422 When the contract s the DIRECT RESULT of a previous illegal contract aso vod and
nexstent
Art
1409
Par 4
2. Those whose ob|ect s outsde the commerce of man
Art
1409
Par 5
3. Those whch contempate an mpossbe servce
Art
1409
Par 6
4. Those where the ntenton of the partes reatve to the prncpa ob|ect of the contract
cannot be ascertaned
Art
1409
Par 7
5. Those expressy prohbted are decared vod by aw
Contracts that are lNEXlSTENT
Art
1409
Par 2
1. Those whch are absoutey smuated or fcttous
Art 1345 Smuaton of contracts may be ABSOLUTE (partes do not ntend to be bound at a)
or RELATIVE (partes concea ther true agreement)
Art 1346 Absolute or Fictitious: vod
Art
1409
Par 3
2. Those whose cause or ob|ect dd not exst at the tme of the transacton
Right to set up defense of illegality cannot be waived Art 1409
The action or defense for the declaration of the inexistence of a contract
1. Art 1410 Does not prescrbe, defect s permanent and ncurabe
2. Art 1421 Is NOT avaabe to 3
rd
persons whose nterest s not directly affected
* Ratfcaton may take the form of a new contract, n whch case ts vadty sha be determned ony by
the crcumstances at the tme of the executon of the new contract. However, the same does not
retroact to the consttuton of the frst contract.
5ee Table of Defective Contracts in the next page.
DEFECTlVE CONTRACTS
Professor E. A. Labtag
DEFECTlVE
CONTRACTS
AS TO NATURE
OF DEFECT
EFFECT ON
CONTRACT
ASSAlLABLE7
HOW7
WHO CAN
ASSAlL7
WHEN TO
ASSAlL7
CURABLE7
HOW7
WHO CAN
CURE7
WHEN TO CURE7
RESClSSlBLE
(Arts 1381 - 1389)
Economc pre|udce
or damage to:
- owner
- 3
rd
person
- tgant
Can generay be
ASSAILED and
CURED by: In|ured
Party
EFFECTS:
Mutua resttuton
Contracts of
guardians (acts of
admnstraton)
when wards they
represent suffer
eson of more than
25% of the vaue of
thng
VALID
unt rescnded
Contracts n
representaton of
absentees when
atter suffers eson
of more than 25% of
vaue of thng
VALID
unt rescnded
YES but ony
through DIRECT
action for
rescission
No rescsson f:
a. pantff has other
ega means to
obtan reparaton
(subsdary)
b. pantff cannot
return what must be
restored
c. ob|ect n the
hands of 3
rd
persons
n good fath
d. Contract
approved by court
(Art 1386)
By ward
Or by guardan ad
litem of ward durng
ncapacty of ward
n acton aganst
orgna guardan
Wthn 4 years from
ganng (mnor) or
reganng (nsane)
capacty
YES
By ratfcaton
(Confrmaton by
the ward)
By ward
Wthn 4 years from
(re)ganng capacty
By absentee
Wthn 4 years from
knowedge of
domce of
absentee
YES
By prescrpton
By absentee
Wthn 4 years from
knowedge of
domce or
knowedge of
frauduent contract
Contracts entered
nto by debtor who
s a state of
nsovency, .e.
contracts entered
nto n fraud of
creditors (Accion
Pauliana)
VALID
unt rescnded
Contracts whch
refer to things in
litigation wthout
the knowedge and
approva of tgants
or competent
|udca authorty
VALID
unt rescnded
A other contracts
declared by law to
be sub|ect of
rescsson E.g. Art
1098 Partton
VALID
unt rescnded
YES but ony
through DIRECT
action for
rescission
No rescsson f:
a. pantff has other
ega means to
obtan reparaton
(subsdary)
b. pantff cannot
return what must be
restored
c. ob|ect n the
hands of 3
rd
persons
n good fath
By pantff-credtor
By hers of credtor
BY credtors of
credtors n|ured
(accion subrogatoria)
By other thrd
partes pre|udced
by the contract
Wthn 4 years from
knowedge of
frauduent contract
YES
By prescrpton
By credtor
Wthn 4 years from
knowedge of
frauduent contract
By party tgant
Wthn 4 years from
knowedge of
frauduent contract
YES
By prescrpton
By party tgant
Wthn 4 years from
knowedge of
frauduent contract
DEFECTlVE
CONTRACTS
AS TO NATURE
OF DEFECT
EFFECT ON
CONTRACT
ASSAlLABLE7
HOW7
WHO CAN
ASSAlL7
WHEN TO
ASSAlL7
CURABLE7
HOW7
WHO CAN
CURE7
WHEN TO CURE7
VOlDABLE
(Arts 1390 - 1402)
Vtated consent
EFFECT:
Ceanses defect of
contract
Does not pre|udce
rght of 3P pror to
ratfcaton
Mutua resttuton
Want of capacty
- age
- nsanty
Consent s vtated
by:
- mstake or error
- voence and
ntmdaton (duress)
- undue nfuence
- fraud,
msrepresentaton
VALID
unt annued by
court acton
YES. Both through
drect and coatera
attacks.
Acton for
annument
A who are obged
prncpay or
subsdary (.e.
guarantors and
suretes)
Incapactated party;
not the party wth
capacty
Vctm; not the
party who cause the
defect
Wthn 4 years from
cessaton of
(re)ganng capacty
YES
By ratfcaton
By prescrpton
Wthn 4 years from:
- cessaton of
ntmdaton,
voence, undue
nfuence
(consensua defect)
- dscovery of
mstake or fraud
YES
1 By ratfcaton
- Express
- Imped
(sence or
acquescence, acts
showng approva or
adopton of contract,
acceptance and
retenton of benefts)
2 By prescrpton
By partes
themseves
By guardan n
behaf of an
ncapactated party
durng exstence of
ncapacty
Wthn 4 years from
cessaton of
(re)ganng capacty
Wthn 4 years from:
- cessaton of
ntmdaton,
voence, undue
nfuence
(consensua defect)
- dscovery of
mstake or fraud
UNENFORCEABL
E
(Arts 1403 - 1408)
Contract entered
into name of
another wthout
authorty or n
excess of authorty
VALID
but cannot be
ENFORCED
by a proper acton
n court
YES. Not by drect
acton but by
DEFENSE of
unenforceabty of
contract through
motion to dismiss
complaint on the
ground that
contract s
unenforceabe
By owner of
property
At any tme one
party attempts to
enforce contract
aganst the other
through a court
acton
By ratfcaton Person n whose
name the contract
was entered nto
Contracts covered
by Statute of
Frauds and not
compyng wth
requrement of a
wrtten memo
VALID
but cannot be
ENFORCED
by a proper acton
n court
YES. Not by drect
acton but by
DEFENSE of
unenforceabty of
contract ether
through:
1. motion to
dismiss complaint
on the ground that
contract s
unenforceabe
2. ob|ecton to
presentation of
oral evidence to
prove contract
By other party
By hs prves (hers,
representatves and
assgns)
At any tme one
party attempts to
enforce contract
aganst the other
through a court
acton
By
acknowedgement
By performance of
ora contract
By faure to ob|ect
seasonaby to
presentaton of ora
evdence
By acceptance of
benefts under the
contract
By party aganst
whom the contract
s beng enforced
Both parties are
egay
incapacitated to
act
VALID
but cannot be
ENFORCED
by a proper acton
n court
YES. Not by drect
acton but by
DEFENSE of
unenforceabty of
contract through
motion to dismiss
complaint on the
ground that
contract s
unenforceabe
By other party
By hs prves (hers,
representatves and
assgns)
By guardan
At any tme one
party attempts to
enforce contract
aganst the other
through a court
acton
By confrmaton
By parents or
guardans of both
partes
Both partes after
(re)ganng capacty
to act
VOlD or
lNEXlSTENT
(Arts 1409 - 1422)
Cause, ob|ect or
purpose of contract
contrary to aw,
good customs,
moras, pubc order
or pubc pocy (Art
1401, Par 1)
DOES NOT CREATE
RIGHTS AND
CANNOT IMPOSE
OBLIGATION
YES.
By an action for
declaration for
nullity
By defense of
nullity
By nnocent party
By 3
rd
persons
whose nterest are
drecty affected
(If in pari delicto,
nether has an
acton aganst each
other)
Imprescrptbe Cannot be cured -- --
One or some of
essential
requisites of vad
contract ackng n
fact or n aw
a. Absout
ey smuated
b. Those
whose cause or
ob|ect dd not
exst
c. Ob|ect
outsde the
commerce of
man
d. Contem
pate an
mpossbe
servce
e. Where
ntenton of
partes re:
prncpa ob|ect
of contract
cannot be
ascertaned
DOES NOT CREATE
RIGHTS AND
CANNOT IMPOSE
OBLIGATION
YES.
By an action for
declaration for
nullity
By defense of
nullity
By any of the
contractng partes
By 3
rd
persons
whose nterests are
drecty affected
(Art 1402 Pars 2 to
6)
Contracts expressy
prohbted by aw
(Art 1409 Par 7)
DOES NOT CREATE
RIGHTS AND
CANNOT IMPOSE
OBLIGATION
YES.
By an action for
declaration for
nullity
By defense of
nullity
By party whose
protecton the
prohbton of the
aw s desgned
By 3
rd
party whose
nterests are
drecty affected
Title lll. NATURAL OBLlGATlONS
Four types of obligations in juridical science reduced to two by |ursprudence
1. Mora obgatons - dutes of conscence competey outsde the fed of aw
2. Natura obgatons - dutes not sanctoned by any acton but have a reatve |udca effect
3. Cv obgatons - |urdca obgatons that are n conformty wth postve aw but are contrary to
|urdca prncpes and susceptbe of beng annued; enforceabe by acton
4. Mxed obgatons - fu |urdca effect; fas under cv obgatons
Definition Art 1423 Not beng based on postve aw but on equty and natura aw, do not grant a rght
of acton to enforce ther performance, but after vountary fufment by the obgor, they authorze the
retenton of what has been devered or rendered by reason thereof.
Mdway between cv and the purey mora obgaton. "Obgaton wthout a sancton,"
susceptbe of vountary performance, but not through compuson by ega means.
Rea obgaton whch aw denes acton, but whch the debtor may perform vountary.
Patrmona and presupposes a prestaton.
Requisites of Natural Obligation
1. |urdca te between two persons.
2. Te s not gven effect by aw but nstead by the conscience of man # dstngushes t from cv
obgatons.
As distinguished from Civil Obligations
NATURAL ClVlL
As to
enforceabty
Not by court actons, but by
good conscence of debtor
Court acton or the coercve
power of pubc authorty
As to bass Equty and natura |ustce Postve aw
As distinguished from Moral Obligations
NATURAL PURELY MORAL
There s a |urdca te There s no |urdca te
Performance by the debtor s a ega
fufment of the obgaton
Act s purey beraty
A true obgaton wth a ega te between
debtor and credtor
Matter s entrey wthn the doman of
moras
Conversion to Civil Obligation
GENERAL RULE: Parta payment of a natura obgaton does not make t cv; the part pad cannot be
recovered but the payment of the baance cannot be enforced. appcabe ony to natura obgaton
because of prescrpton or ack of formates (nuty due to form e.g. Art 1430) and NOT to natura
obgaton sub|ect to ratfcaton or confrmaton.
Payment by mstake s not vountary and may be recovered. Payment s vountary when the
debtor knew that the obgaton s a natura one. One who pays a natura obgaton, beevng t
to be cv, does not thereby recognze the natura obgaton; and there beng no cv obgaton
ether, he can recover what he has pad. The debtor however has the burden of provng the
mstake.
1. By novaton
2. By confrmaton or ratfcaton
Examples
Art
1424
When the rght to sue upon a cv obgaton has apsed by extnctve prescrpton, the obgor who
vountary performs the contract cannot recover what he has devered or the vaue of the servce he
has rendered.
Art
1425
When wthout the knowedge OR aganst the w of the debtor, a 3
rd
person pays a debt whch the
obgor s not egay bound to pay because the acton thereon has prescrbed, but the debtor ater
vountary remburses the thrd peson the obgor cannot recover what he has pad.
Art
1426
When a mnor 18-21 entered nto a contract wthout the consent of the parent or guardan, after the
annument of the contract, vountary returns the whoe thng or prce receved, notwthstandng that
he has not been benefted thereby, there s no rght to demand the thng or prce thus returned.
Art
1427
When a mnor 18-21 entered nto a contract wthout the consent of the parent or guardan, vountary
pays a sum of money or devers a fungbe thng n fufment of an obgaton, there sha be no rght
to recover the same from the obge who has spent or consumed t n good fath.
- Not the vountary payment that prevents recovery, but the consumpton or spendng of the
thng or money n good fath.
- Ths artce creates an excepton to the rue of mutua resttuton. Mnor woud have been
requred to return whatever he receved upon annument of contract.
- Good fath: beef that debtor has capacty to dever the ob|ect of contract
- Fungbe thng: consumabe
- Non-consummabe: debtor cannot recover f no onger n the possesson of the credtor,
because the rght to recover presupposes exstence of thng.
Art
1428
When after an acton to enforce a cv obgaton has faed, the defendant vountary performs the
obgaton, he cannot demand the return of what he has devered or the payment of the vaue of the
servce he has rendered.
Art
1429
When a testate or ntestate her vountary pays a debt of a decedent exceedng the vaue of the
property whch he receved by w or by the aw of testacy from the estate of the deceased, the
payment s vad and cannot be rescnded by the payer.
Art
1430
When a w s decared vod because t has not been executed n accordance wth the formates
requred by aw, but one of the ntestate hers, after the settement of the debts of the deceased, pays
a egacy n compance wth a cause n the defectve w, the payment s effectve and rrevocabe.
Title lV. ESTOPPEL
Definition Art 1431 Admsson or representaton s rendered concusve upon the person makng t, and
cannot be dened or dsproved as aganst the person reyng thereon.
- Bar whch precudes a person from denyng or assertng anythng to the contrary of that whch n
has, n contempaton of aw, been estabshed as the truth, ether by the acts of |udca or
egsatve offcers or by hs own deed or representaton, ether express or mped.
- Concudes the truth n order to prevent fasehood and fraud, and mposes sence on the party
ony when n conscence and honesty he shoud not be aowed to speak.
- Orgn s n equty and s therefore based on mora rght and natura |ustce
- Cannot be predcated on an ega act
EUlTABLE ESTOPPEL WAlVER
May arse even when there s no ntenton
on the part of the person estopped to
renqush any exstng rght
Vountary and ntentona abandonment
or renqushment of a known rght
Frequenty carres mpcaton of fraud No mpcaton of fraud
Invoves the conduct of both partes Invoves the act or conduct of ony one of
the partes
ESTOPPEL RATlFlCATlON
Bound notwthstandng the fact that
there was no such ntenton, because the
other party w be pre|udced and
defrauded by hs conduct uness the aw
treats hm as egay bound
Bound because he ntended to be
Kinds of Estoppel - Art 1433: Estoppe may be in pais or by deed
A. TECHNICAL ESTOPPEL
1. By record - precuson to deny the truth of matters set forth n a record, whether |udca or
egsatve, and aso to deny the facts ad|udcated by a court of competent |ursdcton
. E.g. concusveness of |udgment (estoppe by |udgment) on the partes to a case,
whch accordng to Sr s broader than res judicata
2. B y deed - bar whch precudes on party to a deed and hs prves from assertng as aganst
the other party and hs prves any rght or tte n derogaton of the deed, or from denyng
the truth of any matera facts asserted n t usuay wrtten documents
B. EOUITABLE ESTOPPEL (estoppe in pais) - because of somethng whch he has done or omtted to do,
a party s dened the rght to pead or prove an otherwse mportant act
Essenta eements of estoppe n pas n reaton to the party sought to be estopped :
1. Conduct amountng to fase representaton or conceament of matera facts, or at east
cacuated to convey the mpresson that the facts are otherwse than and nconsstent wth,
those whch the party subsequenty attempts to assert
2. Intent, or at east expectaton that ths conduct sha be acted upon by or at east nfuence,
the other party
3. Knowedge, actua or constructve, of the rea facts
Essenta eements of estoppe n pas n reaton to the party camng the estoppe :
1. Lack of knowedge or of the means of knowedge of the truth as to the facts n queston
2. Reance, n good fath, upon the conduct or statements of the party to be estopped
3. Acton or nacton based thereon of such character as to change the poston or status of the
party camng the estoppe, to hs n|ury, detrment or pre|udce
PO5lTlVE E5TOPPEL lN PAl5
1. Estoppe by representation or misrepresentation (Art 1437 or estoppe aganst owners) #$
When a contract between 3
rd
persons concernng mmovabe property, one of them s msed by
a person wth respect to the ownershp or rea rght over rea estate, the atter s precuded from
assertng hs ega tte or nterest theren, provded a these requstes are present:
1. Frauduent representaton or wrongfu conceament of facts known to the party
estopped
2. Party precuded must ntent that the other shoud act upon the facts as
msrepresented
3. Party msed must have been unaware of the true facts
4. Party defrauded must have acted n accordance wth the msrepresentaton
2. Estoppe by acceptance of benefits (Art 1438 or estoppe from benefts) #One who has
aowed another to assume apparent ownershp of persona property for the purpose of makng
any transfer of t, cannot, f he receved the sum for whch a pedge has been consttuted, set up
hs own tte to defeat the pedge of the property, made by the other to a pedge who receved
the same n good fath and for vaue.
3. Promissory estoppel # An estoppe may arse from makng of a promse, even though wthout
consderaton, f t was ntended that the promse shoud be reed upon and n fact t was reed
upon, and f a refusa to enforce t woud be vrtuay to sancton the perpetuaton of fraud or
woud resut n other n|ustce.
b. A promse cannot be the bass of an estoppe f any other essenta eement s ackng.
c. justifiable reliance or irreparable detriment to the promse are requste factors.
d. Came from Ango-Amercan Law, by vrtue of Art 1432 whch adopts prncpe of estoppe
NECATlVE E5TOPPEL lN PAl5
1. Estoppel by laches - faure or negect, for an unreasonabe and unexpaned ength of tme, to
do that whch, by exercsng due dgence, coud or shoud have been done earer.
Pubc pocy requres for the peace of socety, dscouragement of stae cams and aches, unke
statute of mtatons, s not a mere queston of tme but prncpay a queston of nequty or
unfarness of permttng a rght or cam to be enforced or asserted.
Dscretonary on the part of the court.
R equstes of aches:
a. Conduct on part of the defendant, or one under whom he cams, gvng rse to the
stuaton companed of
b. Deay n assertng companants rght after he had knowedge of the defendants
conduct and after he has had an opportunty to sue
c. Lack of knowedge or notce on the part of the defendant that the companant woud
assert the rght on whch he bases hs sut
d. In|ury or pre|udce to the defendant n the event reef s accorded to the companant
Distinguished from prescription
LACHES PRESCRlPTlON
Concerned wth effect of deay Concerned wth fact of deay
Prncpay queston of nequty of permttng a
cam
Matter of tme
Not based on statute but on equty Statutory
Not based on fxed tme Fxed tme
2. Estoppel by silence - "One who s sent when he ought to speak w not be heard to speak
when he ought to be sent." Mere nnocent sence w not work an estoppe, there must aso be
some eement of turptude or neggence connected wt the sence by whch another s msed to
hs n|ury. Cosey connected to E5TOPPEL 8Y ACOUlE5CENCE: a person s prevented from
mantanng a poston nconsstent wth one n whch he has acquesced.
Persons bound Art 1439 Effectve ony as between the partes thereto or ther successors n nterest
(prves n bood ke hers, and n estate ke grantees).
Why? Mutuaty s an essenta eement of an estoppe, an estoppe must bnd both partes or
nether s bound.
No estoppel against government . It s not estopped by mstake or error on the part of ts offcas
or agents, the erroneous appcaton and enforcement of the aw by pubc offcers does not
prevent a subsequent correct appcaton of the statute.
Cases where estoppels applies
Art 1434
Subsequen
t
acquston
of tte
When a person who s not the owner of a thng ses or aenates and devers t, and ater the seer
or grantor acqures tte thereto, such tte passes by operaton of aw to the buyer or grantee.
Art 1435 If a person n representaton of another ses or aenates a thng, the former cannot subsequenty
set up hs own tte as aganst the buyer or grantee.
Art 1436
Tenant
A essee or a baee s estopped from assertng tte to the thng eased or receved, as aganst the
essor or baor.
Art 1437
Estoppe
aganst
owner
When a contract between 3
rd
persons concernng mmovabe property, one of them s msed by a
person wth respect to the ownershp or rea rght over rea estate, the atter s precuded from
assertng hs ega tte or nterest theren, provded a these requstes are present:
1. Frauduent representaton or wrongfu conceament of facts known to the party estopped
2. Party precuded must ntent that the other shoud act upon the facts as msrepresented
3. Party msed must have been unaware of the true facts
4. Party defrauded must have acted n accordance wth the msrepresentaton
Art 1438
Estoppe
from
benefts
One who has aowed another to assume apparent ownershp of persona property for the purpose of
makng any transfer of t, cannot, f he receved the sum for whch a pedge has been consttuted,
set up hs own tte to defeat the pedge of the property, made by the other to a pedge who
receved the same n good fath and for vaue.
Title V. TRUSTS
Definition Trust s the ega reatonshp between one person havng an EOUITABLE OWNERSHIP n
property and another person OWNING THE LEGAL TITLE to such property, the equtabe ownershp of the
former enttng hm to the performance of certan dutes and the exercse of certan powers by the
atter.
Characteristic of Trust
1. It s a reatonshp
2. A reatonshp of fducary character
3. A reatonshp wth respect to property, not one nvovng merey persona dutes
4. It nvoves the exstence of equtahbe dutes mposed upon the hoder of the tte to the property
to dea wth t for the beneft of another
5. It arses as a resut of a manfestaton of ntenton to create the reatonshp
Governing rules in Trust
Art 1442 Prncpes of the genera aw of trusts are transpanted to the Phppne so
Parties in a Trust
Art 1440 A person who estabshes a trust s caed the trustor; one n whom confdence s reposed
as regards property for the beneft of another person s known as the trustee; and the person for
whose beneft the trust has been created s referred to as the benefcary.
TRUSTOR - Estabshes a trust
TRUSTEE - One n whom confdence s reposed as regards property for the beneft of another person
BENEFICIARY or cestui que trust - Person for whose beneft the trust has been created
Labty of trustee who voates trust s persona. The acton (nature of a genera demand for
damages) can be mantaned by cestui que trust or persons camng under hm or by creator of
the trust ony aganst the trustee.
Cestu que trust: Not aways necessary that shoud be named, or even be n exstence at the
tme the trust s created n hs favor.
Kinds of Trust
Art 1441 Trusts are ether express or mped. EXPRESS trusts are created by the intention of the
trustor or of the partes. IMPLIED trusts come nto beng by operation of law.
1. EXPRESS TRUSTS can come nto exstence ONLY by the manfestaton of an ntenton (manfested
by conduct or by words) to create t by the one havng ega and equtabe domnon over the
property made sub|ect to t.
Dsabes the trustee from acqurng for hs own beneft the property commtted to hs
management or custody, at east whe he does not openy repudate the trust and make such
repudaton known to the benefcary.
Proof required for Express Trust
Art 1443 No express trust concernng an mmovabe or any nterest theren may be proved by
parol evidence.
! Wrtng necessary to prove t; not for the vadty but for the purposes of proof t s n the
nature of a Statute of Fraud
! EXCEPTION: If property sub|ect to trust s not rea estate or an nterest theren, t may be proved
by any competent evdence ncudng paro evdence
! Requisites of Express Trust
1. Competent trustor
2. Competent trustee
3. Ascertanabe trust res
4. Suffcenty certan benefcares
Form of an Express Trust
Art 1444 No partcuar words are requred for the creaton of an express trust, t beng suffcent that
a trust is clearly intended.
Want of Trustee
Art 1445 No trust sha fa because the trustee apponted declines the designation, UNLESS the
contrary shoud appear n the nstrument consttutng the trust.
! Where a trustee des, resgns, suffers any ega ncapacty, the trust does not fa but a new
trustee w be apponted, whch w be made by the proper court UNLESS by the terms of the
trust, other provson s made for the appontment of successor trustee.
! Why? To permt t to fa for ths reason woud be contrary to the ntenton of the trustor n
creatng a trust who s prmary nterested n the dsposton of the benefca nterest n the
property, and the matter of ts admnstraton s a subsdary consderaton.
Acceptance by beneficiary
Art 1446 Acceptance by the benefcary s necessary. Nevertheess, f the trust mposes no onerous
condton upon the benefcary, hs acceptance sha be PRESUMED, f there s no proof to the
contrary.
2. lMPLlED TRUSTS come nto exstence ether through mpcaton of an ntenton to create a trust as
a matter of aw or through the mposton of the trust rrespectve of and even contrary to any, such
ntenton.
How to establish lmplied Trusts
Art 1441 Trusts are ether express or implied. Express trusts are created by the ntenton of the trustor
or of the partes. Imped trusts come nto beng by operaton of aw.
a. RESULTING - arses where a person makes or causes to be made a dsposton of property under
crcumstances whch rase an nference that he does not ntend that the person takng or hodng the
property shoud have benefca nterest n the property
" Sr Labtag: effect of faure to create an express trust, dd not compy wth the proper formaty
b. CONSTRUCTIVE - mposed where a person hodng tte to property s sub|ect to an equtabe duty to
convey t to another on the ground that he woud be un|usty enrched f he were permtted to retan
t. The duty to convey the property arses because t was acqured through fraud, duress, undue
nfuence, or mstake or through breach of fducary duty or through the wrongfu dsposton of
anothers party.
" Sr Labtag: The trustee never ntended to be a trustee, perhaps he ntended to be the owner.
The aw mposed on hm the obgaton of the trustee because the rea owner w be pre|udced
(or w suffer rreparabe damage) f no mped trust s created by aw
How to prove implied trust
Art 1457 An mped trust may be proved by oral evidence.
Examples of implied trust
Art 1448
Trust
from
payment
Resulting
There s an mped trust when property s sod, and the ega estate s granted to one party but the
prce s pad by another for the purpose of havng the benefca nterest of the property. The former s
a trustee, whe the atter s the benefcary. However f the person to whom the tte s conveyed s a
chd, egtmate or egtmate, of the one payng the prce of the sae, no trust s mped by aw, t
beng dsputaby presumed that there s a gft n favor of the chd.
EXCEPTIONS:
1. Last part of the artce (n oco parents)
2. Actua contrary ntenton s proved e.g. frauduent transfers
Art 1449
Resulting
There s aso an mped trust when a donaton s made to a person but t appears that athough the
ega estate s transmtted to the done, he nevertheess s ether to have no benefca nterest or ony
a part thereof.
E.g. Somebody ese s the true benefcary ke an nfant son
Art 1450
Resulting
If the prce of a sae of property s oaned or pad by one person for the beneft of another and the
conveyance s made to ender or payor to secure the payment of the debt, a trust arses by operaton
of aw n favor of the person to who the money s oaned or for whom t s pad. The atter may redeem
the property and compe a conveyance thereof to hm.
E.g. Nakp vs. Vadez n LegProf
Art 1451 When and passes by successon to any person and he causes the ega tte to be put n the name of
another, a trust s estabshed by mpcaton of aw for the beneft of the true owner.
Art 1452
Tte n
one co-
owner
Resulting
If two or more persons agree to purchase property and by common consent the ega tte s taken n
the name of one of them for the beneft of a, a trust s created by force of aw n favor of the others
n proporton to the nterest of each.
Art 1453
Resulting
When property s conveyed to a person n reance upon hs decared ntenton to hod t for, or
transfer t to another or the grantor, there s an mped trust n favor of the person whose beneft s
contempated.
Art 1454 If an absoute conveyance of property s made n order to secure the performance of an obgaton of
the grantor toward the grantee, a trust by vrtue of aw s estabshed. If the fufment of the
obgaton s offered by the grantor when t becomes due, he may demand reconveyance of the
property to hm.
Art 1455
Construct
ive in
favor of
the
owner
When any trustee, guardan or other person hodng a fducary reatonshp uses trust funds for the
purchase of property and causes the conveyance to be made for hm or to a thrd person, a trust s
estabshed by operaton of aw n favor of the person to whom the funds beong.
Art 1456 If property s acqured through mstake or fraud, the person obtanng t s, by force of aw, consdered
a trustee of an mped trust for the beneft of the person from whom the property comes.

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