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b.

Non-reciprocal performance by one is not

dependent
upon performance of the other (Editors Note:
Example?)

1156: An obligation is a juridical necessity to give to do or not to do.


Elements: Obligation (obligare to bind)
Ex: A promises to paint Bs picture for B as a result of an agreement
.
a.

Active subject (oblige/creditor) possessor of the right; he on


whose favor the obligation is constituted (A)
b. Passive subject (obligor/debtor) duty of giving, doing, or not
doing. (B)
c. Object or prestation subject matter of obligation; may consist
of
giving, doing or not doing (picture)
Efficient cause (vinculum/juridical tie) reason of obligation
(Contract/agreement)
e. Form manner of manifestation
d.

Juridical Necessity non-compliance can result in a juridical or legal


sanction
Kinds of obligation
a.

Viewpoint of sanction
1. Civil (perfect) per 1156; sanction is judicial process
2. Natural duty not to recover what has voluntarily been pai

d
although payment was no longer required; sanction is law
because conscience motivated payment; Ex: A owes B 1M, A
knowing that the debt has prescribed pays B. A cannot get b
ack
what he paid.
Moral (imperfect) - duty of catholic to hear mass; sanction
conscience or morality
b. Viewpoint of subject matter
1. Real to give
2. Personal to do or not to do
c. Affirmativeness and negativeness
1. Positive or affirmative give or to do
2. Negative not to do or not to give
d. Persons obliged
1. Unilateral only one of the parties is bound; Ex. A owes B 1
3.

M,
2.

A must pay B.
Bilateral - both parties are bound; Ex. Contract of sale
a.
Reciprocal (sale)

hn

Obligations and Contracts | Carloman Notes 2014 | Atty. San P as to what has not been foreseen, by the provisions of this Book.
edro
1
1. Obligations derived from law are not presumed obligations must
1157: Obligations arise from
1.
2.
3.
4.
5.

Law
Contracts
Quasi-contracts
Acts or omissions punished by law; and
Quasi-delicts

1.

are

Sources of obligations:
a.
Law (ex lege) taxes/support; no agreement is necessary
b. Contracts (ex contractu) loan
c.
Quasi-contracts (ex quasi-contractu) solution indebiti /
negotiorom gestio
d. Crimes (ex maleficio or ex delicto) duty to return stolen thing
e.
Quasi-delicts (Torts or ex quasi-delicto or ex quasi-maleficio)
duty to repair damage due to negligence
2. Note in actuality only law and contract are the sources since c, d & e
3.

derived from law.


Enumeration is exclusive.

be
clearly (expressly or impliedly) set forth in the law (Civil Code or
Special Law)
2. Conflict between Civil Code and Special law, latter prevails unless t
he
contrary has been expressly stipulated in the New Civil code.
1159: Obligations arising from contracts have the force of law betwee
n the
contracting parties and should be complied with in good faith.
1.

Does not mean that contracts are superior to laws, since for a cont

ract
ng

2.

to be valid it must not be contrary to law.


Stipulations in the contract are limited by law; in that the contracti
parties may establish such stipulations, clauses, terms and conditio

ns
mas they may deem convenient, provided, they are not contrary to
law,

morals, good customs, public order, or public policy.


1158: Obligations derived from law are not presumed. Only those
3.
Neither party may unilaterally and upon his own exclusive volition,
expressly determined in this Code or in special laws are demandable, an
escape
his obligations under the contract, unless the other party
d
assented
thereto, or unless for causes sufficient in law and pronoun
shall be regulated by the precepts of the law which establishes them; an
ced
d
adequate by a competent tribunal.
indemnity to the end that no one shall be unjustly enriched or b
enefited
at the expense of another.
4. Compliance in good faith interpret not by the letter that killeth b
2. Not an implied contract because there is NO meeting of the mi
ut by
nds.
the spirit that giveth life. (Golangco construction v PCIB)
3. Types:
5. Innominate contracts (see 1307)
a.
Negotiorum gestio (unauthorized management) 2144
a.
Do ut des I give that you may give
1. Caused by FE, circumstances caused by obligor
b. Do ut facias I give that you may do
2. Obligee no obligation to act
c. Facio ut des I do that you may give
3. Caused benefit to obligor while cost/damage to obli
d. Facio ut facias I do that you may do
gee
b. Solutio indebiti (undue payment) 2150
1160. Obligations derived from quasi-contracts shall be subject to the
provisions of Chapter1, Title 18, of this Book.
Requisites:
1.

A quasi-contract juridical relation resulting from a lawful,

voluntary
and unilateral act and which has for its purpose the payment of

1.
2.
ke of

Payor had no obligation to pay


Payment was made by reason of an essential mista

fact

Obligations and Contracts | Carloman Notes 2014 | Atty. Sa


n
Pedro
2
1161. Civil obligations arising from criminal offenses shall be governe
d by
the penal laws, subject to the provisions of Article 2177, and the pert t
inent
provision of Chapter 2, Preliminary Title, on Human Relations, and of
Title
18 of this book, regulating damages.
d

1.
no
2.
3.

Pertinent provisions of the RPC and other penal laws, subject to th 1162. Obligations derived from quasi-delicts shall be governed by the
provisions of Chapter 2, Title 17 of this book and by special laws.
1.

provisions of Art. 2177, Civil Code.


2. Chapter 2, Preliminary Title, on Human Relations of CC
3. Title 18 of Book 4 of the CC on damages

2.
3.

2. Civil liability includes


1.
2.
3.

civil action
If acquitted due to exempting circumstances - civil liability
Independent civil action is allowed by law (libel, slander, estafa an
physical injuries)

1. Governing rules on criminal offenses


1.

If acquitted because the accused could not have committed the ac

Restitution
Reparation of damage caused
Indemnification for consequential damages

Governing laws of Quasi delicts


a.
Chapter 2, Title 17, Book 4 CC
b. Special laws
Also known as tort or culpa aquiliana
A fault or act of negligence which causes damages to another, the

re

3. Effect of acquittal of a criminal case; rules on civil procedure


he

being no pre-existing contractual relations between the parties. Can


refer to acts which are criminal in character, voluntary or through
negligence.
4. Negligence is the omission of that diligence which is required by t
5.

circumstances of person, place and time. A question of fact.


Requisites for liability:
a.
Fault or negligence
b. Damage or injury
c.
No existing contractual relations between parties
d. Proximate cause adequate and efficient cause, which in t

he
natural order of events, necessarily produces the damages o
r
injury complained of.

Chapter 2: Nature and effect of obligations


1163: Every person obliged to give something is also obliged to take
care
of it with the proper diligence of a good father of a family, unless the
law
or the stipulation of the parties requires another standard of care.

1.
2.

Deals with determinate thing (opposed to generic) one of a class.


Extraordinary diligence if that of a common carrier.

1.

Personal right (jus in personam or jus ad rem) enforceable agains

t
other party; to give to do or not to do
1164: The creditor has a right to the fruits of the thing from the time the
2.
Real right (jus in re) enforceable against the whole world; power
obligation to deliver it arises. However, he shall acquire no real right ove
over
r
a specific thing (ownership or possession)
it until the same has been delivered to him.
complied with at the expense of the debtor.
3.
and

Before the land is delivered proper remedy is specific performance

delivery and not accion reinvindicatoria (presupposes ownership)


Delivery transfer ownership. It is not by agreement but tradition or
delivery that transfers ownership.
5. Kinds of delivery:
a.
Actual (tradition) physically the property changes hands
b. Constructive delivery physical transfer is implied
i. Tradition simbolica keys to a car is given
ii. Traditio longa manu pointing at object
iii. Traditio brevi manu possessor of a thing not an
owner becomes the owner thereof; tenant buys the
property
iv. Traditio constitutom possessorium possessor of a
thing as an owner, retains possession no longer as
owner but in some other capacity; owner sold thing
and became tenant of same property
v. Tradition by the execution of legal forms and
solemnities
6. Simulated sale or even a genuine one where there is no delivery o
f the
object does not transfer ownership.
7. Obligation to deliver:
a.
If there is no term or condition perfection of the contract
b. If there is a term or condition moment the term arrives or
a
condition happens
4.

1165: when what is to be delivered is a determinate thing, the credit


or, in
addition to the right granted him by Article 1170, may compel the d
ebtor
to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligati
on be

If the obligor delays, or has promised to deliver the same thing t


o two or
more persons who do not have the same interest, he shall be re
sponsible
for fortuitous event until he has effected delivery.
1.

Specific or determinate thing one capable of particular desig

nation.
2. Generic or indeterminate thing refers only to a class, to a ge
nus, and
cannot be pointed out with particularity.
3. Remedies of creditor:
a.
Specific performance
b. Rescission (Resolution cancellation of juridical tie, find
out
when specific terms are used)
c. Damages; with or without in 1 or 2.

Obligations and Contracts | Carloman Notes 2014 | Atty. San P 1167. If a person obliged to do something fails to do it, the same shal
edro
3
4.

5.
)
6.

l be
executed at his cost.

Effect of fortuitous events


a.
Rule: Obligation is extinguished
This same rule shall be observed if he does it in contravention of the
b. Exceptions:
tenor
i.
Generic thing (genus non quam perit )
of the obligation. Furthermore, it may be decreed that what has been
ii. Specific thing and there is delay (default /mora) or bad
poorly done be undone.
faith.
Ordinary delay nonperformance at the stipulated time (EN: ignorable
1. Positive personal obligation to do
Legal delay (default) amounts to nonfulfillment of the obligation;
demand either judicial or extrajudicial is necessary.

2.

1166.The obligation to give a determinate thing includes that of deliveri

Remedies of creditor
a.
Have the obligation performed by himself or another at the
debtors expense; and
b. Damages cannot be substituted for nonperformance unless
substitution is permitted

ng
all its accessions and accessories, even though they may not have been 1168. When the obligation consists of not doing, and the obligor does
mentioned.
what
has been forbidden him, it shall also be undone at his expense.
1. Accessories joined to or included with the principal for the latters
better use, perfection or enjoyment (keys house)
1. Negative personal obligation
2. Accessions additions or improvements upon a thing. Includes
2. Remedies of obligor
alluvium (erosion deposits on a river bank)
a.
Undoing of the thing at the obligors expense; and
3. Exception if otherwise stipulated by the parties.
b. Damages
In reciprocal obligations, neither party incurs in delay if the other
1169. Those obliged to deliver or to do something incur in delay from
the
time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order

does
not comply or is not ready to comply in a proper manner with wh
at is
incumbent upon him. From the moment one of the parties fulfills
his
obligation, delay by the other begins.
1.

that
delay may exist:
1. When the obligation or the law expressly so declares;
2. When from the nature and the circumstances of the obligation
it
appears that the designation of the time when the thing is to

t be

clear provision that if payment is not made when due, defau


lt or

be

delivered or the services is to be rendered was a controlling


motive for the establishment of the contract; or
3. When demand would be useless, as when the obligor has rend
ered
it beyond his power to perform.

Demand not needed:


a.
Law provides (taxes;SSS;GSIS)
b. Obligation provides (fixing of period not enough, there mus

time

liability for damages or interests automatically arises.


c. When time is of the essence of the contract; when fixing the
was the controlling motive of the establishment of the contr

act
(wedding dress); intent is sufficient so long as this is implied
.

d.

Demand would be useless; when the obligor has rendered it


Obligations and Contracts | Carloman Notes 2014 | Atty. Sa
beyond his power to perform (destroying object)
n Pedro
4
e. When the obligor expressly acknowledged that he really is in
default; mere asking of extension is not express acknowledgem
iii. Demand, unless demand is not required; when demand is ne
ent
eded
of default.
creditor must show proof; mere reminder is not demand since
2. Kinds of mora
creditor may still tolerate delay
a.
Mora solvendi (debtor)
d. Effects:
b. Mora accipiendi (creditor)
i. Interest or damages
c. Compensatio morae ( both are in default; as if neither is in
ii. Bear the risk of loss
default
iii. Liable even under FE.
by virtue of pari delicto)
iv. Acceleration clause may trigger
3. Mora Solvendi
v. Debtor only liable for Gross negligence (tantamount to BF) an
a.
None in negative obligations
d
b. None in natural obligations
Fraud/BF
c. Requisites:
4. Mora Accipiendi
i. Obligation must be due
a.
Unjustifiable refusal to accept payment or performance
ii. There is non-performance
b. If obligation is from criminal offence and creditor is mora
accipiendi
i. Consign to court
ii. Keep it to himself and exercise diligence and care; he is not
liable in case of fortuitous event.
5. For leases, creditor shoulders subsequent accidental loss of the pr
emise
leased
6. Reciprocal obligations
a.
Depend upon each other for performance; contract of sale
PAY
and DELIVER
b. Performance may be set on different dates. But delivery do
es
not automatically put buyer in default unless there is deman
d,
unless demand is not required.
c.
If not set on different dates, assumed simultaneous
performance. And if neither has performed there is
compensatio morae.
7. Damages and interest may be lost through prescription (also for
principal) and condonation.
8. Interest runs at the time of demand. If demand is uncertain, court
decides.
1170. Those who in the performance of their obligation are guilty of f
raud,
negligence, or delay and those who in any manner contravene the te
nor

thereof, are liable for damages


1.

b.
c.
d.

Grounds for liability


a.
Fraud

2.

3.

4.

Dolo (Fraud)
Deliberate intent to
cause damage

Present

Absent

Following does not excuse fu


a.
Increase in cost of pe
Liability can be
No
b. Bad bargain
mitigated
c. Poverty
Waiver of action to
Future fraud void
d. War; as long as subst
enforce
liability
Kinds of damages
a.
Moral mental or phy
b. Exemplary corrective to set an example; punish the criminal
intent; not presumed
c. Nominal vindicate a right when no other damage can be
recovered; not for loss suffered but for right violated; court
discretion
d. Temperate when exact amount of damages cannot be
determined
e. Actual actual losses or unrealized profit
f. Liquidated predetermined by agreement
Indemnity for damages
a.
Agreed upon; or
b. Legal rate of interest(6%)

Yes

Liability for fraud (dolo)


a.
According to time of commission:
i. Past fraud may be waived
ii. Future fraud (or future gross negligence) cannot be
waived; defeats juridical tie
b. According to meaning:
i. Fraud in obtaining consent
1. Dolo causante (causal fraud) vitiation of
consent, hence important; without the fraud
there would have been no contract - voidable
ii. Fraud in the performance of the obligation; forms:
1. Dolo incidente (incidental fraud) even with
knowledge of fraud, there would still have
been a contract - remedy is damages - valid

Obligations and Contracts | Carloman Notes 2014 | Atty. San Pedro


1172. Responsibility arising from negligence in the performance of every
kind of obligation is also demandable, but such liability may be regulated

lfillment
rformance

Future culpa valid in


antial compliance can still be done
certain cases (not gross)
sical anguish; must be proved

1171. Responsibility arising from fraud is demandable in all obligations.


Any waiver for future fraud is void.
1.

Negligence
Default
Violation of terms of the obligation; unless excused by
fortuitous event
Culpa (Negligence)

CULPA
CONTRACTUAL
Nature of
negligence

Incidental

CULPA
AQUILIANA

CULPA CRIMINAL
1.

Direct,
Direct, substantive
substantive and and independent of
independent of a a contract
contract

Pre-existing Present (express or


obligation
implied contract)

Absent

Absent

Proof
needed

Preponderance of
evidence

Preponderance
of evidence

Guilty beyond
reasonable doubt

Defense

Ordinary diligence in Ordinary


employee selection is diligence is a
not a proper complete proper and
defense, only
complete
mitigating.
defense for
Respondeat superior employees or
guardians.
(master servant rule)
followed.

Ordinary diligence
is not a proper
defense in culpa
criminal.
Employees guilt is
automatically
employers civil
guilt in case of
insolvency.

Stipulations on negligence
a.
Gross negligence: can never be excused in advance contrary
by the courts,
according
to the circumstan
to public
policy; defeats
juridical tie
ces. b. Simple negligence: in certain cases be excused or mitigated
c.
Bill of lading, 3 usual stipulations:
i. Exemption of carrier from all liabilities for loss or
damage by its own negligence void; public policy.
ii. Limits the liability to an agreed valuation, regardless
of damage caused void; public policy, a wealthy
company can abuse this.
iii. Limits liability to an agreed value unless the shipper
declares a higher value and pays a higher rate of
freight or ad valorem basis valid
2. Contracts of adhesion
a.
Parties are not in equal positions (employment or
transportation contracts) stipulations on negligence are
strictly construed against the party situated in a higher or
more advantageous position.
3. Kinds of Culpa, according to source:
a.
Culpa contractual (contractual negligence) resulting from a
breach of conrtract.
b. Culpa aquiliana (civil negligence / tort / quasi-delict) results
from offenses due to negligence
c.
Culpa criminal (criminal negligence) results from a
commission of a crime or a delict

Applicable
As long as it was
Victim proves
Accused is
presumption proved that there was negligence. Sincepresumed innocent
a
s
action is based until the contrary is
contract and that it waon alleged
proved, so
s
negligence on theprosecution has the
not carried out, it is part of the
burden of proving
presumed that the
defendant.
negligence of the
debtor is at fault, and
accused.
4.
is his duty to prove tha
t
there was no
negligence in the
iii. Even if incident occurred as passenger was boarding
b. Passenger can bring such case to owner of transport company
i. Contract is between the passenger and owner and not
the driver unless they are one and the same

Obligations and Contracts | Carloman Notes 2014 | Atty. San Pedro


ii.

If owner can prove due diligence in selection and


supervision of the driver; owner still liable due to
respondeat superior. But such diligence makes owner
a debtor in good faith and such damage would be
mitigated.
iii. Passenger must prove at the minimum:

Culpa Contractual (Scenario: Contract of carriage)


a.
Presence of contract of carriage
i. Even if passenger has not yet paid
ii. Even if passenger had no money to pay

1.
2.

Presence of a contract of carriage


Breach of that contract (non-arrival at
destination or was hurt)
c.
Driver is presumed negligent driver must prove otherwise
(exercise of extraordinary negligence)
i. Injured party need only to prove [4.b.iii.1 and 2], since
negligence is presumed
d. Recklessness
i. Driver
1. Unjustified rate of speed;
2. Flagrant violation of road courtesies;
3. Failure to signal properly;
4. Deliberate entry on one-way streets;
5. Intoxication;
6. Attempt to pass another vehicle that fails to
give way
ii. Owner
1. Failure to repair defective parts
2. Allowing worn-out condition
3. Failure to furnish competent and tested driver
4. Failure to detect manufacturing defects
e.

5.

Exemplary damages to owner (principal):


i. Participation in the doing of such wrongful act;
ii. Previously authorized or subsequently ratified the act
with full knowledge of the facts
f.
Respondeat superior
i. Liability of owners is not subsidiary but direct and
immediate.
1. Due diligence not a complete defense only
mitigates liability
Culpa Aquiliana
a.
No previous existing contractual relations between the parties
b. Injured party (pedestrian) can bring action to owner and
driver
c.
Due diligence of owner proper and complete defense;
respondeat superior does not apply
delicto), but plaintiff cannot recover twice for the same a
ct or
d.

Negligence is not presumed - Injured party proves negligen

ce
of driver and owner
e. Liability under Culpa Aquiliana is entirely separate and
distinct

from the liability arising from negligence under the RPC (ex

f.

omission of the defendant (double jeopardy).


Mitigated by victims own contributory negligence; where

the
immediate and proximate cause of the injury being the
defendants lack of due care.
g.
Doctrine of last clear chance cannot apply if:
i. Negligence of the plaintiff is concurrent with the
negligence of the defendant;

ii.
iii.
ll

Party charged is required to act instantaneously;


Obligations and Contracts | Carloman Notes 2014 | Atty. Sa
Injury cannot be avoided despite the application at a n Pedro
7
times of all the means to avoid the injury; at least in

all

1.

Kinds of diligence: (hierarchy of enforcement)


a.
Agreed upon by the parties
b. Required by law (particular provision) - Ex. Extraordinary
diligence for common carriers
c.
Ordinary diligence

instances where the previous negligence of the party


charged cannot be said to have contributed to the
injury at all.
6. Culpa Criminal
a.
On grounds of physical injuries thru reckless imprudence 1174. Except in case expressly specified by law, or when it is otherwi
i. Same as culpa aquiliana; can be raised by injured pa
se
rty
declared by stipulation or when the nature of the obligation requires
(pedestrian) to driver
the
1. If driver is guilty and insolvent (proof
assumption of risk, no person shall be responsible for those events w
thereof is necessary), owner is subsidiarily
hich
liable; liability is automatic no defense
available; no reservation is necessary for the could not be foreseen, or which though foreseen, were inevitable.
subsidiary liability to be had; no due process
1. General Rule:
issue since he already had his chance during
a.
No liability for a fortuitous event (caso fortuito) that whic
the trial of the driver
h
ii. Same as culpa contractual; can be raised by passen
cannot be foreseen or which if foreseen, was inevitable
ger
2. Exceptions there is still liability in case of FE:
to driver
a.
Expressly declared by law (bad faith among parties, delay)
iii. Acquittal in the criminal case is not a bar to a civil c
b. Expressly declared by stipulation or contract
ase
c.
When the nature of the obligation requires the assumption
for damages. What is prohibited is the double recover of
y
risk; doctrine of created risk Ex. Carrier transports
for the same negligent act.
dynamite, accidental blow-out injures people, he is liable.
3.
Characteristics
of FE:
1173. The fault or negligence of the obligor consists in the omission o
a.
Cause of the breach of the obligation must be independent
f that
of
the will of the debtor;
negligence which is required by the nature of the obligation and
b. Event must be unforeseeable or unavoidable;
corresponds with the circumstances of the person, of the time and of
c.
Event must be such as to render it impossible for the debto
the
place. When negligence shows bad faith, the provisions of Articles 11 r to
fulfill his obligation in a normal manner;
71
and 2201, paragraph 2, shall apply.
d. Debtor must be free from any participation in, or aggravati
If the law or contract does not state the diligence which is to be obse on
of, the injury to the creditor (not in default, fraud, no bad fait
rved
h
or negligence)
in the performance, that which is expected of a good father of a famil
4. Note:
y
a.
Fortuitous event act of god
shall be required.
b. Force majeure act of man
c.
FE will not affect generic things
d. Law is an act of sovereign power and, therefore, whatever l
oss

incurred can be attributed to a force majeure,


rm
Combination of force majeure and negligence:
a.
If FE was the proximate cause, the obligation is extinguished
b. If the negligence was the proximate cause, the obligation is no

5.

extinguished. Converted into a monetary obligation in the fo


of damages.

t
1177. The creditors, after having pursued the property in possess
1175. Usurious transactions shall be governed by special laws.
1.

Usury contracting for or receiving something in excess of the am

ount
allowed by law for the loan or use of money, goods, chattels or cred
its.
Extraction of excessive interest.
Kinds of interest:
a.
Moratory usual form, compensation or fee for the use of
money.
b. Compensatory by way of damages
3. Notes:
a.
Legal rate 6% for all.
b. Usury has been abolished 1/1/1983 will now depend on
mutual agreement.
c. 2% per month current jurisprudence unconscionable
2.

1176. The receipt of the principal by the creditor, without reservation


with respect to the interest, shall give rise to the presumption that s
aid
interest has been paid.
The receipt of a later installment of a debt without reservation as to
prior
installment, shall likewise raise the presumption that such installmen
ts
have been paid.
1.

Rule Art.1253 of CC, payment of interest as a rule precedes pay

ment
2.

of the principal. This is only prima facie.


Note:
a.
This presumption does not apply to taxes tax payable can

not
b.
pt

be considered installment payments.


1176 to apply, it is not enough that the receipt for the
installment paid be dated, it must also specify that the recei
is for the payment of a particular installment due.

ion of
the debtor to satisfy their claims, may exercise all the rights and
bring all
the action of the latter for the same purpose, save those which ha
re
inherent in his person; they may also impugn the acts which the d
ebtor
may have done to defraud them.
1.

Rights of creditors
a.
Exact payment
b. Exhaust debtors properties by attachment, except th

ose
properties exempted by law (support)
c. Accion subrogatoria exercise all rights and actions of
debtor
in order to exact payment of obligation except those inh
erent
ns

in the person (parental authority, right to revoke donatio


due to ingratitude, hold office, carry out agency).

Obligations and Contracts | Carloman Notes 2014 | Atty. San P


edro
8
d.

Accion pauliana impugn or rescind (not resolution) contacts


done by the debtor to defraud creditors
i. Requirements:
1. Plaintiff w/ credit before rescisible contract
2. Debtor made a conveyance

Definition
No condition;
demandable at
once

Pure
Pure

w/ a period

Joint

Solidary
Compared

3.
ment

of foreclosure or mortgage):
a.
Family home (except; taxes, debts prior to family home,
workers in construction of family home)
b. Tools and implements for trade, employment or livelihood
c.
3 horses, 3 cows, 3 carabaos or other beast of burden used

ng

e.

Household furniture and utensils necessary for housekeepi

g.
h.
i.
j.
k.
l.
m.

Legal
Conventional
exempt
from execution:
Right
to existence support
Penal
Rights of a public character positions in the government
Rights to affairs in the home and the family personal rights of

1178. Subject to the laws, all rights acquired in virtue of an obligation are
transmissible, if there has been no stipulation to the contrary.
GR Rights are transmissible (see 1311)
Exceptions (must be clearly proved):
a.
Law provides otherwise
b. Contract or stipulation provides otherwise
c. Obligation is purely personal

Chapter 3: DIFFERENT KINDS OF OBLIGAITONS


1.

occupation
Necessary clothing and articles of personal use; except jew

f.

Negativehere)
(insert difference of Positive
resolution and rescission

1.
2.

d.
elry
Definition

remedy
Real 3. No other
Personal
4. Transaction of conveyance is fraudulent
Determinate
Generic
5. 3rd party
is not IPV
Rights
a.
b.
c.

ingratitude
Right to appear in court proceedings, like settlement of an
estate
Properties exempt from execution (not applicable if there is a judg
e.

for

w/
a Penal Clausew/o
Penal Clause
Unilateral
Bilateral

2.

H&W
Rights granted by law to the debtor revoke donation due

to

Comp Definition
ared
Conditional

Alternative
Conjunctive
a. Primary
Classification
(facultative)
Definition

d.

Classification of obligations

Obligations and Contracts | Carloman Notes 2014 | Atty. San Pedro

not exceeding 100k;


Provisions for individual or family use sufficient for four
months.
Professional libraries
Fishing boat and accessories not exceeding 100k.
Salaries and wages, 4 month subsidy rule
Lettered gravestone
Insurance premiums
Legal support or gratuity from Govt
Exempted by law

2.
3.

ii.

iii.

Civil according to civil law


Mixed according to both natural and civil
law
By parties or subjects:
1. Unilateral, bilateral
2. Individual, collective
3. Joint, solidary
By object of the obligation
1. Specific, generic
2. Positive, negative
3. Real, personal
4. Possible, impossible
5. Divisible, indivisible
6. Principal, accessory
7. Simple, compound
a.
If compound:
i. Conjunctive demandable at
the same time
ii. Distributive alternative or
iv.

1.
2.

No defect valid
Defective

By defects:
a.
b.
c.
d.

facultative
Rescissible
Voidable
Unenforceable
Void

b. Secondary Classification

c. According to Sanchez Roman


i. By juridical quality and efficaciousness:
1. Natural according to natural law
1179. Every obligation whose performance does not depend upo
SECTION 1: PURE AND CONDITIONAL OBLIGATIONS

n a future
uncertain event, or upon a past event unknown to the parties, is
demandable at once.

Obligations and Contracts | Carloman Notes 2014 | Atty. S


Every obligation which contains a resolutory condition shall also be
an
Pedro
10
demandable, without prejudice to the effects of the happening of the
event.
e.
Mixed depends partly on the will of one of the parties an
1. Pure obligation
d
a.
Without a condition or term
partly on chance or the will of a 3rd person (if I pass the
b. Demandable at once, provided there will be no absurdity
bar) (EN: same as casual)
c. Ex. I promise to pay you 1M. [on demand] demandable at
f.
Divisible capable of partial performance
once (EN: absurd, unless youre rich).
g.
Indivisible not capable of partial performance due to the
d. May also occur when the original period or condition has b
nature of the thing or intention of the parties
een
h. Positive act is to be performed
canceled by mutual stipulation of both parties
i.
Negative something will be omitted
2. Conditional obligation
j.
Express condition is stated
a.
When there is a condition (EN: badum tsss!)
k.
Implied condition is inferred
3. Condition:
l.
Possible capable of fulfillment in nature and in law
a.
An uncertain event which wields an influence on a legal
m. Impossible not capable of fulfillment due to nature or due
relationship (Manresa)
to
b. Future and uncertain event
the operation of the law, morals, or public policy or due to
4. Term or period that which necessarily must come whether the p
contradiction in its terms
arties
n. Conjunctive if all the conditions must be performed
known when it will happen or not (Ex. Death, since sure to come bu
o.
Alternative if only a few of the conditions have to be
t
performed
unsure when will occur)
a.
Future and certain event
1180. When the debtor binds himself to pay when his means permit
5. Obligations demandable at once:
him to
a.
When it is pure; or
do so, the obligation shall be deemed to be one with a period, subjec
b. When it has a resolutory condition
t to
6. Past event known to parties
the provisions of Article 1197.
a.
Not a condition
b. Future knowledge of a past event will determine whether o
1. When his means permit:
r
a.
May seem to be void due to exclusive dependency of fulfill
not an obligation will arise.
ment
7. Classification of conditions:
on the will of the debtor (void 1182, suspensive and
a.
Suspensive condition - Happening of the condition gives ri
potestative)
se to
b. In fact it is a period since what depends on the will of the
the obligation.
debtor is not the payment but the time when payment is to
b. Resolutory condition Happening of the condition
be
extinguishes the obligation.
made.
c. Potestative depends on the will of the debtor. (if I like)
c.
Similar phases:
d. Casual depends on chance or hazard or the will of a 3rd
i. when my means permit me to do so
person (lottery)
ii. when I can afford it
iii. when I am able to
iv. when I have money
2. 1197
a.
To determine length of term, 1197 will be applied Court i
s
obliged to fix the duration of the period.

b.

Creditor to ask the court first to fix the term, after which he can
make demand upon arrival of the term
e

c.

3rd
1181. In conditional obligations, the acquisition of rights, as well as t
he
extinguishment or loss of those already acquired, shall depend upon
the
happening of the event which constitutes the condition.
1.
ht

Suspensive condition (conditions precedent):


a.
Happening of which will give rise to the acquisition of a rig
b.

2.
ed.

If it does not take place, its as if the conditional obligation


never existed.
Resolutory condition (conditions subsequent):
a.
Rights already acquired are lost once the condition is fulfill
b.

ng

Those suspensive but cannot be performed without acquiri


the rights first are deemed resolutory (build a house 1st befo

re
donation cannot build a house if youre not owner, hence
donation must come first)
1182. When the fulfillment of the condition depends upon the sole wi
ll of
the debtor, the conditional obligation shall be void. If it depends upo
n
chance or upon the will of a third person, the obligation shall take eff
ect in
conformity with the provisions of this Code.
1.

son

Potestative, Casual and Mixed conditions:


a.
Potestative depends on the exclusive will of one of the
parties.
i. On the part of the debtor
1. If Suspensive Void, illusory obligation (..if I
live. However , if there is a preemptive right
this makes the obligation valid, since this will
become mixed.
2. If Resolutory Valid (employment)
ii. On the part of the creditor
1. Valid
b. Casual depends on Chance or upon the will of the 3rd per

Not applicable if setting of the term would serve no purpos


but delay
c. Mixed on the part of the debtor (even if Suspensive) +
party or event Valid (give you if I can sell my land
depends on 3rd party, the buyer)

for certain (to do or to give)


a.
Ex. If you marry X within the year and a year has passed.

Obligations and Contracts | Carloman Notes 2014 | Atty. San P


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11

1185. The condition that some event will not happen at a determinat
1183. Impossible conditions, those contrary to good customs or public
policy and those prohibited by law shall annul the obligation which
depends upon them. If the obligation is divisible, the part thereof which
s
not affected by the impossible or unlawful condition shall be valid.
The condition not to do an impossible thing shall be considered as not
having been agreed upon.
1.

2.

e
i time shall render the obligation effective from the moment the time
indicated has elapsed, or if it has become evident that the event can
not
occur.

Impossible and illegal conditions


a.
Impossible Ex. To make a dead man live, make a circle with 4
sides
b. Illegal - unlawful killing
Effects:
a.
Positive terms void
b. Negative terms valid, disregard the condition (cannot make
a circle with 4 sides)
c.
No cause of action arising from breach for nonperformance

If no time has been fixed, the condition shall be deemed fulfilled at s


uch
time as may have probably been contemplated, bearing in mind the n
ature
of the obligation.
1.

1186. The condition shall be deemed fulfilled when the obligor volunt
arily
prevents its fulfillment.

1184. The condition that some event happen at a determinate time shall
extinguish the obligation as soon as the time expires or if it has become
indubitable that the event will not take place.
1.

Positive conditions Suspensive conditions that will no longer happen

2.

Requisites:
a.
Either maliciously or not, intent to prevent must be presen

t if
b.

Negative conditions Resolutory conditions (not to do)

intent was not to prevent no constructive fulfillment ; and


Actually prevents fulfillment

1187. The effects of a conditional obligation to give, once the conditi


on has
been fulfilled, shall retroact to the day of the constitution of the obli
gation.
Nevertheless, when the obligation imposes reciprocal prestations up
on
the parties, the fruits and interests during the pendency of the condi
tion
shall be deemed to have been mutually compensated. If the obligatio
n is
unilateral, the debtor shall appropriate the fruits and interest receiv
ed,

1.

Constructively presumed fulfillment


a.
One must not profit by his own fault
b. Generally applies to suspensive conditions
i. Resolutory application instance give A to B if B
marries C, A kills C. deemed fulfilled.
unless from the nature and circumstances of the obligation it sh
ould be
inferred that the intention of the person constituting the same w
as
different.
In obligations to do and not to do, the courts shall determine, in
each case,
the retroactive effect of the condition that has been complied wi
th.
1.

Effects of fulfillment of Suspensive condition


a.
GR retroacts to the day the obligation is constituted
b. Exception:
i. Fruits or interest (mutual compensation)
ii. Period of prescription - period runs when condit

ion is
fulfilled, because can only be enforced only from
said
iii.

date.
Real contracts (deposit or commodatum)

1188. The creditor may, before the fulfillment of the condition, bring
the
appropriate actions for the preservation of his right.
The debtor may recover what during the same time he has paid by
mistake in case of a Suspensive condition.
1.

Actions to preserve creditors rights


a.
If creditor is not allowed to take appropriate action, there is

Obligations and Contracts | Carloman Notes 2014 | Atty. S


an Pedro
12
b.

in bad faith creditor knew that the payment was being mad
e
3.

a
danger the creditor will receive nothing, as when the object i

ze,

prior to fulfillment of the condition.


Payment not by mistake:
a.
If condition is fulfilled no recovery because of retroactivity
(legal fiction) (but may get nominal damages if CR in BF)
b. If condition is not fulfilled recovery should be done unless
pure donation was intended
Notes:
a.
Preservation not preference.
b. What is to be protected is a right in expectancy (inchoate)

deliberately destroyed, or hidden or alienated


Bring appropriate action:
4.
i. Sue in court
ii. Recording of the expected right (ROD)
iii. Ask for a security (in case of imminent insolvency)
which
iv. Court action to prevent alienation or concealment
the law protects
Paid by mistake (solutio indebiti undue payment)
a.
May be recovered because, the condition may not materiali 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules s
hence, no obligation. There would be deprivation of debtors hall
be observed in case of the improvement, loss or deterioration of the
right to use the object.
thing
during the pendency of the condition:
b.

2.

The debtor is entitled to fruits or legal interest if the credito

r be

1.

If the thing is lost without the fault of the debtor, the obligati

2.

shall be extinguished;
If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages; it is understood that the thing is lost

on

when
it perishes, or goes out of commerce, or disappears in such a
way
3.

that its existence is unknown or it cannot be recovered;


When the thing deteriorates without the fault of the debtor, t

he
4.
may

impairment is to be borne by the creditor;


If it deteriorates through the fault of the debtor, the creditor
choose between the rescission of the obligation and its fulfillm

ent,
with indemnity for damages in either case;
5.
If the thing is improved by its nature, or by time, the improv
ement
shall inure to the benefit of the creditor;

6.

If it is improved at the expense of the debtor, he shall have no rig

ht

2.

Changes in the object (before delivery and fulfillment of S. conditi

on)
than that granted to the usufructuary.
1.

a.

Application of article:
a.
Suspensive condition is fulfilled; and
b. Object is specific (not generic)

1.
2.
3.

rescission;
specific performance + damages; or
purely damages

b.

Obligations and Contracts | Carloman Notes 2014 | Atty. S


an Pedro
13
c.

Fruits or the interest thereon should also be returned after


deducting of course the expenses made for their production,
gathering, and preservation.
d. 1189 will apply in cases to whoever has the duty to return i

c. Improved
n
i.

Not caused by debtor (nature/time) enjoyed by


creditor
ii. caused by debtor debtor has rights of a usufruct o

n
3.

the improvements (see #3)


Usufructuary right of debtor on improvements
a.
Rights of a usufruct (Art. 579 CC) :
i. No right to alter
ii. No right to indemnification/reimbursement
iii. May remove improvements provided it wont cause
damage to property
iv. Right of offset against damages made on the proper

ty
4.

(Art. 580 CC)

Loss defined:
a.
Perishes (house burns down)
b. Goes out of commerce (unprohibited becomes prohibited)
c. Disappears in such a way that its existence becomes
unknown
(car missing for some time)
d. Disappears in such a way that it cannot be recovered (ring
dropped in middle of the ocean)
5. Partial loss:
a.
Loss important enough to be considered complete loss (co
urt
determines this)
b. Merely be considered a deterioration of the thing, in which
case the rules on deterioration applies.

Lost
i. w/o fault of debtor creditor bears loss
ii. w/ fault of debtor debtor liable for damages
Deteriorate (value is reduced or impaired)
i. w/o fault of debtor creditor bears deterioration
ii. w/ fault of debtor

1190. When the conditions have for their purpose the extinguish
ment of
an obligation to give, the parties, upon the fulfillment of said co
nditions,
shall return to each other what they have received.
In case of the loss, deterioration or improvement of the thing, th
e
provisions which, with respect to the debtor, are laid down in the
preceding article shall be applied to the party who is bound to re
turn.
As for obligations to do and not to do, the provisions of the seco
nd
paragraph of Article 1187 shall be observed as regards the effect
of the
extinguishment of the obligation.
1.

Fulfillment of a resolutory condition:


a.
Obligation is extinguished
b. In obligations to give; parties should restore to each ot

her
what they received.

e.

case of loss, deterioration or improvement of the thing


Courts are given power to determine the retroactivity of the
fulfillment of resolutory conditions

and the Mortgage Law.


1.

1191. The power to rescind obligations is implied in reciprocal ones, in


case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has in either case. He may also seek
the
rescission, even after he has chosen fulfillment, if the latter should beco
me
impossible.
t,
if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with Articles 1385 and 1388

other party. (Asturias Sugar Central v Pure Cane)


Non-performance of the other gives cause of action for
resolution
Right to rescind/resolve
a.
To cancel or resolve
b. Not predicated on injury to economic interests on the part
d.

2.

The court shall decree the rescission, even after he has chosen fulfillmen

Reciprocal obligations
a.
Requires that the obligations should arise simultaneously
(dependency of obligations)
b. Obligation or promise of each party is the cause or
consideration for the obligation or promise to the other.
c.
The party who has not performed his end of the reciprocal
obligation cannot resolve the same even if there is slight
breach so long as the main obligation was complied with by

of
plaintiff (contrary to rescission in 1380 and 1381) but on the
breach of faith by the defendant, which breach is violative o
f

the reciprocity between the parties.


rescission (Par. 3 1191). But the court cannot fi
x the

c. Act abrogates contract from its inception and requires a


mutual restitution of benefits received (rendering it void ab
initio, not mere termination).
d. Creates the obligation to return the object of the contract
e. Presumed but exists only in reciprocal obligations (only if
pure)
f. Can only be demanded if the plaintiff is ready, willing and
able
to comply with his own obligation and the other is not. If
neither is ready, neither can resolve.
g.
Guilty party cannot rescind (pari delicto)
h. May only be had for breaches that are so substantial and
fundamental as to defeat the object of the parties in making
the
agreement, hence, not applicable to slight or casual breach.
i. Not absolute:
i. Trivial cause/slight breach will not cause rescission
ii. Cause must be existent at the time of filing of the
complaint
iii. If there be a just cause for fixing the period within
which the debtor can comply, the court will not decr
ee

period in unlawful detainer cases where no leas

payments were made, since not granted under


Art.
of IPV

iv.

1659.
Cannot rescind if property is now in the hands

(remedy is damages to persons in bad faith).


When judicial approval is required:
i. Needed when there has already been delivery
of the
object (unless returned voluntarily)
ii. Not needed:
1. When there has been no delivery (auto
matic
rescission)
2. When there has been delivery:
a.
but there exists a stipulation tha
t
either party can rescind the same
or
take possession of the property u
pon
j.

non fulfillment by the other party


without going to court.
b. Waiver

Obligations and Contracts | Carloman Notes 2014 | Atty. S


an Pedro
14

Reason: Because if there has been delivery you cant


take the law into your own hands and just get the
d
thing back without a favorable judgment nor can you
sell it or exercise any other acts of ownership.
nt

k.

Implied to exist, therefore, need not be expressly stipulate

l.

upon.
May be waived, expressly or impliedly. (accepting installme

payments beyond grace period)


Effects:
i. restores parties to their original situation unless
stipulated
Actions by injured party
a.
Either:
i. Specific performance + damages (if damages is not
asked, deemed waived);
ii. Rescission + damages; or
iii. Part specific performance and part rescission (in cas
m.

3.

e
b.

of partial delivery) + damages


Right is alternative (provided final judgment is not given y

et)
and not conjunctive, however, partial of both may be allowe
d
c.

(Tan Guat v Pamintuan O.G. 2494)


Nature of obligation changes per level (midterm possibility

Ramirez v CA 98 Phil 225) gist: obligation is not to return


thing lost through FE since creditor can opt for 2nd option,
hence FE is immaterial since it becomes monetary obligatio
n
4.
5.

(damages)
IMBA case; the ONLY Exception to 1191: Suria v IAC
Notes:
a.
Termination the party is relying on the
termination/penal/forfeiture clause

1192. In case both parties have committed a breach of the obligation


, the
liability of the first infractor shall be equitably tempered by the court
s. If it
cannot be determined which of the parties first violated the contract,
the
same shall be deemed extinguished, and each shall bear his own da
mages.

SECTION 2: OBLIGATIONS WITH A PERIOD


1193. Obligations for whose fulfillment a day certain has been fixed, shall
be demandable only when that day comes.
Obligation with a resolutory period take effect at once, but terminate upon
arrival of the day certain.
A day certain is understood to be that which must necessarily come,
although it may not be known when.
If the uncertainty consists in whether the day will come or not, the
obligation is conditional and it shall be regulated by the rules of the
Condition
Period/term
preceding Section.
Uncertain event
Certain to happen sooner or later;
1. Period/term
at
a.
Certain length of time which determines the effectivity or the
a date known beforehand, or a tim
extinguishment
of obligations.
e
May refer to either future or past Refers only to the future
b. Requisites:
i. Refer to the future
Causes an obligation to arise or Merely fixes the time or the
ii. Certain (sure to come) but can be extended.
cease
efficaciousness of an obligation
iii. Physically or legally possible
2. Period vs. Condition
3.

Types of terms or periods


a.
Definite exact date or time is known
b. Indefinite something that will surely happen but the date of
happening is unknown (death)
c. Legal via provisions of the law
d. Conventional or voluntary agreed upon or stipulated by the
parties
e. Judicial period or term fixed by the courts
f. Ex die period with Suspensive effect
g.
In diem period or term with a resolutory effect

Obligations and Contracts | Carloman Notes 2014 | Atty. San Pedro


4.
5.

Day certain
a.
That which must necessarily come, although it may not be
known when. (term)
Notes:
a.
Differentiate an obligation with a suspensive condition and an
obligation with a suspensive term.
b. If no acceleration clause, only those installments that are due
are demandable
c.
There must be an agreement on duration of lease to allow

15

d.
e.
f.

g.
h.
i.

cause of action at the end of the agreed term (unlawful


detainer).
If period/term is eliminated subsequently by mutual
agreement, the obligation becomes pure and immediately
demandable.
If obligation demandable on or about Dec. X, 200X
demandable a few days before or after Dec. X, 200X and not a
date far away nor one fixed by the debtor.
Obligations are not extinguished if the parties really intended a
term and not a condition where the condition becomes
impossible to happen. Ex. A will give B a car the moment X
becomes 30 yrs old. X dies at 28, A still liable.
Period of prescription commences from the time the term of
the obligation arrives, for it is only from that date that it is due
and demandable.
Evidence of extension of period shown by the party benefiting
(debtor).
Moratorium law (period of grace via postponement of
obligation) unconstitutional, except to obligations contracted
before the war (Rio v Datu Jolkipli)

1194. In case of loss, deterioration or improvement of the thing before the


arrival of the day certain, the rules in Article 1189 shall be observed.

1195. Anything paid or delivered before the arrival of the period, the
obligor being unaware of the period or believing that the obligation
has
become due and demandable, may be recovered, with the fruits and
interests.
1.
]

Premature payment in GF
a.
Premature payment in good faith ([a] unaware of period [b
believed that obligation has become due and demandable)
entitles one for recovery and legal interest thereon. Except:
i. Paid with full knowledge of the existence of the ter

m.

(but interest is still granted)


Parties implicitly agreed to change the period.
Non-unilateral obligations (reciprocal) by virtue of
mutual compensation
Recovery
i. If no knowledge:
1. Before debt matures
2. After debt matures, may claim interest if
ii.
iii.

b.

ii.
iii.

creditor is in BF
Subject to 5 year prescription
If w/ knowledge cannot recover, regardless of

BF,
since this operates as an implied waiver.
c. Debtors knowledge of prematureness is presumed
1196. Whenever in an obligation a period is designated, it is pre
sumed to
have been established for the benefit of both the creditor and th
e debtor,
unless from the tenor of the same or other circumstances it shou
ld appear
that the period has been established in favor of one or of the ot
her.
1.

Main:
a.
GR: Term constituted is for the benefit of the debtor or

creditor
b.

Effect: Debtor cannot pay prematurely and the credito

r cannot
demand prematurely
c. Exceptions: With contemporaneous intent;

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16

ii.

before the end of said period.


Defeats the reasons of benefit; where benefit can st

ill
Interest is stipulated
be obtained even with debtors acts. (ex. Principal +
1. Creditor interest earned
interest for the whole period)
2. Debtor more time to pay
1197. If the obligation does not fix a period, but form its nature and t
ii. Creditor is interested in keeping his money safely
invested (debtor as depository) or when the creditor
he
want to protect himself from the dangers of currency
circumstances it can be inferred that a period was intended, the cour
depreciation
ts
b. For the benefit of the debtor:
may fix the duration thereof.
i. Without interest
The courts shall also fix the duration of the period when it depends u
1. Except: when clearly shown that creditor had
intention to protect himself from the risks
pon
associated with the possession of the object
the will of the debtor.
ii. When payment is to be made within a certain period
In every case the courts shall determine such period as may under th
from date of contract
c.
For the benefit of the creditor:
e
i. When stipulated. no payment made until after a
circumstances have been probably contemplated by the parties. Onc
certain period. Acceptance of partial payment even
e
before the expiration of the period means a waiver on
fixed by the courts, the period cannot be changed by them.
the part of the creditor of his right to refuse payment
i. Term is for the benefit of the debtor alone. He is
1. When court may fix the period
required to pay only at the end but he may pay even
a.
When duration depends upon the will of the debtor
before and he may resist premature demand for
i. means permit me to do so
compliance. within.
ii. ...little by little
ii. Term for the benefit of the creditor alone. He can
iii. as soon as possible
demand at any time even before the term expires, and
iv. .as soon as I have money
he cannot be compelled to accept payment from the
v. in partial payments
debtor prior to the stipulated period. given the right
vi. when the debtor is in a position to discharge his
to demand performance even before said date
obligation
2. Indicatio
i.

ns:
a.

For the benefit of both:


a.

When no term was specified by the parties because n

o term
b.

When the obligation does not fix a period, it can be inferre

d
that a period was intended.
i. Parties had knowledge of circumstances which woul
d

hinder performance of the obligation


c. Court may also add a forfeiture clause in case of
nonperformance after the expiry of the period (Alano v Cort

es)
2. When the court may not fix the term

was even intended (pure obligation) (Exception: absurdi


ty)
b. payable on demand
c. When the debtor/obligor admitted impossibility of
performance
d. Specific periods are provided for in the law
e. Right of action has prescribed
3. Effect of fixing the period
a.
Does not alter the obligation, since it merely carries o
ut what

b.
l

was impliedly stipulated by the parties.


Obligations and Contracts | Carloman Notes 2014 | Atty. S
Fulfillment of the obligation itself cannot be demanded unti an Pedro
17

after the court has fixed the period for its compliance.
1198.
c. Fixing and demand for fulfillment cannot be asked at the sa
me
1.
time. Except when fixing the period would be a mere formali
ty
2.
and serve no other purpose but delay, there is no necessity
of
3.
such prior action.
d. No delay until period is fixed, demand must be made
subsequently.
new
4. How court fixes the period:
a.
Determining the time probably contemplated by the partie
4.
s.
f
b. Courts cannot change once period is fixed.
c. Same effect when the court approves a compromise
5.
agreement. courts cannot change terms
5. Notes:
1.
a.
Parties may change the period by mutual agreement or
disregard the same.
b. Article does not apply to a contract of lease where:
i. Parties has reserved to themselves the faculty of
2.
agreeing upon the period of the renewal contract
(Millare v Hernando); OR
ii. Renewal of the period is not left to the will of the
lessee alone, but rather to the will of the lessor or
lessee.

The debtor shall lose every right to make use of the period:
When after the obligation has been contracted, he becomes
insolvent, unless he gives a guaranty or security for the debt;
When he does not furnish to the creditor the guaranties or
security which he has promised;
When by his own acts he has impaired said guaranties or
securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately gives
ones equally satisfactory;
When the debtor violates any undertaking, in consideration o
which the creditor agreed to the period;
When the debtor attempts to abscond.
Effect of losing period:
a.
Debtor loses every right to make use of the period; term is
extinguished and the obligation is demandable at once.
Term/period how computed:
a.
Under Art 13 of CC.
i. Years 365 days
ii. Months 30 days
iii. Days 24 hrs
iv. Nights sunset to sunrise
v. Months designated by name respective days
vi. Period 1st day excluded, last day included, if the la

st
day falls upon a Saturday, a Sunday or a legal holida
y
in the place where the court sits, the time shall not r

un

ate

until the next working day (not applied for penal


periods)
vii. X days: After sight, after happening of event, after d
time of payment is determined by excluding the da

y
from which time is to begin to run, and include the d
ay
viii.
all

of payment.
Treaty begins not on RP viewpoint, but at the time

countries ratify, since only at this time it will have


effect
3.

Notes:
a.
Loss through FE in 3 is regardless of fault on the part of the
debtor. He still loses benefit of period. Exception also provided

b.

in 3.
Employment contract may be terminated even if there was
fixed duration for the job (under par.4)
a.

c. In absconding; mere intent to do so being sufficient. On the


other hand, a mere physical leaving without intent to defraud,
is not sufficient.
d. Aleatory contracts; allowed: when parties agree on payment of
P5k, one cannot pay its equivalent, must be the P5k. Ratio:
speculation of currency

SECITON 3: ALTERNATIVE OBLIGATIONS


1199. A person alternatively bound by different prestations shall
completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the
other undertaking.
1.

Alternative (facultative) obligation


a.
Two or more prestations which may be given, only one is due

1200. The right of choice belongs to the debtor, unless it has been
expressly granted to the creditor.
The debtor shall have no right to choose those prestations which are
impossible, unlawful or which could not have been the object of the
obligation.
1.

2.

Limitations of debtors choice:


a.
Impossible;
b. Unlawful; or
c. That which could not have been the object of the obligation.
Notes:
a.
Facultative reinsurance contracts not the same with facultative
obligations since these denote acceptance or non-acceptance of
the obligation and not the mere choosing between prestations.

1201. The choice shall produce no effect except from the time it has been
communicated.
1.

Notice

Form
i.
ii.
iii.

law requires none, hence may be:


Written
Oral
Express

Obligations and Contracts | Carloman Notes 2014 | Atty. San Pedro


8

ii.

Made with full knowledge that a selection is indeed


being made.

Note: error in appreciating meaning of the alternativ


iv. Implied
e
b. Effect:
obligations will give rise to vitiated consent, and
i. obligation becomes a simple obligation to do or deliver
choice can later on be annulled.
object selected
iii. Made voluntary and freely without force,
ii. once made cannot be renounced unless permitted by
the other party
intimidation, coercion or undue influence
1. if choice is lost by FE, creditor bears risk of
iv. Made in due time before or upon maturity, otherwi
loss
se
c.
Purpose in order to inform the debtor that the obligation is
the creditor can sue him in court with an alternative
now a simple one, no longer alternative, and if already due, for
relief as give this or that, depending upon your
the creditor to receive the object being delivered, if tender of
choice
the same has been made.
v. Made to all the proper persons hence, if there are
i. If lost by FE:
joint creditors all must be notified
1. No communication liable
vi. Made without conditions unless agreed to by the
2. w/ communication - extinguished
creditor otherwise, it can be said that no real choic
d. Requisites:
e
i. Made properly so that th
has been made
Alternative
Facultative
e creditor or his agent will
vii. May be waived, expr
actually know;
Various things are due but giving ofOnly one thing is principally due, an essly or impliedly
one is sufficient
d
it is that one which generally is give
n,
1202. The debtor shall lose the rig
ht of choice when among the prest
but the other (the substitute) may
If one of the prestations is illegal, thIf the principal obligation is void, an
ations
e
d
whereby he is alternatively bound
, only one is practicable.
others may be valid and the obligatithere is no necessity of giving the
1. Notes:
on
substitute. The nullity of the princip
a.
Debtor may faultly d
estroy any object; provided that a vali
d
object still remains, if the same is lost through FE, obligation is
extinguished.
b. Ex. A give ring to C, A can give car as a
1203. If through the creditors acts the debtor cannot make a choice
substitute.
according to the terms of the obligation, the latter may rescind the
contract with damages.
1.

Notes:
a.
No automatic rescission, since debtor may choose to allow the
obligation to be in force insofar as the possible choices are
involved.

1204. The creditor shall have a right to indemnity for damages when,
through the fault of the debtor, all the things which are alternatively the
object of the obligation have been lost, or the compliance of the obligation
has become possible.

The indemnity shall be fixed taking as a basis the value of the last thing
which has disappeared, or that of the service which last become
impossible.
Damages other than the value of the last thing or service may also be
awarded.
1.
2.

Application of article:
a.
When right to choose belonged to the debtor; and
b. The loss or impossibility happened before selection was made.
Notes:
a.
Value of last thing lost w/ fault + damages = given to creditor

1205. When the choice has been expressly given to the creditor, the
obligation shall cease to be alternative from the day when the selection
has been communicated to the debtor.
Until then the responsibility of the debtor shall be governed by the
following rules:
1. If one of the things is lost through a fortuitous even, he shall
perform the obligation by delivering that which the creditor
should choose from among the remainder, or that which remains
if only one subsists;
2. If the loss of the things occurs through the fault of the debtor, the
creditor may claim any of those subsisting, or the price of that

Obligations and Contracts | Carloman Notes 2014 | Atty. San Pedro


which, through the fault of the former has disappeared, with a
right to damages;
3.
If all the things are lost through the fault of the debtor, the choice
by the creditor shall fall upon the price of any one of them, also
indemnity for damages.
The same rules shall be applied to obligations to do or not to do in case
one, some or all of the prestations should become impossible.
1.
2.

3.

Creditor right to choose


a.
Expressly given, cannot be implied
b. Communication may be express or implied
Lost objects, creditors rights:
a.
Choose remaining object, no damages; or
b. Price of last object lost w/ fault of debtor + damages, since
deprived of the right to choose
Creditor delays in making a choice
a.
Debtor not in default notwithstanding maturity since debtor
does not know what to deliver
b. Debtor can petition the court to compel creditor to accept, in
the alternative, at the creditors option, with resultant damages

19

if any.
accessory or substitute

1206. When only one prestation has been agreed upon, but the obligor
If it is impossible to give all except If it is impossible to give the princip may render another in substitution, the obligation is called facultative.
one, the last one must still be givenal,
The loss or deterioration of the thing intended as a substitute, through the
the substitute does not have to be negligence of the obligor, does not render him liable. But once the
given, if it is impossible to give the substitution has been made, the obligor is liable for the loss of the
substitute, the principal must still b substitute on account of his delay, negligence or fraud.
e
1. Facultative obligation
Right to choose may be given either
Right to choose is only to debtor
to
a.
Only one prestation has been agreed upon but the obligor may
the debtor (presumed) or creditor
render another in substitution.
(expressed)

2.

Notes:
a.
If substitute is lost w/ fault, no liability since debtor can still
choose the principal. And no rights were impaired.

SECTION 4: JOINT AND SOLIDARY OBLIGATION


1207. The occurrence of two or more creditors or of two or more debtors
in one and the same obligation does not imply each one of the former has a
right to demand, or that each one of the latter is bound to render, entire
compliance with the prestations. There is a solidary liability only when
the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.
1.

Joint vs Solidary
a.
Joint each obligor answers only for a part of the whole
liability and each obligee belongs only a part of the correlative
rights. To each his own.
(1)
Mancommunada
(2)
Mancomunada simple
(3)
Proportionate
(4)
Pro rata
(5)
We promise to pay there are 2 or more
signatures
b. Solidary relationship between the active and passive subjects
is so close that each of the former or the latter may demand the
fulfillment of or must comply with the whole obligation. One
for all, all for one. Right to reimburse from other debtors arise.
(1)
Juntos o separademente
(2)
Mancomunada insolidum

(3)

Individually

Obligations and Contracts | Carloman Notes 2014 | Atty. San Pedro


(4)
Jointly and severally
(5)
In solidum
(6)
Mancomunada solidaria
(7)
Each will pay the whole value
(8)
Individually and collectively
(9)
I promise to pay there are 2 or more
signatures
2.

Rules:
a.
GR: joint
b. Exceptions:
(1)
(2)
(3)
a.
b.
c.
d.

Stipulation or contract
Nature of obligation requires solidarity
Law declares obligation solidary
Tort (Culpa aquiliana or quasi-delict)
Quasi-contracts
Devisees and legatees
Liability of principals, accomplices and
accessories of a felony
e.
Bailees in commodatum

3.

Notes:
a.
Obligations can be joint or solidary on either creditor or
debtor. Rule: respect jointness.
b. Rules not applicable where only one party for each side (EN:
badum tss)

1208. If from the law, or the nature or the wording of the obligations to
which the preceding article refers the contrary does not appear, the credit
or debt shall be presumed to be divided into as many equal shares as
there are creditors or debtors, the credits or debts being considered
distinct from one another, subject to the Rules of Court governing the
multiplicity of suits.
1.

Presumed Joint
a.
Debt divided into as many shares as there are creditors or
debtors;
b. Credits and debts shall be distinct from one another;
c.
But regarding the bringing of the action in court, the RoC
governing the multiplicity of suits will be followed.
i. Ordinarily one creditor may sue one of the debtors for
the latters share obligation.
ii. Aim of the RoC is to obtain a just, speedy and
inexpensive determination of every action or
proceeding, it would be much better to sue all the
necessary parties at the same time.

20

2.
d.

When judgment by the court as to relation, it must be follo

wed
regardless of opposite to contract. Notwithstanding, the righ

d act

t
2.

of appeal of the parties.


Characteristics of joint liability
a.
Vitiated consent on the part of one debtor does not affect t

he
others
Insolvency of one does not make others responsible for his
share
c. Demand by the creditor on one joint debtor puts him in
b.
default,
d.

but not the others since the debts are distinct.


When the creditor interrupts the running of the prescriptiv
period by demanding judicially from one, the others are not
affected. Possible that share of one has prescribed while tha

t of

3.

the others has already prescribed.


e. Defenses of one debtor are not necessarily available to the
others.
Notes:
a.
Death in the line of duty of employee - S
b. Co-principals - S
c. H&W after exhaustion of conjugal partnership J
d. Penal or contrary to morals S
e. Employers tort employer Subsidiary, employee Primary
f. S or J, depends on party intentions
g.
A or B will pay - solidary

1209. If the division is impossible, the right of the creditors may be


prejudiced only by their collective acts, and the debt can be enforced
only
by proceeding against all the debtors. If one of the latter should be
insolvent, the others shall not be liable for his share.
1.

Joint and indivisible obligations


a.
Indivisible as to object
b. Joint as to juridical tie (opposite with solidary indivisible n

o
problem here)
c. Fulfillment requires the consent of all the debtors, although
each for his part. On the side of the creditors, collective acti
on

is also required for acts which may be prejudicial.


Characteristics:
a.
Creditor must proceed against all joint debtors, since
compliance can only be had if all the joint debtors woul
b.

together.
If any one of the debtors does not comply, converted t

o
monetary obligation, damages to party at fault.

e.
Legal by law
Obligations and Contracts | Carloman Notes 2014 | Atty. San P
edro
21
1211. Solidarity may exist although the creditors and the debtors ma
y not
Any of the joint debtors be insolvent, the others shall not be
be bound in the same manner and by the same periods and condition
liable for his share
s.
i. Transformed to monetary (damages)
d. If joint creditors, delivery must be made to all, and not merely
1. Solidarity despite different terms or conditions
to one, unless that one be specifically authorized by the others.
a.
Uniform same stipulations and clauses
e.
Each joint creditor is allowed to renounce his proportionate
b. Otherwise liable for same prestations, nevertheless not
credit. Other creditors do not receive benefit of renunciation.
subject to same secondary stipulation and clauses
Benefit goes to debtors.
i. Solidarity is preserved since creditor has power, but
f.
Demand to one debtor does not affect others.
still limited by the conditions.
c.

ii.

1210. The indivisibility of an obligation does not necessarily give rise to


solidarity. Nor does solidarity of itself imply indivisibility.
1.
2.

Indivisibility vs. solidarity


a.
Indivisibility subject matter
b. Solidarity juridical tie
Types of solidarity:
a.
Active on part of creditors or obliges
b. Passive - on part of debtors or obligors
c.
Mixed on both parts
d. Conventional agreed upon by parties

1213. A solidary creditor cannot assign his rights without the consen
t of
the others.
1.
2.

Solidary obligation implies mutual agency or confidence.


JBL Reyes citing Manresa dissents such assignment need not be
consented to (EN: continue this later @ p.296)

1214. The debtor may pay any one of the solidary creditors; but if an
y
demand, judicial or extrajudicial, has been made by one of them, pay
ment
should be made to him.
1.

2.

To whom debtor must pay


a.
Any solidary creditors;
b. Exception: to creditor who made demand (judicial or
extrajudicial)
Notes:
a.
Payment to creditor who did not make demand will not

Recovery is equal to total debt minus share of


unmatured conditions or terms.

1212. Each one of the solidary creditors may do whatever may be use
ful to
the others, but not anything which may be prejudicial to the latter.
1.

Beneficial act:
a.
Interrupt running of prescription by filing before the courts
2. Prejudicial act:
a.
Nonperformance
b. Condonation of one solidary creditor
extinguish obligation, except insofar as the payees sh
are is
concerned. (wrong San Pedro, but ignore him for BAR
)
b. Creditor making demand has cause of action, other cr
editors
cannot do anything since they are represented by the
creditor
who made the demand.
c. Specific creditor should demand first before suing, reg
ardless if
other creditors has already made demand. Note that t
his is
legally correct, but would result in an absurdity, hence,
they
should be allowed to sue to protect their interests as w
ell.
d. Non demanded debtor pays to demanding creditor
extinguishes the obligation and nullifies demand made
by
other creditor to other debtors.

1215. Novation, compensation, confusion or remission of the debt, m


ade
by any of the solidary creditors or with any of the solidary debtors, s
hall
extinguish the obligation, without prejudice to the provision of Articl
e
1219.

Obligations and Contracts | Carloman Notes 2014 | Atty. S


an Pedro
22

c.
Extension is novation, Art. 1211 applies.
Compensation two persons, in their own right are creditors and
debtors of each other. May be total (automatic extinguishment) or
partial, depending upon the amount involved.
3. Confusion or merger characteristics of creditor and debtor are
merged in the same person.
The creditor who may have executed any of these acts, as well as he
4. Remission or waiver act of liberality whereby a creditor condone
who
s the
collects the debt, shall be liable to the others for the share in the
obligation of the debtor. May be total or partial. No reimbursement
obligation corresponding to them.
among debtors (if total remission) for it is a gratuitous act, but ther
e
is
1. Novation modifies the obligation, changing its object or principal
reimbursement among creditors. If partial, as if no remission in
conditions, or by substituting the person of the debtor, or by
viewpoint of other debtors.
rd
subrogating the person of the debtor or by subrogating a 3 perso
5.
Payment before remission (full) remission is useless because the
n in
re
the rights of the creditor.
was nothing more to remit. So there will still be reimbursement am
a.
Other debtors will give the complying debtor equal to the
ong
benefit received.
debtors.
b. Other creditors can obtain reimbursement.
2.

1216. The creditor may proceed against any one of the solidary debt
ors or
some or all of them simultaneously. The demand made against one o
f
them shall not be an obstacle to those which may be subsequently b
e
directed against the others, so long as the debt has not been fully
collected.
1.

Solidarity does not make the solidary debtors an indispensable pa

rty to
2.
3.
4.
5.

a suit filed by the creditor.


Suing of not all, does not operate as a waiver to those unsued
Applicable only to solidary obligations
Applicable even if for a revival of a judgment
Passive solidarity vs. suretyship insert here

1217. Payment made by one of the solidary debtors extinguishes the


obligation. If two or more solidary debtors offer to pay, the creditor
may
choose which offer to accept.
He who made the payment may claim from his co-debtors only the
share

which corresponds to each, with the interests for the payment already
made. If the payment is made before the debt is due, no interest for the
intervening period may be demanded.
When one of the solidary debtors cannot, because of insolvency,
EN:
reimburse his share to the debtor paying the obligation, such share shall
be borne by all his co-debtors, in proportion to the debt of each.

1.
2.
3.

Reimbursement + interest from time of payment


Need notes go back! Use Jurado
Can still demand payment from debtor who did not offer to pay (
may be foolish though).

If there was fault on the part of any one of them, all shall be res
4.

Nature of Reimbursement joint, not ordinarily joint since insolve

ncy
5.

of one in the meantime be shouldered by the rest.


Substitution in court action for reimbursement

1218. Payment by a solidary debtor shall not entitle him to


reimbursement from his co-debtors if such payment is made after
the
obligation has prescribed or become illegal.
1219. The remission made by the creditor of the share which affects
one of
the solidary debtors does not release the latter from his responsibilit
y
towards the co-debtors, in case the debt had been totally paid by
anyone
of them before the remission was affected.
1. There is still liability even if originally partially remitted if other debtor i
s
insolvent, this is in connection with the nature of the reimbursement liabili
ty.
Notwithstanding, future recoverability from the insolvent debtor.
1220. The remission of the whole obligation, obtained by one of the
solidary debtors, does not entitle him to reimbursement from his codebtors.
1.
2.

Because of gratuitous in nature, applies only upon total remission


In partial remission, however, there is recovery, as if joint in
computation.

1221. If the thing has been lost or if the prestation has become impo
ssible
without the fault of the solidary debtors, the obligation shall become
extinguished.

ponsible to
the creditor for the price and the payment of damages and inter
est,
without prejudice to their action against the guilty or negligent
debtor.
If though a fortuitous event, the thing is lost or the performance
has
become impossible after one of the solidary debtors has incurre
d in delay
through the judicial or extrajudicial demand upon him by the cre
ditor, the
provisions of the preceding paragraph shall apply.
1.

Loss or impossibility of performance


a.
w/ fault liability w/ damages all to the creditor, right

of
action against negligent or guilty debtor
b. w/o fault no liability
c. FE after default same as (a)

v.
vi.
vii.

Obligations and Contracts | Carloman Notes 2014 | Atty. San P


edro
23
1222. A solidary debtor may, in actions filed by the creditor, avail himself
r
of all defenses which are derived from the nature of the obligation and of
those which are personal to him, or pertain to his own share. With respec
t
to thos e,
Solidarity
Indivisibility
e
which
Refers to tie between parties
Refers to nature of obligation
p
ersona of
ll
Needs at least two debtors or
May exist even if there is only one y belo
n
g to th
creditors
2. Solidarity vs Indivisibility debtor and only one creditor
e
others
The fault of one is the fault of theFault of one is not the fault of othehe ma
,
others
rs
y
avail
h
imself
thereof only as regards that part of the debt for which the latter are
responsible.
1.
2.

Applies to actions filed by the creditor


Defenses:
a.
Derived from the nature of the obligation (complete defense):
i. Lack of consideration or cause
ii. Absolute simulation (fictitious contract)
iii. Illegal consideration
iv. Extinguishment of the obligation (payment, remission,
or has prescribed)

3.

Classes/kinds of indivisibility
a.
Conventional agreement
b. Natural/absolute by nature of object
c. Legal provided by law
Kinds of division

4.

partial defense if non-fulfillment of condition or non-arrival


term or period he is liable except for his own share in the
meantime)
i. Vitiated consent
ii. Incapacity
iii. Nonfulfillment of condition (partial)
iv. Non arrival of term (partial)
c.
Personal to the others (partial)
i. You get the benefit of the defense of others, hence
liability may be reduced by the complete defense of
other debtors share
3.

Notes:
a.
Minority, there can still be reimbursement up to the extent

of

1223. The divisibility or indivisibility of the things that are the object of
obligations in which there is only one debtor and only one creditor does
not alter or modify the provisions of Chapter 2 of this Title.
Divisible vs indivisible
a.
Divisible one capable of partial performance
b. Indivisible not capable of partial performance

hypnotic spell)
viii. There are vices of consent
Personal to the debtor sued. (generally a complete defens

your

SECTION 5: DIVISIBLE AND INDIVISIBLE OBLIGAITONS

1.

b.

Nonfulfillment of suspensive condition


Statute of frauds
All debtors incapacitated to give consent
(unemancipated minors, insane, idiots, persons unde

b.

benefit.
Oano case

a.
Quantitative division same type divided in quantity
b. Qualitative division different types divided (quality)
c. Intellectual or moral co-ownership; only in the mind and not
real
1224. A joint indivisible obligation gives rise to indemnity for damages
from the time anyone of the debtors does not comply with his
undertaking. The debtors who may have been ready to fulfill their
promises shall not contribute to the indemnity beyond the corresponding
portion of the price of the thing or of the value of the service in which the
obligation consists.
1.

Effect
1.
2.
3.

of non-compliance
Converted into a monetary obligation
Joint debtor in BF obligation + damage
Joint debtor in GF share in monetary obligation only.

Obligations and Contracts | Carloman Notes 2014 | Atty. San Pedro


1225. For the purpose of the preceding articles, obligations to give definite
things and those which are not susceptible of partial performance shall be
deemed to be indivisible.
When the obligation has for its object the execution of a certain number of
days of work, the accomplishment of work by metric units, or analogous
things which by their nature are susceptible of partial performance, it
shall be divisible.
However, even though the object or service may be physically divisible, an
obligation is indivisible if so provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibility shall be determined by
the character of the prestation in each particular case.
1.

2.

3.
4.

Deemed indivisible
a.
To give definite things - specific car
b. Those not susceptible if partial performance orchestra
concert
c.
Provided by law
d. Intention of parties
Deemed divisible
a.
Execution of certain number of days of work 10 day work
b. Object is the accomplishment of work by metrical units
c.
Purpose of obligation is to pay in installments
d. Nature of obligation is susceptible of partial performance
character of prestation on negative obligations
Effect of illegality of a divisible contract
a.
If separable, the valid portion is upheld.
Notes:
a.
A contract to do several things at several times is divisible, and

24

a judgment for a single breach of a continuing contract is not a


bar to a suit for the subsequent breach. (Blossom & Co. v
Manila Gas Corp.)
b. A claim for damages for a breach is an indivisible demand,
when a former final judgment is rendered, it is a bar to any
damages which the plaintiff may thereafter sustain.

SECTION 6: OBLIGATIONS WITH A PENAL CLAUSE


1226. In obligations with a penal clause, the penalty shall substitute
the
indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the penalty or is
guilty
of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordan
ce
with the provisions of this Code.
1.
m the

Penal clause
a.
Coercive means to obtain from the debtor compliance fro
b.

e of

of

debtor.
An accessory undertaking to assume greater liability in cas

breach.
c. Attached to obligations in order to ensure performance and
substitute for damages and the payment of interest in case
non-compliance.
Kinds:
i. Legal by law
ii. Conventional - agreement
iii. Subsidiary only penalty may be asked
iv. Joint principal contract and penal clause can be
enforced
Compared to condition
a.
Condition is not an accessory, hence may become demand
d.

2.
able
s

in default of the unperformed principal obligation, and


sometimes jointly with it, while the former or the condition i

never demandable.
3. GR: Penalty takes the place of indemnity for damages and th
e payment
of interest.
Exceptions:
a.
Express stipulation (interest + damages may still be r
ecovered
despite the presence of the penalty clause)
b. Debtor refuses to pay the penalty
c. Debtor is guilty of fraud or dolo in the fulfillment of the
obligation [ratio: no renunciation of future fraud] frau
d is
essential
4. Notes:
a.
Compounding of interest is prima facie penal clause
b. Court my reduce if iniquitous or unconscionable
c. GR 85161 read this

Obligations and Contracts | Carloman Notes 2014 | Atty. San P order that the penalty may be demanded.
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25
1.

No necessity of proving actual damages


a.
Ratio: Penal clause is instituted in order to punish infractio

1227. The debtor cannot exempt himself from the performance of the
ns
obligation by paying the penalty, save in the case where this right has be
in the obligation not as a mere security, it is a lawful means
en
for
expressly reserved for him. Neither can the creditor demand the
repairing losses and damages, and upon evidence of the
fulfillment of the obligation and the satisfaction of the penalty at the sam
violation of the conditions stipulated, the injured party is not
e
obliged to prove losses and damages suffered, nor the exte
time, unless this right has been clearly granted him. However, if after the
nt of
creditor has decided to require the fulfillment of the obligation, the
the same in order to demand the enforcement of the penal
performance thereof should become impossible without his fault, the
clause agreed upon.
penalty may be enforced.
1229. The judge shall equitably reduce the penalty when the principa
1. GR: Debtor cannot substitute penalty for the principal obligation
Exception: If such right has been expressly reserved (not implied)
2.

GR: Creditor cannot demand both fulfillment and the penalty at the
same time
Exception: If such right has been expressly granted

3.

Notes:
a.
Even if a lessee is ready to forfeit the improvements on the
estate, he may still be ousted from the premises for his having
violated the condition imposed upon him, namely, no
improvements without the permission of the lessor.

1228. Proof of actual damages suffered by the creditor is not necessary i

l
obligation has been partly or irregularly complied with by the debtor.
Even if there has been no performance, the penalty may also be redu
ced
by the courts if it is iniquitous or unconscionable.
1.

2.

When court may reduce penalty


a.
Partial performance
b. Irregular performance(EN: connect with obligation arising
from things done poorly)
c.
Iniquitous or unconscionable
When penal clause cannot be enforced
a.
Breach is the fault of the creditor

n
The nullity of the principal obligation carries with it that of the p

3.
fit to

b. FE, unless exceptions in Art.1174 are applicable


c. Debtor not yet in default
Notes:
a.
Courts may still reduce if there has been subsequent bene
the creditor/obligee, even if such benefit was obtained with

out
the aid of the debtor/obligor (Insular Government v.
Amachezurra)
b. This article does not apply to final and executory judgment
(Commercial Credit Corp. of Cagayan v CA)
1230. The nullity of the penal clause does not carry with it that of th
e
principal obligation.

enal
clause.

CHAPTER 4: EXTINGUISHMENT OF OBLIGAITON GENERAL PROVISI


ONS
1231. Obligations are extinguished:
(1) By
(2) By
(3) By
(4) By
debtor;
(5) By

payment or performance;
the loss of the thing due;
the condonation or remission of the debt;
the confusion or merger of the rights of creditor and
compensation;

(6) By novation
Other causes of extinguishment of obligations, such as annulment,
rescission, fulfillment of a resolutory condition, and prescription, are
governed elsewhere in this Code.
1.

Obligations and Contracts | Carloman Notes 2014 | Atty. S


an Pedro
26

Causes of extinguishment by CASTAN:


a.
Voluntary
i. Performance:
1. Payment or performance
2. Consignation
ii. Substitution of performance:
1. Compensation
2. Novation
3. Dacion en pago (datio in solutum)
iii. Agreement to release
1. Subsequent to obligation:
a.
Unilateral waiver
b. Natural waiver

b.

c.
Remission
d. Mutual dissent (disenso)
e.
Compromise
2. Simultaneous with creation of obligation
a.
Resolutory term/extinctive period
b. Resolutory condition/conditions
subsequent
Involuntary causes:
i. Failure to bring action Ex. Prescription
ii. Resolutory condition or condition subsequent
Ex:
1.
2.
3.

iii.

Merger or confusion
Death for personal oblgiations
Change in civil status obligations due to
family relations
Reason of the object:
1. Impossibility
2. Loss of thing due

SECTION 1: PAYMENT OR PERFORMANCE


1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation.
1.

Payment consists of:


a.
Delivery of money
b. Performance in any other manner
2. Acceptance by the creditor, expressly or implicitly is an essential
element.
3. Notes:
a.
Payment made under a void judgment is also null and void
(Manila Surety and Fidelity Co. v Lim)
1233. A debt shall not be understood to have been paid unless the th
ing or
service in which the obligation consists has been completely delivere
d or
rendered, as the case may be.
1.

Requisites of a valid payment:


a.
Very thing or service contemplated must be paid

b.

Fulfillment must be complete


alleging that the creditor had given an extension of tim
e to the

2.

How payment or performance is made


a.
If the debt is monetary obligation, by delivery of the mone

y in
b.

full unless the contrary has been stipulated.


If the debt is the delivery of a thing, by delivery of the thin

g or
things
c. If the debt is the doing of a personal undertaking, by the
performance of said personal undertaking
d. If the debt is not doing something, by refraining from doing
the
action
Burden of proof
a.
Creditor has burden to prove existence of debt
b. Debtor has burden of proving that he has paid the debt
c. Art. 1176 should be used to determine primary
presumptions
3.

1234. If the obligation has been substantially performed in good fait


h, the
obligor may recover as though there has been strict and complete
fulfillment, less damages suffered by the obligee
1.

Notes:
a.
Article affords just compensation relative to the breach
committed by the obligor.
b. No right to rescind, since the article assumes that substant

ial
performance in good faith is already equivalent to fulfillmen
t
or payment.
c. Article focuses on slight breaches.
1235. When the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any protest o
r
objection, the obligation is deemed fully complied with.
1.
2.

Ratio: Estoppel or Waiver


Qualified acceptance
a.
Acceptance where there are qualifications
b. Reservation for future protest or objection
c. Surety or guarantor of debtor must give consent
d. This is to prevent the surety or guarantor from later on

debtor.
Accept defined:
a.
To take a satisfactory or sufficient, or agree to an inco
mplete or
irregular performance
b. Mere receipt is not equivalent to acceptance of perfor
mance
and would not extinguish the whole obligation
3.

Obligations and Contracts | Carloman Notes 2014 | Atty. San P


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27

debtor, no reimbursement from creditor for benefit, only


solutio indebiti part can be recovered + damages if there w
as

1236. The creditor is not bound to accept payment or performance by a


third person who has no interest in the fulfillment of the obligation, unles
s
there is a stipulation to the contrary.

c.

Whoever pays for another may demand from the debtor what he has paid

BF
Instances where recovery from creditor may be availed:
i. Prescribed
ii. Completely remitted
iii. Paid
iv. Compensation has been affected

,
1237. Whoever pays on behalf of the debtor without the knowledge
except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to or
against the will of the latter, cannot compel the creditor to subrogat
the debtor.
e him
1. Creditor can refuse payment by a stranger, EXCEPT:
in his rights, such as those arising from mortgage, guaranty, or pena
a.
Stipulation
lty.
b. 3rd person has an interest in the fulfillment of the obligation
1. Subrogation
i. Co-debtor
a.
Act of enabling the former to exercise all the rights and act
ii. Guarantor
ions
iii. Joint debtor
that could have been exercised by the latter.
2. Ratio why creditor must not be compelled to receive payment from
b.
This is actually the reason why a stranger would volunteer
stranger
to
a.
Personal choice should be respected
pay in behalf of the debtor.
3. Payment by a 3rd person
c.
Rights exercised are those arising from:
a.
With knowledge and consent of debtor payor is entitled to
i. Mortgage ;
reimbursement; subrogation
ii.
Guaranty; or
b. Without knowledge or against his will payer is not entitled to
iii.
Execution of penalty (via penal clause)
subrogation; only allowed beneficial reimbursement from
a.
2.

Subrogation vs. Reimbursement


a. Subrogation there may be recourse, in reimbursement

there
is none;
b. In subrogation original debt is extinguished, but gives rise
to
new creditor with the same rights. In reimbursement the ne
w
creditor has different rights.
c. Reimbursement is limited to a personal action of recovery,

in

subrogation there is more than such personal action of


recovery.
d. In both there is recovery of what the stranger has paid, no

dissent

necessarily the amount of the credit.


Notes:

or when no action was taken by the debtor after knowi

ng such
information; DEEMED CONSENT, (EN: supported by Art.
1302)
1238. Payment made by a third person who does not intend to b
e
reimbursed by the debtor is deemed to be a donation, which req
uires the
debtors consent. But the payment is in any case valid as to the
creditor
who has accepted it.
1.

t
3.

If with knowledge but without any express or implied

of

Payment deemed consent


a.
Donative intent
b. No one should be compelled to accept the generosity

Obligations and Contracts | Carloman Notes 2014 | Atty. S


another (Report of the Code of Commission)
an Pedro
28
Notes:
a.
Donation may still be recovered if it was invalid (not in
obligation, there shall be nor right to recover the sa
writing) or no real donation. But valid as to the creditor who
accepted it.
me
from the obligee who has spent or consumed it in go
1239. In obligations to give, payment made by one who does not hav
od
faith.
e the
free disposal of the thing due and capacity to alienate it shall not be 1240. Payment shall be made to the person in whose favor the oblig
valid,
without prejudice to the provisions of Article 1427 under the Title on ation
Natural Obligations.
has been constituted, or his successor in interest, or any person
authorized to receive it.
1. Payment by an incapacitated person
2.

a.

b.

GR:
i. Invalid if accepted
ii. Creditor cannot be compelled to accept
iii. Remedy of consignation would not be proper
)
Exception:
i. 1427: when a minor between 18 and 21 (EN: old la

1.

b.
c.

w),
who entered into a contract without the consent of t

2.

he

To whom payment must be made:


a.
Person in whose favor the obligation has been constituted
(creditor at the time of payment, not at the time constituted

parents or guardian voluntarily pays a sum of money f


or delivers a fungible thing in fulfillment of the

Successor-in-interest (heirs)
Authorized to receive it (agreement or law)
i. Received without authority (GR: void)

Notes:
a.
Vales in the hands of the creditor constitute presumption o
nonpayment, in the hands of the debtor, presumption of
payment.
b. Payment made to entities authorized by an occupation
government of debts in favor of enemy persons and
corporations is valid. (Haw Pia v CHB)
c.
Payment to a wrong party in good faith, debt is not
extinguished. Hence, interest will still continue to run.
d. Consignment instead of payment will not extinguish obliga

tion,
unless creditor could not be located. No mora solvendi.
1241. Payment to a person who is incapacitated to administer his
property shall be valid if he has kept the thing delivered, or insofar a
s the
payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it has
redounded to the benefit of the creditor. Such benefit to the creditor
need
not be proved in the following cases:
1.

If after the payment, the third person acquires the creditors


rights;
2.
If the creditor ratifies the payment to the third person;

3.

If by the creditors conduct, the debtor has been led to believe th

at
the third person had authority to receive the payment.
1.

1st par payment to an incapacitated person

2nd par payment to an unauthorized person


GR: Payment to an unauthorized third party valid only up to the e

2.
3.
xtent

of benefit.
Exception: When benefit is presumed:
a.

May have been prompted by an order of attachment,

injunction

4.

a.
3rd person acquires creditors rights
b. Creditor ratifies payment
c. Creditors conduct, the debtor has been led to make the
payment (estoppel)
Notes:
a.
Burden in proving is on the person who made the payment

.
ved.

b.

Benefit may be financial, moral or intellectual, must be pro

c. Non benefit or non-keeping there is non payment, hence,


legal representative of the incapacitated person can deman
d
new payment on behalf of his ward
d. Check out People v. Yabut L42847 and L42902 check
validity
1242: Payment made in good faith to any person in possession of the
credit shall release the debtor.
1.
2.
y the

3.

Instance of valid payment


Requisites:
a.
Payor must be in good faith (presumed)
b. Payee must be in possession of the credit itself (not merel
document evidencing the credit)
i. Bearer instrument extinguished , if order not
extinguished
Notes:
a.
Prove good faith
b. Attachment merely prohibits alienation, payment to party

who
attached the property does not constitute good faith
(Panganiban v. Cuevas)
1243. Payment made to the creditor by the debtor after the latter ha
s been
judicially ordered to retain the debt shall not be valid.
1.
2.

Payment here is void.


Judicial order

3.
that

or garnishment
Garnishment
a.
Debtor of a debtor is ordered not to pay the latter so
b.

and the

preference would be given to the latters creditor.


The debtor-stranger becomes a forced intervenor,
court, having acquired jurisdiction over his person by

means of
citation required of him to pay his debt, not his former
creditor, but to the new creditor, who is the creditor of
the
main litigation. (Tayabas Land Co. v. Charruf)

Obligations and Contracts | Carloman Notes 2014 | Atty. San P


the
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29
4.

a
t
r
t
m
d
m
e
o
e
or

payment has already been paid to the intervening creditor,


stranger-debtor is not required to pay again his creditor
unjust enrichment.
b. Pending garnishment proceedings, the debtor cannot be
judicially ordered to pay the intervening creditor since it mu

Interpleader:
a.
Where conflicting claims upon the same subject matter are or
may be made against a person who claims no interest
st
whatever in the subject matter, or an interest which in whole
be given to the clerk, sheriff or other proper officer of the c
or in part is not disputed by the claimants, he may bring an
ourt
action against the conflicting claimants to compel them to
(Sec.8 Rule 57 of RROC)
interplead and litigate their several claims among themselves.
b. A 1244. The debtor of a thing cannot compel the creditor to receive a
Sale
Dation
nd B bo different one, although the latter may be of the same value as, or mo
h have re
No pre-existing credit
Pre-existing credit
eceipts valuable than that which is due.
Gives rise to an obligation
Extinguishes an obligation
o claim
erchan In obligations to do or not to do, an act or forbearance cannot be
Cause or consideration is the PRIC
Cause or consideration
ise fro substituted by another act or forbearance against the obligees will.
EXTINGUISHMENT OF DEBT
E
C. C fil
1. Also applicable to personal positive/negative obligations.
(debtor); or OBJECT (creditor)
(seller); or OBJECT (buyer)
s
a.
In obligations to do or not to do, an act or forbearance can
Greater freedom in price
Lesser freedom in price
an acti not
determination
determination
n to int
be substituted by another act or forbearance against the
rplead
obligees will. Of course, if the obligee consents, this is all ri
litigate amongst themselves for their
ght.
conflicting rights. Court then issues an order prohibiting
2. 1244 does not apply:
payment. Any payment/delivery made by C will be invalid
a.
Facultative obligations;
tantamount to BF.
b. Another agreement resulting in either:
5. Injunction:
i. Dation in payment
a.
A judicial order to refrain from doing something. invalid
ii. Novation
payment if injunction is granted.
c.
Waiver by the creditor (express or implied)
6. Notes:
a.
When garnishment proceedings are subsequently dropped, but

1245. Dation in payment, whereby property is alienated to the creditor in


satisfaction of a debt in money, shall be governed by the law of sales.
1.

Dation in payment
a.
Mode of extinguishing an obligation whereby the debtor
alienates in favor of the creditor, property for the satisfaction
of monetary debt.
b. Synonyms:
i. Datio in solutom
ii. Adjudication en pago
c. Governed by law on sales
i. In substance it is a sale
ii. Creditor is really buying some property of the debtor,
payment for which is to be charged against the

iii.

2.

3.

debtors debt.
Also a form of novation

Requisites for validity of Dation


a.
Creditor consents (a requisite of SALE)
b. Will not prejudice other creditors (statute of fraud)
c. Debtor is judicially declared insolvent (assignee administers
property)
Notes:
a.
Not necessary that all property of the debtor will be given to
satisfy the credit.

Obligations and Contracts | Carloman Notes 2014 | Atty. San Pedro


1246. When the obligation consists in the delivery of an indeterminate or
generic thing, whose quality and circumstances have not been stated, the
creditor cannot demand a thing of superior quality. Neither can the debtor
iv. Requires
consen
deliver a thing of inferior
quality.common
The purpose
of the obligation and other
circumstances shall tbe taken into consideration.
(1) If there is disagreement between them, then the court steps in and
declares whether the contract has been complied with or not, according
to the circumstances.
(2) Waiver; when contract does not specify the quality:
a.
Creditor cannot demand a thing of superior quality, but if he
desires, he may demand and accept one of inferior quality
b. Debtor cannot deliver a thing of inferior quality, but if he so
desires, he may deliver one of superior quality, provided it is
not of a different kind.
(3) Article is concerned with QUALITY; when KIND or QUALITY cannot be
determined without a new agreement of the parties, the contract is
void. (CC 1349 and 1409)
1247. Unless it is otherwise stipulated, the extrajudicial expenses
required by the payment shall be for the account of the debtor. With
regard to judicial costs, the Rules of Court shall govern.
1.

GR: Debtor pays extrajudicial expenses. (by law. Ratio: since debtor
primarily benefits since his obligation is extinguished)
Exception: Stipulation to the contrary.

2.

Notes:
a.
Judicial costs are governed by ROC Rule 142.

1248. Unless there is an express stipulation to that effect, the creditor


cannot be compelled partially to receive the prestations in which the
obligation consists. Neither may the debtor be required to make partial
payments.

30

However, when the debt is in part liquidated and in part unliquidated, the
creditor may demand and the debtor may effect the payment of the former
without waiting for the liquidation of the latter.
1.

GR: Payment should be complete, partial performance is not allowed.


Exceptions:
a.
b.

Stipulation;
Different prestations are subject to different conditions or
different terms (installment);
1.
c. Debt is in part liquidated and in part unliquidated,
performance of the liquidated may be insisted upon either b

2.

either parties. (3M + damages, 3M can be demanded, dama


ges
d.

can be demanded only after amount is determined);


Joint debtor pays his share or the creditor demands the sa

(full payment of joint debtors debt, but only partial paymen

mised

as to whole obligation)
e. Solidary debtor pays only the part demandable because the
rest are not yet demandable on account of their being subje
ct
to different terms and conditions;
In case of compensation, when one debt is larger than the
other, a balance is left.
g.
When work is to be done by parts.
f.

1249. The payment of debts in money shall be made in the currency


stipulated, and if it is not possible to deliver such currency, then in t
he
currency which is legal tended in the Philippines.
The delivery of promissory notes payable to order, or bills of exchang
e or
other mercantile documents shall produce the effect of payment only
when they have been cashed, or when through the fault of the credit
or
they have been impaired.
In the meantime, the action derived from the original obligation shall
be
held in abeyance.

payment of the debt (whether private or public)


Checks as legal tender
a.
Checks are not legal tender (Villanueva v. Santos)
b. Managers check is not legal tender (Cuaycong v. Rius
c. Instances when check is legal tender:
i. Creditor is in estoppel or he had previously pro

me
t

Legal tender
a.
That which a debtor may compel a creditor to accept i

s fault

ii.

he would accept a check;


Check has lost its value because of the creditor

iii.

When payment occurs not because of a debt b

ut
because of the exercise of the right of conventio
nal
3.

redemption
Notes:
a.
Ask if you still need to study the Japanese Rules for BA

R
purposes.

Obligations and Contracts | Carloman Notes 2014 | Atty. San P There being no express stipulation and if the undertaking is to delive
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31

ra
determinate thing, the payment shall be made wherever the thing mi
1250. In case an extraordinary inflation or deflation of the currency
ght
stipulated should supervene, the value of the currency at the time of the
be at the moment the obligation was constituted.
establishment of the obligation shall be the basis of payment, unless ther
In any other case the place of payment shall be the domicile of the d
e
is an agreement to the contrary.
ebtor.
1. Inflation
If the debtor changes his domicile in bad faith or after he has incurre
a.
Sharp sudden increase of money or credit or both without a
corresponding increase in business transaction. Since the value d in
of money here tends to decrease, the natural result is an
delay, the additional expenses shall be borne by him.
increase in the price of goods and services.
These provisions are without prejudice to venue under the Rules of C
b. Deflation is opposite
ourt.
c.
Extraordinary when decrease or increase is unusual and
beyond the contemplation of the parties at the time of the
1. Where payment must be made:
establishment of the obligation
a.
Stipulation place designated
2. Notes:
b.
No
stipulation:
a.
1250 applies only to cases where a contract or agreement is
i.
Deliver determinate thing
involved. Does not apply to obligations to pay which arise from
1. Place where thing usually or habitually
law. (eminent domain) [Commissioner of Public Highways v.
located at the time the obligation was
Hon. Burgos]
constituted.
b. Insert here the requisites of extraordinary inflation
2. If merely temporary, domicile of the debtor.
1251. Payment shall be made in the place designated in the obligation.
ii. Any other thing (generic, money, personal)
1. Domicile of the debtor
the payment is made, the former cannot complain of the same,
unless
there is a cause for invalidating the contract.
SUBSECTION 1: APPLICATION OF PAYMENTS
1. Special forms of payment:
a.
Application
1252. He who has various debts of the same kind in favor of one and
b. Dation
c. Cession
the
d. Tender of payment and consignation
same creditor, may declare at the time of making the payment, to wh
2. Application of payments:
ich of
a.
Defined the designation of the debt to which should
them the same must be applied. Unless the parties so stipulate, or w
be
hen
applied a payment made by a debtor who owes severa
the application of payment is made by the party for whose benefit th
l debts in
e
favor of the same creditor.
term has been constituted, application shall not be made as to debts
b. Requisites:
which
i. 2 or more debts
are not yet due.
ii. Debts must be of the same kind
iii. Debts are owned by the same debtor in favor o
If the debtor accepts from the creditor a receipt in which an applicati
f the
on of
same creditor (i.e. 1 debtor and 1 creditor)

iv.

All debts must be due, includes cases when the ben

efit
of the terms is given to the person making the
application, unless contrary is stipulated
v. Payment is not enough to extinguish all the debts.
c. When debts are not yet due
i. GR: no application of payments under 1252

Obligations and Contracts | Carloman Notes 2014 | Atty. S


an Pedro
32
2.
e.

Exception:

d.

(1) Stipulation
(2) Application is made by the party for whose
benefit the term has been constituted
Debtors preferential right:
i. GR: Debtor has right to select which of his debts he

How made:
i. Debtor makes designation
ii. If not, creditor makes it, by stating in the receipt he

is
issuing
If neither the debtor nor the creditor has made the
application, or if the application is not valid, then
application is made by operation of law. (onerousity)
When made
i. At the time when payment by the debtor is made, n
iii.

f.

is
paying.
Exception:
1. Agreement

Debtor cannot choose to pay part of the


principal ahead of the interest.

ot
g.

3.

afterwards. Debtor cannot complain anymore.


When unavailable
i. Partner-creditors under 1792.
1. Receipt in name of partnership partnership
2. Receipt in own name pro rata
ii. Surety or solidary grantor why? Check case

Notes:
a.
If the debtor makes a proper application and the creditor
refuses mora accipliendi
b. If obligation is void, application of payment is void
c.
If debtors consent in accepting the receipt was vitiated (fr

aud,
d.

error, violence) application of payment is voidable


If creditor makes the application without the knowledge an

e.

consent of the debtor, the application is not valid.


Once a valid application is made, it cannot be revoked. Ev

d
en if

parties agree, it awont be allowed if 3rd parties are prejudic

ed.
f.
to

Debtor without protest accepts the receipt in which the


creditor specified expressly and unmistakably the obligation
which such payment was to be applied, said debtor renounc

ed
the right of choice.
1253. If the debt produces interest, payment of the principal shall no
t be
deemed to have been made until the interests have been covered.

Dacion
Cession
1254. When payment cannot be applied in accordance with the preceding
Affects all properties of debtor
rules, or if application cannot be inferred from other circumstances, the Does not affect all properties
debt which is most onerous to the debtor, among those due, shall be
Does not require plurality of creditorRequires more than one creditor
deemed to have been satisfied.
s
Only specific creditors consent is Requires consent of all creditors
If the debts due are of the same nature and burden, the payment shall be required
applied to all of them proportionately.
May take place during solvency
Requires full or partial insolvency
1. Rules when no application of payment made
Transfers ownership upon delivery Does not transfer ownership
a.
Most onerous; in case the due and demandable debts are of
different natures
Extinguishes obligation
Extinguishment up to extent of
b. Pro rata; if same in nature and burden (different from equal)
proceeds
1255. The debtor may cede or assign his property to his creditors in
payment of his debts. This cession, unless there is stipulation to the
contrary, shall only release the debtor from responsibility for the net
proceeds of the thing assigned. T
Tender
t of the
cession, are made between the de
Antecedent; preparatory act of
rned
consignation
by special laws.
May be extrajudicial
Judicial
1. Kinds
a.
must
2.

nsolvency Law, majority of creditors

agree
b. Voluntary 1255
Requisites
a.
More than 1 debt
b. More than 1 creditor
c. Complete or partial insolvency
d. Abandonment of all debtors property not exempt from
execution, unless waived in favor of creditors
e. Acceptance or consent on the part of the creditors; cannot be

SUBSECTION 3: TENDER OF PAYMENT AND CONSIGNATION


Tender of payment
a.
Act of offering the creditor what is due him together with a
demand that the creditor accept the same.
b. Objective of notice prior to consignation is to give creditor a
chance to reconsider his refusal to accept payment. To avoid
litigation and consignation.

he agreements which, on the effec


btor and his creditors shall be gove

Legal governed by I

Obligations and Contracts | Carloman Notes 2014 | Atty. San Pedro

1.

Consignation

33

2.

Consignation
a.
Act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to
accept payment
3.

imposed on an unwilling creditor


Effect
a.
Creditors do not become owners; merely assignees with
authority to sell, if ownership is transferred it becomes dation
b. Debtor is released up to the amount of the net proceeds of the
sale, unless there is stipulation to the contrary. The balance
generally remains collectible.
c. Creditors will collect credits in the order of preference agreed
upon, or in default of agreement, in the order ordinarily
established by law.

1256. If the creditor to whom tender of payment has been made refu
ses
without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cas

egal
3.
f

a.
b.

Interest runs after principal is paid consignation.


Refusal of a check on the ground other than it is not l

tender, interest will stop running. (Araneta v. Paterno)


Consignation without tender is valid when creditor:
a.
Absent or unknown or does not appear at the place o
payment. (no need for a judicial declaration of absence

es:
(1) When the creditor is absent or unknown, or does not appear
at the
(2)
s due;
(3)
(4)
(5)
1.

2.

place of payment;
When he is incapacitated to receive the payment the time it i
When, without just cause, he refuses to give a receipt;
When two or more persons claim the same right to collect;
When the title of the obligation has been lost.
Invalid payment, creditors refusal is justified. To be valid:
a.
Made in legal tender (lawful currency)
i. Fusion of intent, ability and capability to make good
each offer, which must be absolute and cover the
amount due.
ii. Valid defense: Estoppel
b. It must include whatever interest is due.
c. Unconditional. Unless, if made with conditions, and creditor
has accepted without protest. (estoppel)
d. Obligation must already be due.
Interest

b.

Incapacitated (does not apply if a legal representative

has
accepted)
c. Refusal without just cause
d. Two or more persons claim the same right to collect (
action of
b. Requires
prior tender
of
interpleader
is proper)
payment
e. Title of the obligation is lost (written title)
f. Prior notice of non-acceptance
4. Notes:
a.
Tender without consignation does not extinguish the
debt.
b. Tender of payment must be accompanied by the tend
er of
accrued interest. Otherwise tender is invalid.
c. Tender is not required when there really exists no oblig
ation,
hence, payment is purely voluntary, that is, the person
offering,

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34

b.
c.

at his option, could have refused the offer. May happen in case
of Options where only a right, not a duty, exists.
d. Consignation is not required to preserve right of redemption,
tender. Tender only sufficient to compel redemption but is not
in itself payment.
1257. In order that the consignation of the thing due may release the
obligor, it must first be announced to the persons interested in the
fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in
consonance with the provisions which regulate payment.
1.

Requisites of consignation:
a.
Existence of valid debt which is due
i. Not an option, legal/conventional redemption or any
form of privilege, must be an obligation
ii. Invalid debt:
1. Prescribed
2. Illegal cause or consideration
3. Null and void
4. Unfulfilled condition

1st notice of the consignation had already


been sent (except: if by final judgment)
Effects of deposit:
1. Property in custodia legis
2. Property is exempt from attachment and
execution
3. If property is perishable, court may order th
4.

iii.

sale
4. Consignor can also be assigned as receiver i
n
case of real property
e. Subsequent notice of consignation
i. In compliance with 1258, on notice to interested
parties
ii. Exempt if amount due is a consequence of a final
judgment
1258. Consignation shall be made by depositing the things due at th
e

d.

iii. Mortgage debt is a duty, hence valid


Valid prior tender, unless excused
i. See requisites : 1256
Prior notice of consignation (before deposit)
i. Reason: to enable creditor to reconsider previous
refusal, and thus, avoid litigation by the simple
expedient of accepting payment.
ii. Made:
1. Simultaneous to tender
2. Notice that in event tender is rejected, will
consign to court.
iii. Not necessary:
1. Sum is due under a final judgment
Actual consignation (deposit)
i. A complaint against the creditor to compel accepta

nce
ii.

has to be made prior to actual deposit


Requisites:
1. Depositing object of obligation, not another
2. Deposit with proper judicial authority
(include sherrif)
3. Accompanied by proof of tender made, unle

ss
tender is excused
disposal of judicial authority, before whom the tender of paymen
t shall be
proved, in a proper case, and the announcement of the consigna
tion in
other cases.
The consignation having been made, the interested parties shall
also be
notified thereof.
1259. The expenses of consignation, when properly made, shall
be
charged against the creditor.
1. Reason: creditors fault for non-acceptance
2. Expenses preservation, warehousing of the goods pending l
itigation.
1260. Once the consignation has been duly made, the debtor ma
y ask the
judge to order the cancellation of the obligation.

Before the creditor has accepted the consignation, or before a judici


al
declaration that the consignation has been properly made, the debto
r may
withdraw the thing or the sum deposited, allowing the obligation to
remain in force.
1.

2.

Effects of valid consignation


a.
Debtor may ask judge to cancel obligation
b. Running of interest is suspended
c. Transfer of ownership to creditor
d. Creditor bears risk of loss
Effects of invalid consignation
a.
No payment
b. Debtor in default

Obligations and Contracts | Carloman Notes 2014 | Atty. S


an Pedro
35

3.

c.
Same as dismissal of case
d. Same as waiver
Debtor may withdraw thing consigned
a.
As a matter of right
i. Before acceptance of creditor
ii. Before judicial declaration
iii. Since ownership is still with debtor
b. As a matter of privilege
i. When there is proper consignation and creditor give

s
authority for debtor to withdraw
1261. If, the consignation having been made, the creditor should aut
horize
the debtor to withdraw the same, he shall lose every preference whic
h he
may have over the thing. The co-debtors, guarantors and sureties
shall be
released.
1.
2.

Withdrawal in this article is a matter of privilege.


Effects:
a.
Obligation remains
b. Creditor loses preference (priority) over the thing.
c.
Co-debtors (joint), guarantors, and sureties are released
(unless consented)

SECTION 2: LOSS OF THE THING DUE


1.

Loss
a.
b.
c.
d.

Object perishes physically destroyed


Goes out of commerce
Disappears
i. Existence is unknown
ii. Cannot be recovered
Impossibility of performance
i. Physically impossible
ii. Legally impossible
1. Directly
2. Indirectly
iii. Moral impossibility impractical (1267)

obligation is monetary, and therefore may be said to b

e generic
1262. An obligation which consists in the delivery of a determinate t
hing
shall be extinguished if it should be lost or destroyed without the fa
ult of
the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous e
vents,
the loss of the thing does not extinguish the obligation, and he shall
be
responsible for damages. The same rule applies when the nature of t
he
obligation requires the assumption of risk.
1.

2.

Obligation to give
a.
Generic not extinguished by loss or FE
b. Specific
i. GR: obligation is extinguished
Exception:
1. Debtor is at fault
2. Liable even if FE
a.
Provision of law
i. Debtor promised to deliver
the same thing to two or
more persons who do not
have the same interest
ii. Obligation from crimes
iii. Borrower has lent the thing
to another who is not a
member of his own
household
iv. When the thing loaned has
been delivered with
appraisal of the value
v. Payee in solutio indebiti is in
BF
b. Stipulation
c. Nature of the obligation requires the
assumption of risk on the part of the
debtor.
Notes:
a.
Mortgaged property is lost, the mortgagor being the owner

of it
bears the loss. Owner still liable to pay the debt, since this

b.
etary

in character.
Obligation to deliver thing is extinguished, but a mon
obligation for damages is created.

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36

1.

Exemptions are natural calamity, except for fire, which needs to b

proved as accidental.
1263. In an obligation to deliver a generic thing, the loss or destruction o
f
1266. The debtor in obligations to do shall also be released when the
anything of the same kind does not extinguish the obligation.
prestation becomes legally or physically impossible without the fault
of
1. GR: Genus non quam perit.
the obligor.
Exemption:
a.
b.

2.

Generic thing is delimited


Generic thing has already been segregated or set aside, in
which case, it has become specific.
Notes:
a.
Obligation to pay money hinged upon a specific thing which
was destroyed by FE or w/o fault of debtor, still subsists.

1.
2.

Loss in personal obligations


a.
Legal impossibility Sunday work prohibited by law
b. Physical impossibility install motor to a lost vehicle
Notes:
a.
Impossibility must be after the constitution of the obligatio

n.
b.
c.

1264. The courts shall determine whether, under the circumstances, the
partial loss of the object of the obligation is so important as to extinguish
an
the obligation.

Retroactive effect makes the obligation void


GR: If due to impossibility or loss, the obligation that c
still be complied with must subsist. (Rule in reciprocal
obligations)
Exception:
1.
Lease object is destroyed, both lease a

1265. Whenever the thing is lost in the possession of the debtor, it shall
be
presumed that the loss was due to his fault, unless there is proof to the nd
contrary, and without prejudice to the provisions of Article 1165. This
presumption does not apply in case of earthquake, flood, storm, or other
natural calamity.
e

2.

obligation to pay are extinguished.


Contract for a piece of work risk is in th
worker (1717)

4.
1267. When the service has become so difficult as to be manifestly b

nifestly

eyond
the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part.

l be

1.
2.

3.

Moral impossibility
a.
Due to change in circumstances/conditions
Rebus sic stantibus
a.
A treaty or agreement remains valid only if the same
conditions prevailing at the time of contracting continue to
exist at the time of performance.
b. Also doctrine of the frustration of the commercial object ,
frustration of enterprise
c. Not apply to real obligations
Non-applicability to real obligations
a.
The article speaks of service personal obligation
b. Real obligations are not included within its scope.

Notes:
a.
When the service has become so difficult as to be ma
beyond the contemplation of the parties, the court shal
authorized to release the obligor in whole or in part. Th

e
intention of the parties should govern and if it appears
that the
service turns out to be so difficult as to have been bey

ond their

contemplation, it would be doing violence to that intent


ion to
eased

b.

hold the obligor still responsible.


Mere inconvenience, unexpected impediments, or incr
expenses would not be enough to relieve the debtor fro

m his
bad bargain.

Obligations and Contracts | Carloman Notes 2014 | Atty. S

1268. When the debt of a thing certain and determinate proceeds fro an Pedro
37
ma
a.
Since obligation to give is already extinguished, the credit
criminal offense, the debtor shall not be exempted from the payment
ors
of its
obligation subsists, hence, the debtors right of action for
price, whatever may be the cause for the loss, unless the thing havin
remedies due to the loss is transferred to the creditor.
g been
2.
Notes:
offered by him to the person who should receive it, the latter refuse
a.
Includes insurance indemnities as a right transferred.
d
without justification to accept it.
1.

Notes:
SECTION 3: CONDONATIN OR REMISSION OF THE DEBT
a.
2 options if creditor refuses acceptance
i. Consign extinguishes obligation once consignation
is
1270. Condonation or remission is essentially gratuitous, and require
judicially approved or accepted
ii. Keep not liable for FE, but requires ordinary diligen s the
ce
acceptance by the obligor. It may be made expressly or impliedly.
in taking care of thing
One and the other kinds shall be subject to the rules which govern
1269. The obligation having been extinguished by the loss of the thi inofficious donations. Express condonation shall, furthermore, compl
y
ng, the
creditor shall have all the rights of action which the debtor may have with the forms of donation.
against third persons by reason of the loss.
1. Requisites:
a.
Agreement, since acceptance is required.
1. Transfer of the rights of action from debtor to creditor in case of lo
b. Capacity and consent, court cannot condone interest unles
ss
s
creditor consents.
c.
Existing subject matter
d. Consideration must be Liberality (not love), if not liberality,
its
going to be dation, novation or compromise.
e.
Obligation must be due and demandable
f.
Not be inofficious, so that it wont be reducible, so that the
legitimes of the compulsory heirs would not be impaired.
g.
Formalities of a donation are required in the case of an ex
press
remission
2. Classes:
a.
To effect or extent:
i. Total
ii. Partial
b. Date of effectivity
i. Inter vivos
ii. Mortis causa must have the formalities of a will an
d
the will must be probated.

c.

Form:
i. Implied or tacit conduct is sufficient
ii. Express or formal requires formalities of a donation
inter vivos; of a will or codicil if mortis causa

3.
4.

Gratuitous
a.
If not totally gratuitous compromise
Effect of non-acceptance by debtor
2.

7.

a.
No remission
b. But may still be extinguished by prescription
What it includes
a.
Only what is stated in the agreement
b. Not applicable to other properties as well as future propert

ies
(in case of H&W), property relations subsist
1271. The delivery of a private document evidencing a credit, made
voluntarily by the creditor to the debtor, implies the renunciation of t
he
action which the former has against the latter.
If in order to nullify this waiver it should be claimed to be inofficious,
the
debtor and his heirs may uphold it by proving that the delivery of th
e
document was made in virtue of the payment of the debt.
1.

2.

This is implied remission


a.
Voluntary destruction of same document creates the same
effect
b. But omission from a list of debts does not create such
presumption
c. Presumption of remission prevails over presumption of
payment (Since State benefits transfer tax)
Effect of delivery of private document evidencing credit
a.
Applicable only to private document since public documen

ts
b.

are easily obtainable


Such delivery creates a presumed remission or renunciatio

n
1272. Whenever the private document in which the debt appears is f
ound
in the possession of the debtor, it shall be presumed that the credito
r
delivered it voluntarily, unless the contrary is proved.
1.

Presumption of voluntary delivery


a.
Also exclusive to private document
b. May be disputed

3.

Presumption if instrument is still with creditor


a.
Presumption of non-payment
If joint or solidary obligations
a.
Joint distinct, hence presumption is selective
b. Solidary presumption applies to whole obligation

1273. The renunciation of the principal debt shall extinguish the


accessory obligation; but the waiver of the latter shall leave the
former in
force.
1.
e-versa

Renunciation of principal extinguishes the accessory, not vic

3.

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38
1274. It is presumed that the accessory obligation of pledge has been
remitted when the thing pledged, after its delivery to the creditor, is foun
d
in the possession of the debtor, or of a third person who owns the thing.
1.

Remission of pledge
a.
Accessory obligation of pledge is presumed remitted
b. Principal obligation of loan remains
c.
Presumption is disputable (theft, repairs, etc)
d. 3rd person in possession must be owner of the thing to create
the presumption.

4.
es

extinguish
5.

SECTION 4: CONFUSION OR MERGER OF RIGHTS


ed
1275. The obligation is extinguished from the time the characters of
creditor and debtor are merged in the same person.
1.
2.

Defined
a.
Meeting in one person of the qualities of creditor and debtor
with respect to the same obligation
Basis
a.
Absurdity

Requisites
a.
Take place between principal debtor and creditor.
i. If confusion of the creditor with the guarantor, no
extinguishment of principal obligation, only the
accessory (guaranty) is extinguished.
b. Clear and definite merger
c.
Obligation involved must be the same or identical
Effect of transfer of rights only
a.
Mere transfer to a third person of rights belonging to both
debtor and creditor but not the credit as against the debt do

6.
7.
8.

not result in merger. (co-ownership merger, dos not

pre-existing claims against each other)


Extinction of real rights
a.
Usufruct (right of use and fruits)over property is extinguish
when naked owner (one who allowed usufruct) himself
becomes usufructuary (i.e. consolidation of ownership)
Revocation of merger
a.
Reason for the confusion ceases, obligation is revived.
Mortgagee become owner of mortgaged property
a.
Mortgage is extinguished, principal obligation remains.
Notes:
a.
If an heir is a debtor of the deceased, the merger does not
necessarily follow, for other creditors may be prejudiced.

SECTION 5: COMPENSATION
b.

Assignment also avenue for confusion or merger

1276. Merger which takes place in the person of the principal debtor
or
creditor benefits the guarantors. Confusion which takes place in the
person of any of the latter does not extinguish the obligation.
1.
2.
3.

Both principals extinguished principal and accessory


Principal and accessory extinguished only the accessory
Confusion or merger may be partial, hence relationship to remaini

1278. Compensation shall take place when two persons, in their


own right,
are creditors and debtors of each other.
1.
rs and

ng

2.

portion will subsist.


1277. Confusion does not extinguish a joint obligation except as rega
rds
the share corresponding to the creditor or debtor in whom the two
characters concur.

Defined
a.
The extinguishment in the concurrent amount of the
obligations of those persons who are reciprocally debto

3.
n

Use
a.

creditors of each other.

Abbreviated payment, advantage:


i. Facility of payment
ii. Guaranty of effectiveness of credit.
Distinguished from payment
a.
Payment must be complete and indivisible as a rule, i

b.
ion
4.

compensation, partial extinguishment is always permitted.


Obligations and Contracts | Carloman Notes 2014 | Atty. S
While payment involves action or delivery, true compensat an Pedro
39

(legal compensation) takes place by operation of law.


Distinguished from merger
a.
As to number of persons:
i. Confusion there is only one person in whom merg

6.

er

ual
of qualities of creditor and debtor
ii. Compensation there must be two persons who are
mutually creditor and debtor of each other.
b. As to number of obligations:
i. Confusion only 1
ii. Compensation must be 2
5. Distinguished from counter-claim or set-off (judicial
e
compensation)

a.
SO must be pleaded to take effect. C Operation of law.
Kinds of compensation
a.
According to effect or extent:
i. Total complete extinguishment due to same or eq
amounts
Partial a balance remains, one is larger than the
other.
According to origin or cause
i. Legal operation of law, need not be pleaded
ii. Voluntary or conventional due to agreement of th
ii.

b.

parties, requires mutual consent


Judicial must be pleaded, performed through court
order
iv. Facultative one of the parties has the choice of
claiming the compensation or of opposing it (perhap

iii.

4.

because not all requisites of legal compensation are


present). Party with benefit of period may claim or
oppose this.
No compensation
a.
Debtors of a corporation cannot compensate his debt with
share of stock of said corporation (TS to, requires BOD), sinc

e
b.

stock holding does not create a debtor-creditor relationship.


Internal revenue taxes. Collection of taxes cannot await re

c.

of lawsuit.
Between intermediary and a principal party.

sult

1279. In order that compensation may be proper, it is necessary:


(1) That each one of the obligors be bound principally, and that h
e be
at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things du
e are
consumable, they be of the same kind, and also of the same q
uality
if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy,


commenced by third persons and communicated in due time to
the debtor.
1.

a.
b.
es

Legal compensation (operation of law)

2.
3.

Affirmative requisites
a.
1,2,3 and 4
Negative requisite (5)
a.
Over neither of the debts must there be any retention or
controversy commenced by third persons and communicat

ed
in due time to the debtor. No compensation is claim is subje
ct

to court litigation.
i. Compensation is suspended during court litigation.
b. No waiver of the compensation
c. Not prohibited by law.
i. Debts arising from a deposit (except bank deposits,
considered as loans to the bank)
ii. Debts arising from obligations of a depositary
iii. Debts arising from the obligations of a bailee in
commodatum (borrowing, returning the same w/o
charge)
iv. Debts arising from future support due to gratuitous
title
v. Debts consisting of civil liability arising from a penal
offense.
vi. Damages suffered by a partnership thru the fault of
partner cannot be compensated with profits and
benefits which he may have earned for the partners

hip

4.

5.

by its industry. Court may reduce partners


responsibility if through efforts of such partner,
unusual profits have been realized.
1st affirmative requisite (1)
a.
Must be a relationship of debtor and creditor
b. Two debts and two credits
c. Bound as principals (not in mere representative capacity)
i. Guardian
ii. Guarantor
2nd affirmative requisite (2)
a.
Consumable = fungible (capable of substitution if intende

d as
such).

Requisites in 1279.
Operation of law, hence, compensation exists even if parti

c.
6.

are not aware.


For conventional, only requisite is mutual agreement
b. Same kind/quality
c. Applies only to generic things.
3rd affirmative requisite (3)
a.
Due period has arrived, condition been fulfilled.
b. Demandable not prescribed, still valid or legal
c. Voluntary/agreed compensation for person with benefit

of
period if debts are not due yet.

Obligations and Contracts | Carloman Notes 2014 | Atty. San P are not yet due.
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40
1. Conventional or voluntary compensation
7.

4th affirmative requisite (4)


a.
No compensation if already prescribed since no longer
demandable.
b. Liquidated determined
c.
For damages, must not be disputed in amount.

a.
b.
o be

1279 requisites do not apply.


Agreement or contract which declares the compensation t
valid is sufficient.

1283. If one of the parties to a suit over an obligation has a claim for
damages against the other, the former may set it off by proving his ri
1280. Notwithstanding the provisions of the preceding article, the
ght to
guarantor may set up compensation as regards what the creditor may ow said damages and the amount thereof.
e
1. Judicial compensation
the principal debtor.
a.
Pleading and proof must be made
1. Guarantor may set-up compensation with respect to principal debt
b. All requisites of 1279 must be present, except that at the t
a.
Exception to 1279, since guarantor is not a principal, only a
ime
subsidiary.
of pleading, the claim need not yet be liquidated.
b. Subsidiary party can setup compensation to the extent of the
c.
Court can only act when there is proof and pleading,
relative obligations between the principal, hence, liable only
supplicatory nature of civil procedure.
for the excess.
d. Compensation takes place by judgment
c.
Principal cannot setup compensation using the rights of
1284. When one or both debts are rescissible or voidable, they may
subsidiary. This is solely the right of the subsidiary.
1281. Compensation may be total or partial. When the two debts are of th be
compensated against each other before they are judicially rescinded
e
or
same amount, there is a total compensation.
avoided.
Art. 1282. The parties may agree upon the compensation of debts which

2.

If later voided, effect


a.
As if no compensation ever took place.
b. Decree is retroactive.

Art. 1285. The debtor who has consented to the assignment of rights
made
by a creditor in favor of a third person, cannot set up against the ass
ignee
the compensation which would pertain to him against the assignor, u
nless
the assignor was notified by the debtor at the time he gave his cons
ent,
that he reserved his right to the compensation.

1. Valid until rescinded or voided.


consent thereto, the latter may set up the compensation of debt
s previous
to the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor,
he may set
up the compensation of all credits prior to the same and also lat
er ones
until he had knowledge of the assignment.
1.
this
would be a useless act since there is nothing more to a
ssign.

If the creditor communicated the cession to him but the debtor did n
ot

Assignment on compensation of debt


a.
GR: If after compensation has taken place, one of the
extinguished debts is assigned to a stranger, ordinarily

b.

The defense of compensation can be set up.


Exception: if assignment was with the consent of the

debtor,
such consent operates as a waiver of the rights of

compensation.
c. Exception to exception: Right to compensation was
reserved
2.

e,

Obligations and Contracts | Carloman Notes 2014 | Atty. S


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41

by debtor.
1286. Compensation takes place by operation of law, even though th
Cases covered
e
a.
Assignment made with consent
debts may be payable at different places, but there shall be an inde
i. No compensation due to waiver (retoracts)
mnity
ii. Except if reserved upon consent (applies whether
for expenses of exchange or transportation to the place of payment.
consent to cession was before or after compensation
1. If different places, whoever claims compensation shall pay for exc
b. Assignment may be made with the knowledge but without
hange
consent or against the will of debtor
(monetary) or transportation (goods) costs.
i. Consent of debtor immaterial if debts have not
matured yet, provided that there is knowledge. Henc 1287. Compensation shall not be proper when one of the debts arise
s from
can be assigned.
Compensation can be setup if assignment made aft a depositum or from the obligations of a depository or of a bailee in
commodatum.
maturity and without consent.
Neither can compensation be set up against a creditor who has claim
c. Assignment made without knowledge of debtor.
for
i. Can setup compensation for all debts prior to
support due by gratuitous title, without prejudice to the provisions o
knowledge of assignment.
f
Purpose
paragraph 2 of Article 301.
a.
Prevent fraudulent deprivation of the benefits
ii.

er

3.

1.

When legal compensation cannot occur (a-c are facultative)


a.
When one debt arises from a depositum (not bank deposit,

but
a loan)
i. To prevent breach of trust and confidence
ii. Depositary cannot claim compensation, however
depositor can do so.
b. When one debt arises from the obligations of a depositary
i. Same as above, depositor has power to claim
c.
When one debt arises from the obligations of a bailee in
commodatum
i. To prevent breach of trust and confidence
ii. Lender may claim compensation, borrower cannot.
d. When one debt arises because of a claim for support due t
o
gratuitous title
i. Support in arrears can be compensated but not futu

re
2.

support
Obligations of a depositary
a.
Obliged to keep the thing safely and to return it.
b. Unless there is a stipulation to the contrary, the depositary

cannot deposit the thing with a 3rd person


If deposit to a 3rd person is allowed, the depositary is liable for
the loss if he deposited the thing with a person who is
manifestly careless and unfit
d. Depositary is responsible for the negligence of his employees
e.
Depositary cannot make use of the thing deposited without the

express permission of the depositor. Otherwise, he shall be


liable for damages. However, when the preservation of the
thing requires its use, it must be used but only for that
purpose.

c.

debtor, or subrogating a third person in the right of

the
3.

Notes:
a.
Bank can effect compensation for deposit vs. loan, since
relationships are both loan transactions. Hence, debtor and
creditor relationship exists.

1288. Neither shall there be compensation if one of the debts consists i


n
civil liability arising from a penal offense.
1.

No compensation if debts arise from a crime (civil liability) since its


satisfaction is imperative.
2. Victim can claim compensation (facultative)
1289. If a person should have against him several debts which are
susceptible of compensation, the rules on the application of payments
shall apply to the order of the compensation.
1290. When all the requisites mentioned in Article 1279 are present,
compensation takes effect by operation of law, and extinguishes both
debts to the concurrent amount, even though the creditors and debtors
are not aware of the compensation.
1.

Automatic compensation when 1279 is satisfied


a.
Automatic unless there is waiver thereof
b. Extinguishes both principal and accessories
c. Related amount in excess shall subsist.

SECTION 6: NOVATION
1291. Obligations may be modified by:
(1)
(2)
(3)
1.

Changing their object or principal conditions;


Substituting the person of the debtor;
Subrogating a third person in the right of the creditor.
Defined
a.
Substitution or change of an obligation by another, which
extinguishes or modifies the first, either changing its object or
principal condition, or substituting another in place of the

creditor.
Principal conditions
a.
Include a change in the period to comply with the
obligation
(partial, since affecting only performance and not t
he creation
of the obligation)
2.

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42
3.

4.

Purpose
a.
Extinguishes old and creates a new one
b. Novate (extinguish) or modify (relative extinguishment),
depends on nature of change or intent of parties
Kinds:
a.
According to object or purpose
i. Real or objective change object or principal
condition
ii. Personal or subjective change of persons
1. Substituting Debtor
a.
Expromision
b. Delegacion
2. Subrogating Creditor
a.
Conventional
b. Legal
iii. Mixed
b. According to from of constitution
i. Express
ii. Implied two obligations are essentially incompatible
with each other
c.
According to its extent or effect
i. Total or extinctive old is completely extinguished,

i.
ii.
iii.

6.

Except in expromission, debtor does not participate


Consent of creditor is essential in all cases
If new contract is a mere draft and unsigned, no
novation
Criminal liability not extinguished by novation
a.
Since novation is a civil law concept
b. Not included In RPC as a mode of extinguishing criminal
liability
c. Role of notation only to either prevent the rise of criminal
liability or to cast doubt on the true nature of the obligation

1292. In order that an obligation may be extinguished by another which


substitutes the same, it is imperative that it be so declared in unequivo
cal
terms, or that the old and the new obligation be on every point
incompatible with each other.
1.

Express and implied novation


a.
Express declared in unequivocal terms

never presumed there must be an express intention


to
novate. In cases where it is implied, the acts of the
parties must clearly demonstrate their intent to
dissolve the old obligation as the moving
consideration for the emergence of the new one. Tes
t
of incompatibility is whether they can stand together
,

d,

each one having an independent existence, if they


cannot and are irreconcilable. Requisites (1) previous
valid obligation (2) an agreement of all parties
concerned to a new contract (3) extinguishments of
the old obligation , (4) valid new obligation
ii. Partial or modificatory obligation is merely modifie
valid in force except insofar as it has been modified.

In
5.

case of doubt, modificatory novation is presumed.


Requisites
a.
Valid old obligation
i. Void obligation nothing to novate
ii. Voidable novation valid if not yet annulled
b. Intent to extinguish or to modify the old obligation by a
substantial difference
c.
Capacity and consent of all parties
b. Implied complete or substantial incompatibility
2. Express novation, how made making substantial chang
es (not
presumed, clear proof of novation necessary)
a.
Object or subject matter of contract (another thin
g is
delivered)
b. Cause or consideration (upward change in price, r
eduction is
remission (partial))
c. Principal terms or conditions (condition removed, re
duction of
term)
3. No novation, only modification
a.
Slight alteration or modifications in the constructi
on plans of
the building, price + cost of alteration = collectable
. Such
changes need not be in writing.
b. New contract merely contains supplementary agr
eement

c. Additional interest is agreed upon


Obligations and Contracts | Carloman Notes 2014 | Atty. S
d. Additional security is given
an Pedro
43
e. After final judgment, a contract was entered into precisely to
provide a method of payment other than that stated in the
obligation. However, guarantors who did not agree to the
judgment. Except if the object of the new contract is to settle
extension of the term are released by provision of law.
the judgment, by reducing the amount stated in the judgment,
g.
Change in the place of payment
and by stipulating an attorneys fees in case of non-payment,
h. Public instrument is executred to confirm a valid contract,
and by inserting a penalty clause, the judgment may be
whether oral or in a private instrument
considered to have been novated.
i.
Payment of the purchase price is executed via PN.
f. Creditor in the meantime refrains from suing the debtor or
4. On estafa:
even when the creditor merely extends the term of payment,
a.
She is still guilty of estafa, firstly, because the exaction of
since it merely affects performance and not creation of
criminal responsibility is something that can be renounced
only by the State, not by the offended party; and secondly,
because there was no intent to extinguish the original
relationship. The novation theory may perhaps apply PRIOR
to
the filing of the criminal information in court because up to
that time, the original trust relation may be converted by th
e
parties into an ordinary creditor-debtor situation, thereby
placing the victim in estoppel should he insist on the origina
l
trust. But AFTER the filing of the case in court, the offended
party may no longer divest the prosecution of its power to
exact the criminal liability as distinguished from the civil. Th
e
crime being an offense against the State, only the latter ma
y
renounce the criminal consequences. The acceptance of par
tial
satisfaction cannot indeed effect the nullification of a crimin
al
liability that is already fully mature and in the process of
judgment. (People v. Nerry)
5. Mere agency to sell
a.
Not guilty of estafa, The agreement, although apparently o
ne of
C.O.D., was actually an agency to sell; she could return the
unsold goods instead of the price therefor. Here, she is willin
g
to return; and even if she does not, there would only be a ci
vil
obligation, not a criminal offense. Even granting that a trust
relation had been created because of the C.O.D. and the
issuance of the check, still there would be no liability for a

crime because the parties, a short time after the delivery of the
check, changed the original trust relation into an ordinary
creditor-debtor situation. Hence, the novation of the contract
took place long before the filing of the criminal complaint.
(Gonzales v. Serrano)
6.

Note:
a.
Subscriber for a stock of a proposed corporation is relieved of

his obligation, if, without his consent, the authorized capital


stock of the corporation is increased.
b. If a mortgage agreement is replaced by a surety bond, the
mortgagees right would be abridged, a mortgage lien is a ri
ght
3.

in rem and is inseparable from the property, while the line o


fa

debtor

surety is only a personal right.


c. If a trust relationship is novated to debtor-creditor
relationship or loan relationship prior to the filing of a crimin
al
information by the fiscal, there would be no criminal liability
for estafa
1293. Novation which consists in substituting a new debtor in the pla
ce of
the original one, may be made even without the knowledge or agains
t the
will of the latter, but not without the consent of the creditor. Paymen
t by
the new debtor gives him the rights mentioned in Articles 1236 and
1237.
1.

Personal/subjective novation
a.
Change in debtor (passive)
i. Expromission initiative comes from the 3rd person
(old debtors consent not essential)
ii. Delelgacion - initiative comes from debtor (all 3 mu

st
b.
2.

e or

agree)
Change in creditor (active)

Expromission
a.
Initiative comes from 3rd person
b. Old debtor is released entirely, regardless of his knowledg
consent. There should be an agreement to this.
c. Requisites:
i. Initiative coming from 3rd person
ii. New debtor and creditor must consent
1. Old debtor must be excused/released from h

is
obligation

Delegacion
a.
Initiative coming from old debtor
b. Old debtor must be released, new debtor as principal

not as an agent
c. Requisites:
i. Initiative from old debtor
ii. All parties consent
1. Creditors consent may be expressed o
2.

implied
Creditors timing of consent not materi

al, may
be before or after new debtor gave cons
ent

d.

Rights of new debtor


i. Beneficial reimbursement w/o knowledge or

against
ii.

the will
Subrogation w/ knowledge or consent

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b.
c.

3rd person acted only as guarantor or surety


New debtor merely agreed to make himself solidarily liable

for

obligation
1294. If the substitution is without the knowledge or against the will of th
d. New debtor merely agreed to make himself jointly liable.
e
Delegation only affects the proportionate share
debtor, the new debtors insolvency or non-fulfillment of the obligation
1296. When the principal obligation is extinguished in consequence
shall not give rise to any liability on the part of the original debtor.
1.

Insolvency or non-fulfillment of new debtor in expromission does not


make the old debtor liable. Even if done with or without knowledge of
old debtor.

of a
novation, accessory obligations may subsist only insofar as they may
benefit third persons who did not give their consent.

1. Does not apply in cases of novation by subrogation by creditor (1


1295. The insolvency of the new debtor, who has been proposed by the
original debtor and accepted by the creditor, shall not revive the action of 303)
the latter against the original obligor, except when said insolvency was
2. 1296 applies to extinctive novations
already existing and of public knowledge, or known to the debtor, when h
3. Qualified application if modificatory novation
e
a.
If modified obligation is mor
delegated his debt.
Assignment of credit
Conventional subrogation e onerous, liable only to original
obligation
1. Only limited to insolvency and not to othe Mere transfer of same right Extinguishes the obligation,
b.
If modified obligation is less
and creates a new one
or
r causes of non-fulfillment
onerous,
guarantors/sureties
are
credit (transfer did not
2. Old debtor becomes liable
still liable.
Does not require the debtorRequires debtors consent
a.
New debtor becomes insolvent
4. 1296 may be defeated by stipulatio
b. Insolvency was already existing an s
n, provided all parties consent.
consent (mere notice is
d of public knowledge or is
5. 1296 exception
The defect in the credit or The defect of the old
known to the debtor.
a.
Stipulation pour autrui (in fa
right is not cured simply by obligation may be cured in
c.
If insolvency occurs after delegaci
cvor of 3rd persons), since their
assigning the same (debtor such a way that the new
on, no liability.
rights are distinct and should
still has the right to present obligation becomes entirely
3. Article not applicable if there was really n
not be prejudiced without their
against the new creditor anyvalid. (defenses
availableofincredit presumed over
o extinctive novation
c. Assignment
consent.
defense available as againstold creditsubrogation
cannot be setup
a.
3rd person is an agent, messenger
old creditor)
against new creditor)
, or employee of debtor

1297. If the new obligation is void, the original one shall subsist, unless
the parties intended that the former relation should be extinguished in
any event.
1.

If new obligation is subject to a condition which does not materialize,


old obligation subsists.
2. If new obligation is void, old subsists, except if parties really wanted to
extinguish the obligation.
3. If new obligation is merely voidable
a.
Old obligation is novated
b. New obligation is valid until annulled
1298. The novation is void if the original obligation was void, except when

annulment may be claimed only by the debtor, or when ratification


validates acts which are voidable.
1.
2.
3.

4.

5.

Old obligation is void new one is also void, nothing more to novate
Old obligation is voidable and not annulled
a.
Valid if annulment may be claimed by debtor.
b. Valid if ratified
Old obligation extinguished by loss
a.
May be novated if loss made the debtor liable, since an
obligation still exists.
b. If novation absolves liability, no more novation possible.
Prescribed obligations
a.
May be novated. Unless, prescription is setup by debtor.
b. Failure to setup prescription amounts to a waiver.
c. The prescribed debt now constitutes a natural obligation and
may be the cause or consideration of a new obligation.
Voidable novated via expromission
a.
Old debtor still released
b. If new debtor sues for beneficial reimbursement, old debtor
can set up defenses constituting voidability of old obligation.

1299. If the original obligation was subject to a suspensive or resolutory


condition, the new obligation shall be under the same condition, unless it
is otherwise stipulated.
1.

Conditions attached to old obligation are also attached to the new one
unless there is stipulation to the contrary.
2. If condition is not fulfilled, the old obligation did not arise, hence there
was nothing to novate.

Obligations and Contracts | Carloman Notes 2014 | Atty. San Pedro


1300. Subrogation of a third person in the rights of the creditor is either
legal or conventional. The former is not presumed, except in cases
expressly mentioned in this Code; the latter must be clearly established in
order that it may take effect.
Subrogation is the transfer to a 3rd person of all the rights appertaining
to the creditor, including the right to proceed against guarantors, or
possessors of mortgages, subject to any legal provision or any
modification that may be agreed upon.
2. Kinds of subrogation
a.
From viewpoint of cause or origin
i. Conventional or voluntary subrogation requires
consent and agreement of original parties
ii. Legal subrogation operation of law
b. From viewpoint of extent
i. Total subrogation
ii. Partial creation of 2 or more creditors, this is not
1.

45

3.

presumed (1302)
Conventional subrogation must be established

1301. Conventional subrogation of a third person requires the consent of


the original parties and of the third person.
1.

Conventional/voluntary subrogation
a.
Consent of all parties required
b. Generally, debtor loses the right to present against new
creditor any defense which he, the debtor, could have set up
against the old creditor
a.
on, new
2.

Assignment of a savings deposit in a bank is not a withdrawal but

a sort
of subrogation, with the account being continued in the name of th
e

assignee. (Cortes v. Phil Trust Co.)

1302. It is presumed that there is legal subrogation:


(1) When a creditor pays another creditor who is preferred, even
without the debtors knowledge;
(2) When a third person, not interested in the obligation, pays wi
th
the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person
interested in the fulfillment of the obligation pays, without
prejudice to the effects of confusion as to the latters share.
1. Interested persons
a.
Guarantor
b. Owner of property mortgaged as security for debt
2. Solidary debtor not an interested person, may demand reimburse
ment
from other solidary debtors
1303. Subrogation transfers to the person subrogated the credit wit
h all
the rights thereto appertaining, either against the debtor or against
third
persons, be they guarantors or possessors of mortgages, subject to
stipulation in a conventional subrogation.
1.

Effect of subrogation

If transferred credit is subject to a suspensive conditi


creditor cannot collect until after said condition is fulfill

ed
1304. A creditor, to whom partial payment has been made, may
exercise
his right for the remainder, and he shall be preferred to the pers
on who
has been subrogated in his place in virtue of the partial paymen
t of the
same credit.
1.

Partial subrogation
a.
2 creditors
i. Old creditor as to the balance due to partial
payment
ii. New creditor to the balance of excess
iii. Old creditor has preference in case of insolven
cy.
Preference is only on the assets remaining with
the
debtor not those already transferred to others (
Molina
v. Somes). Old must assert preference over the
assets
only while they are still in the hands of the sher
iff who
has levied on the properties, cannot be done aft
er that.

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46

3.

TITLE 2: CONTRACTS
CHAPTER 1: GENERAL PROVISIONS
1305. A contract is a meeting of minds between two persons whereby on
e
binds himself, with respect to the other, to give something or to render
some service.
1.
2.

Contract defined. (see Art.)


Elements
a.
Essential elements a contract cannot exist if absent
i. Consent
ii. Subject matter
iii. Cause or consideration
b. Natural elements presumed to exist unless stipulated
i. Warranty against eviction
ii. Warranty against hidden defects
c.
Accidental elements agreed upon by stipulation of paries
i. Pay on credit

ii. Interest
iii. Place of payment/performance
Classification
a.
According to perfection or formation
i. Consensual perfected by mere consent (sale)
ii. Real perfected by delivery (pledge, deposit,
commodatum)
iii. Formal/solemn special formalities are essential
before perfection (donation inter vivos requires it to
be in public instrument)
b. According to cause or equivalence of prestation value
i. Onerous exchange of equal values
ii. Gratuitous/lucrative free, no equivalent is received
by one party except Liberality.
iii. Remunerative prestation is given for a benefit or
service that had been previously rendered
c.
According to importance or dependence of one upon anot

her
i.
ii.

Principal may stand alone (sale, lease)


Accessory existence depends upon principal.
(mortgage)
iii. Preparatory parties consider the contract as a me
ans
d.
ance

i.

to create future contracts (agency, partnership)


According to parties obliged
ii. Executory prestations are still wanting compli
h.

Unilateral one party has obligation (commodatum,

to
return)
Bilateral/synalagmatic both parties are required to
render reciprocal prestations (sale)
e. According to name/designation
i. Nominate given a particular special name (sales,
agency, deposit)
ii. Innominate not given special name (do ut des)
f. According to risk of fulfillment
i. Commutative real fulfillment is contemplated (sal
ii.

of
credit)
iii. Involving services (agency, lease)
i. According to obligations imposed
i. Ordinary (sale)
ii. Institutional (marriage)
j. According to evidence required for proof
i. Oral or parol evidence
ii. Written proof (statute of frauds)
k.
According to number of persons
i. Ordinary different persons (sale)
ii. Auto-contracts when one person represents

e)
ii.

g.

Aleatory fulfillment is dependent upon chance


(insurance)
According to time of performance or fulfillment
i. Executed completed at the time contract entered
into (sale of already delivered items and already pai

d
for)

According to subject matter


i. Involving things (sale)
ii. Involving right or credits (usufruct, assignment

two
opposite parties but in different capacities (age
nt,
principal is seller and he himself buys). As a rul
e, agent

4.

cannot borrow money from principal without his


consent if business is lending. (1890)
l. According to number of drafters
i. Ordinary
ii. Adhesion (insurance)
m. According to nature of contract:
i. Personal - insurance
ii. Impersonal
Stages of contract

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47
a.

Preparation/Conception/Generacion/negotiation parties a

re
progressing with their negotiations; they have not yet arrive
d
at any definite agreement, although there may have been a
preliminary offer and bargaining.
b. Perfection/Birth parties came to a definite agreement,
elements have been accepted by mutual consent
c.
Consummation/Death/Termination terms of the contract

are
5.

6.
no

performed.
Characteristics
a.
Freedom to stipulate not contrary to 1306
b. Obligatory force and compliance in food faith (1159, 1315)
c.
Perfection by mere consent Consensuality (1315)
d. Binds both parties (1308)
e.
Relative (binds parties, heirs and assigns) (1311)
Notes:
a.
Death prior to the time of perfection dissolves contract.
b. Bank deposits are not deposits but loans (mutuum). (Serra
c.

v. CB)
Extension of expiry date does not extend delivery date, he

nce
no waiver.
Contracts of adhesion interpreted against the party who
drafted it.
e.
Oral contracts are valid, except when the law requires ano
d.
ther
f.

form for its validity.


A contract takes effect between

1306. The contracting parties may establish such stipulations, clause


s,
terms and conditions as they may deem convenient, provided they ar
e not
contrary to law, morals, good customs, public order, or public policy.
1.

Limitations on stipulations
a.
Law
i. Only for mandatory and prohibitive laws
ii. Directory and suppletory laws need not be complied
with since they are discretionary

iii.

Provisions of the law are presumed to be incorporated


in the contract (bonuses for employees)
iv. Mortgage contract a pactum commissorium clause is
void. (automatic foreclosure) mortgage contract will

vii.

b.

Obligations arising from gambling debt is void. (if


gambling is illegal).
viii. Laws in force at the time of constitution of contract
Morals
i. Deal with right and wrong and with human conscien

remain valid, just take out the clause.


Upset price (minimum execution price) is a void
stipulation
vi. Cannot deprive the court of jurisdiction, but may
stipulate on place of action
court proceeding
viii. Undue or unreasonable restraint of trade non
compete clause
ix. Renunciation of right to vote or run for office
x. Lawyer buys subject matter of litigation
v.

ce
ii.
iii.
iv.
v.
vi.
vii.
viii.

Involuntary servitude
Reimbursement of scholarship grant upon leaving
school
Excessive interest
Promise of marriage based on carnal consideration
(Editors note: huh? Arent all marriages based on
carnal consideration? Hahaha)
Unreasonable lawyers fees
Waiving right to prosecute
Unilateral increase in rent if: (1) option to renew wa

s
reciprocal (2) uncomplied condition; OR (3) w/
option to review. Unless there is stipulation to
contrary
c. Good customs
i. Given practical and social confirmation
d. Public order
i. Public safety
e. Public policy
i. Will of the state
ii. Contrary if has a tendency to injure the public, agai
nst
public good, or contravenes some established intere
st

iii.
iv.
v.
vi.
vii.
of

of society or is inconsistent with sound policy and


good morals or tends to clearly undermine the
security of individual rights.
Denying access to courts
Bar prosecution for valuable consideration;
compromise is permitted
Exemption from gross negligence or fraud
Encourage fraud
Warrants of attorney to confess judgment deprive

2.

Stipulations deemed valid


a.
Limiting liability of guarantor or surety for a shorter p
eriod

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48

3.

b. Prescription stipulation on cause of action


c.
Compounded interest
d. Dismissal when services no longer required
Nominate contracts
a.
Name is inferior to nature of contract, since nature is dictated
by intent and substance of transaction

b.
ll of

the debtor, conditional obligation is void. Suspensive Debtor


Void. If resolutory valid.
1309. The determination of the performance may be left to a third p
erson,
whose decision shall not be binding until it has been made known to
both
contracting parties.

1307. Innominate contracts shall be regulated by the stipulations of the


parties, by the provisions of Titles I and II of this Book, by the rules
1.
governing the most analogous nominate contracts, and by the customs of
the place.
to
1.

Even if (lease) contract is not termed as such, its nature will govern an

2.

d
be referred to as an innominate contract.
1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
1.
2.

Mutuality of contracts
a.
Both parties are bound
b. When cancelled, both are released.
Consequence of mutuality
a.
A party cannot revoke or renounce a contract without the
consent of the other, nor can it have set aside on ground that

1.

have effect.
Arbitration
a.
Court does not determine issues to be arbitrated, it only
determines whether or not parties should go to arbitration.
Arbitration board hears the issues.

Inequitable determination is not binding, court shall determine ba

sed

If a contract should contain some stipulation in favor of a third person,


he
may demand its fulfillment provided he communicated his acceptance to
the obligor before its revocation. A mere incidental benefit or interest o
fa
person is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person.
Relativity of contracts

3rd party determination, (price of sale) needs to be communicated

1310. The determination shall not be obligatory if it is evidently


inequitable. In such case, the courts shall decide what is equitable u
nder
the circumstances.

1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property
he
received from the decedent.

1.

he made a bad bargain.


When fulfillment of the condition depends upon the sole wi

on ascertained from attendant circumstances.


a.
Contracts are generally effective only between pa
rties, assigns
and heirs.
b. Parties cannot impose liability on a stranger to th
e contract.
c. In order to bind 3rd person, consent is necessary
d. Strangers cannot demand enforcement or annulm
ent to a
contract
2. Exceptions to relativity
a.
Not transmissible by nature, stipulation or provisi
on of law
b. Stipulation in favor of a 3rd person
c. 3rd person induces another to violate his contract
d. 3rd person is adversely affected by the contract w
here he did
not participate
e. Law authorizes the creditor to sue on a contract en
tered into

3.

by his debtor (accion directa)


Obligations and Contracts | Carloman Notes 2014 | Atty. S
Notes:
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49
a.
Heirs are bound to respect the contracts entered into by their
predecessors in interest in view of their privity of interest with
1. no, even the contracting party cannot recov
such predecessor. Valid conveyance by predecessor cannot be
er
questioned by heirs. All contracts entered into by deceased
a property illegally conveyed.
shall be executed by the heirs.
2. Yes , if legitimes of compulsory heirs are
b. In order that an heir can question the validity of contracts
prejudiced
entered into by his predecessor, or bring an action to annul the
e.
Rights of predecessor may be transmitted if they are
same, he must be a compulsory heir, for the simple reason that
transmissible (trust, lease)
the deceased could do with the property whatever he desired,
2. 1st exemption nature, stipulation or law
as long as he respects the right of the compulsory heirs
a.
Agency, partnership does not allow transmissibility.
(legitime).
b. Money claims, must go to estate 1st.
c. Only compulsory heirs (wife, legitimate children) can question
3. 2 nd exemption stipulation pour autrui
sale of decedent.
a.
Requisites:
d. Compulsory heirs on transactions of deceased
i. Stipulation in favor of 3rd person
i. Voidable transactions - yes
ii. Contracting parties must have clearly and deliberat
ii. Illicit or illegal
ely
conferred a favor upon 3rd person
iii. Mere incidental benefit (depends upon an event) or
interest is not sufficient
iv. Stipulation must be part of the contract, no the who
le
v. 3rd person communicated his acceptance (in any for
m)
to obligor before its revocation; such acceptance ma
y
be in the form of a demand. (effect upon receiving of
acceptance by offeror in the form required by latter)
vi. No relation of agency between either of the 3rd parti
es
and the 3rd person
b. Binding even if 3rd person is not a signatory to the contrac
t.
c.
Need not be in proper form, it may be inferred from the fa
ct
that the beneficiary has enjoyed the same for a conderable
period (Florentino v. Encarnacion)
4. 3rd exception 3rd person induces another to violate his contract,
see
1314.
5. 4th exception cases where 3rd persons may be adversely affecte
d by a
contract where they did not participate
a.
Evident in cases of collective contracts, where majority
naturally rules over minority

b.

Ex:

iv.

Contract creating status, world respects the status


(married woman, affair = adultery)
v. Real rights respected if registered or if public
knowledge. Actual knowledge = registration. New

i.
ii.

Collective bargaining agreements


Suspension of payments and compositions under the
insolvency law
iii. Negotiorum gestio unauthorized management

6.
d into

owner must respect the lease entered into with old


owner if duly registered.
5th exception law authorizes creditor to sue on a contract entere
by his debtor (accion directa)
a.
Lessor can sue sub-lessee, if sub-lessee does not pay the

lessee.
Even though he is not have to respect sub-lease contract. S
ubb.

lessee is bound to lessor for preservation of leased property.


Contract for a piece of work, contractor has action against
owner for payment. However, the following shall not prejudi

ce
the laborers, employees, and furnishers of materials:
i. Payment made by owner to contractor before due;
ii. Renunciation by contractor of amount due to him fr
om
owner.
c. Owner is bound by contract between contractor and his
laborers. (1311)
1312. In contracts creating real rights, third persons who come into
possession of the object of the contract are bound thereby, subject t
o the
provisions of the Mortgage Law and the Land Registration Laws.
1.
2.
3.
ease.
4.
nder

Exception to relativity of contracts


Real right binds the property over which it is exercised.
Lessor respects the sub-lease, if:
a.
Registered w/ Registry of Property; OR
b. Lessor has actual knowledge of existence and duration of l
Purchaser of land must respect a mortgage constituted thereon, u
the same circumstances given above (a or b)

1313. Creditors are protected in cases of contracts intended to defra


ud
them.
1.

Right of defrauded creditors

ejudiced.

a.
b.

Another exception to relativity of contracts


Creditors may ask rescission to the extent they are pr
i.

Ex. Gratuitous transfer by an insolvent debtor.


Creditor may rescind such transfer.

1314. Any third person who induces another to violate his contr
act shall
be liable for damages to the other contracting party.
1.

Stranger to a contract may be sued of his unwarranted interf

erence.
2. Injured party may properly sue for damages.
3. 3rd party cannot have greater liability than the obligor. Most
probably,
the liability here is solidary. (tort)

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50

consensual contracts. I bind myself to let you borrow my shit


tomorrow. Here, remedy is not specific performance but damages.
3. The obligation of the other party begins only upon delivery. (EN: t

his
1315. Contracts are perfected by mere consent, and from that moment th
should be actual delivery, nonsense if just constructive, violates co
e
ncept
parties are bound not only to the fulfillment of what has been expressly
of real contracts)
stipulated but also to all the consequences which, according to their
1317. No one may contract in the name of another without being
nature, may be in keeping with good faith, usage, and law.
authorized by the latter, or unless he has by law a right to represent
1. Consensuality of contracts. (perfected by mere consent)
him.
2. Perfection of contracts
A contract entered into in the name of another by one who has no
a.
Consensual by mere consent (sale, carriage)
i. Moment there is agreement on subject matter, and the authority or legal representation, or who has acted beyond his power
s,
cause or consideration.
shall be unenforceable, unless it is ratified, expressly or impliedly, by
ii. If true intent is not reflected in written agreement,
the
proper remedy is Reformation.
person on whose behalf it has been executed, before it is revoked by
b. Real by delivery (deposit, pledge)
the
c.
Formal/solemn special form required for perfection
other contracting party.
(donation public instrument)
3. Consequence of perfections see 1159 and 1315.
1. Requisite to contract in the name of another
a.
b.

1316. Real contracts, such as deposit, pledge and commodatum, are not
perfected until the delivery of the object of the obligation.
1.

Real contracts require delivery for perfection, due to the very nature of
the contract.
a.
There cant be a pledge without the act of pledging (EN: haha)
2. Future real contracts or real contracts in expectancy are mere

iii.

c.

2.

Passage of time is not ratification

Duly authorized by party (express or implied);


Given by law right to represent; OR
i. Signing of compromise agreement by lawyer
Contact is subsequently ratified (express or implied)
i. Ratification cures the defect, retroactive effect
ii. No more ratification if previously revoked.
b. Real contracts has 4th requisite delivery
c. Solemn/formal contracts has 4th requisite form
Consent
a.
Presupposes legal capacity and fulfillment of condition

s
CHAPTER 2: ESSENTIAL REQUISITES OF CONTRACTS
GENERAL PROVISIONS
1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
1.

Essential requisites of contracts


a.
1318

3.

Effect of non-consent
a.
No contract, void, non-existent, absolutely simulated
contracts
parties never intended to be bound (EN:duh)
b. Vice of consent voidable
i. Error, fraud, undue influence etc.
4. Notes:
a.
Transportation ticket is a contract
i. Consent boarding of passenger and acceptan
ce by
shipper
ii. Cause/consideration fair in ticket
iii. Object transport from origin to destination
b. Manner of payment should be agreed upon during

determination of price. If not there is failure to agree on


manner tantamount to non-consent , this is not lack of
consideration.

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51
SECTION 1: CONSENT
1319. Consent is manifested by the meeting of the offer and the acce
ptance
upon the thing and the cause which are to constitute the contract. T
he
offer must be certain and the acceptance absolute. A qualified accept
ance
constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer exc
ept
from the time it came to his knowledge. The contract, in such a case,
is
presumed to have been entered into in the place where the offer was
made.
1.
s
2.

Consent
a.
Meeting of the minds between the parties on the subject
matter and the cause of the contract, even if neither one ha
been delivered.
Requisites of consent
a.
2 or more parties
i. One person can represent two or more parties
(agency)
b. Legal capacity
c.
No vitiation of consent
d. No conflict between what was expressly declared and what
was really intended. Remedy is reformation if parties really
intended to be bound, if not contract is void since contract

may
3.

be fictitious or absolutely simulated.


e.
Formalities required are complied with.
Acceptance by correspondence
a.
Not bind the offerer except from the time the acceptance c

ame
b.

to his knowledge.
Contract presumed to have been entered in where the offe

c.

was made.
Knowledge may be actual or constructive (received by a

representative with reasonable discernment)


The receipt of cancelation of offer by the offeree is immaterial
to determine perfection.
r
e.
Important is that the withdrawal was made prior to the
knowledge of acceptance.
d.

5.

6.

Requisites of MOM
a.
Offer certain
i. Non-existent when: willing to entertain the idea
intend to enter highest price these are mere
invitations
ii. Must convey the idea to be bound
b. acceptance is absolute or unqualified
i. if qualified or with condition = counter-offer
Notes:
a.
Conformity to original contract presupposes conformity to

subsequent contract executed to cure any defect in the orig

inal.
(failure to state cause/consideration)
b. If two contracts are offered, but are independent of each o
ther

new offer. Counter-offer extinguishes the previous offer. (E


N:
back to zero)
Party accepting offer or making one knowing full well that
could not comply with the obligation creates absence of MO
M,
this is causal fraud (dolo causante) making contract VOID (E
N:
Distinguish from dolo incidente, merely makes it voidable a
grants award for damages)
e. Offeror may fix the time, place and manner of acceptance.
be accepted absolutely to produce MOM

prior to the letter of acceptance no MOM


If revocation of acceptance was received by offeror after
acceptance - MOM
f. Acceptance of payment is consent to contract.
g.
Acceptance with same price but varies as to volume:
i. If offeree wants the new volume and would not
satisfied with the old volume, no perfection sinc

e
ii.
sired

qualified acceptance
If offeree was satisfied with original but just de
the difference if possible, there is perfected con

tract
with regards to the original volume. But there w
ill be
no contract regarding the difference (Tolentino
Book)

h.
mplete in

If an offerer offers several items, each one of them co


itself and distinct, separate and independent from the

t is

but a

Must

be

imply acceptance of the other. But if one contract depends


upon another (loan w/ mortgage) there should be agreemen
to both, if to only one no MOM
c. Response to a counter-offer is not a counter-counter offer

nd

b.

(sale and lease of different items), acceptance of one does

he

Withdrawal of letter of acceptance yes it can!


a.
If letter of withdrawal of acceptance was received by offero

other

not

d.

4.

items and the offeree accepts one of them, the contrac


i.
how do

perfected as to the item accepted.


Compromise is a contract and not a counter-offer. (EN:
we distinguish?)

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1320. An acceptance may be express or implied
1.

2.

Forms of acceptance
a.
Express (1320)
b. Implied (1320) from conduct or acceptance of unsolicited
service
c.
Presumed (bay law, 1057) failure to repudiate hereditary
rights within the period prescribed by law (EN: is this
prescription?) silence or acts which will misled the other party
to think that he has accepted it (EN: force of estoppel)
Implied rejection
a.
Failure to act on an offer
b. Failure to enter compromise before final judgment

1.
sion

nger,

Any act contrary to stipulation constitutes a counter offer.


Contract without specific description of objects, price or rate of
exchange is merely a preliminary agreement and not a contract.

1322. An offer made through an agent is accepted from the time


acceptance is communicated to him.

b.
c.

of principals personality)
Perfection the moment agent obtains knowledge
Any other intermediary (not an agent) is merely a messeg
who must communicate to the person who sent him the
acceptance to create MOM.

1323. An offer becomes ineffective upon the death, civil interdiction,


insanity, or insolvency of either party before acceptance is conveyed.
1.
2.

Offer here is ineffective because no MOM is created.


However if such causes occurred prior to offer, but offer is made a

nd

1321. The person making the offer may fix the time, place, and manner of
acceptance, all of which must be complied with.
1.
2.

Acceptance thru agent


a.
Applies to both offer and acceptance through agent (exten

3.

accepted it is merely voidable.


Other instances:
a.
Express or implied rejection
b. Qualified or conditional acceptance
c.
Prior to acceptance, subject matter has become illegal or
impossible (EN:even if after, provided no negligence or fault

)
d.
e.

Period of acceptance has expired


Offer is revoked prior to knowledge of acceptance.

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53

1324. When the offerer has allowed the offeree certain period to accept,
the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon
a consideration, as something paid or promised.
1.

Options
a.
If without consideration, seller may offer to others.
i. Mere offer of a contract of sale, not binding until
accepted.
b. If with consideration binds the seller/offeror to stipulation.
c. A contract granting a person the privilege to buy or not to buy
at any time within the agreed period at a fixed price. It is a
separate and distinct contract which the parties may enter into
upon the consummation of a contract (Enriquez v. Diaz)
d. Consideration must be of pure liberality.
e. Perfected by MOM
f. Offer offer to grant option and not option itself, may be
withdrawn even if there is consideration, since merely
consensual.
g.
Acceptance of contract of option is different from acceptance of
the option. Former creates the option, latter perfects the
contract. Hence option here is a preparatory contract.
h. Acceptance of COS binds the parties even if the preparatory
option contract did not have consideration (Atkins, Kroll and
Co. v. Cua Hian Tek)