Obligations and Contracts

c. delicts
Obligation - juridical necessity: art 1161: general rule in delicts: the
 To give filing of the criminal action suspends civil
 To do action
 Not to do1 exceptions:
 obligations not arising from the
Natural obligation
- obligations not based on positive law
act/omission claimed to be
- does not have a juridical tie criminal
Civil obligations  violations of consti rights and
- obligations that give creditor a right under the law to liberties of individuals
enforce performance in courts of justice  defamation, fraud, physical injuris
 refusal or failure of members of a
Requisites of an obligation local police force to render
1. debtor – must be determined / determinable protection to life and property
2. creditor – must be determined / determinable
3. object / prestation d. quasi-delicts6 (torts)- whoever, by act or
 categories: omission, causes damage to through fault or
i. to give negligence is liable for the damage, there being
a. a determinate thing no prior contractual relation-based on principles
b. a generic thing of equity
ii. to do Requisites for Negligence
iii. not to do 1. duty on the part of the defendant to protect the plaintiff
 requisites: from the injury of which the latter complains
i. legally attainable 2. failure to perform that duty
ii. physically attainable 3. an injury to the plaintiff through such failure
iii. determinate Kinds of negligence
iv. determinable Culpa aquiliana/ Culpa extra-contractual (art. 1173)
v. must have monetary/pecuniary value o negligence as a source of obligation
4. juridical tie o quasi-delict
 sources of obligations2: o governed by 2176-2194
i. law
* obligations derived from law are not presumed3
fault/negligence which constitutes an independent source of
a. crimes4 obligation between parties not previously bound
* WON there is a contract, person may be liable for a Culpa Contractual (art 2176)
tort5 o negligence in the performance of a contract
b. contracts o governed by 1179 and other special laws
1
A.1156 fault/negligence of the debtor as an incident in the fulfillment of an
2
A.1157 existing obligation
3
A.1158
4
A.1161
5 6
Syquia vs. CA A.1162
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 Obligations and Contracts
Fraud v. negligence: in fraud, there is willfulness or deliberate intent o Result must be the natural and probable consequence such
to cause damage or injury to another; in negligence, it is not the as ought to have been foreseen as likely to flow from the
voluntary act which gives rise to responsibility but the want of care act complained of
Quasi delict Crime o It is the natural cause when either it acts directly producing
Nature of right Private right; v. Public right; v. the the injury or sets in motion other causes so producing it
violated individual state and forming a continuous chain in natural sequence down
Condition of Criminal intent is not Criminal intent is to the injury; thus, linking the negligence to the injury by a
mind necessary necessary chain of natural and consequential causation although the
former may be neither the immediate nor the direct cause
Legal basis of There is a qd in any act Punishable only
of the event
liability or omission wherein when there is a law
o If two causes operate at the same time to produce a result
fault or negligence that penalizes it
intervenes which might be produced by either independently of the
Liability for Gives rise to liability for There are crimes other, they are concurrent causes (each of them is a
damages damages to the injured which give no rise to proximate case)
party civil liability o If successive, one is remote the other, proximate
Form of redress Reparation, Fine, imprisonment
compensation, or both e. quasi-contracts7
indemnification 1. negotiorum gestio – voluntary
Amount of Preponderance of Proof beyond management of the property or affairs of
evidence evidence reasonable doubt another without the knowledge and consent
Compromise Can be compromised Cannot be of the latter8
compromised 2. solutio indebiti – when something is
received when there is no tight to demand it
Requisites of liability in quasi delict and it was unduly delivered by mistake9
1. there exists a wrongful act or omission imputable to the requisite of Quasi-Contracts:
defendant by reason of his fault or negligence 1.lawful
2. that there exists a damage or injury which must be proved 2.voluntary
by the person claiming recovery 3.unilateral
3. there must be a direct causal connection or a relation of
cause and effect between the fault or negligence and the
damage or injury or that the fault or negligence be the ii. contracts – law between the parties10
 unilateral promise is a source of an obligation as a contract.
cause of the damage or injury Adherance to requirements means that there is acceptance on
Doctrine of Proximate Cause the part of the other, thus a contract.
o proximate cause is the one which in natural sequence
undisturbed by any independent cuase produces the result
complained of
o Such adequate and efficient cause as in the natural order of
events and under the particular circumstances surrounding 7
A.1160
8
the case would necessarily produce the event A.2144
9
A.1154
10
A.1159
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 Obligations and Contracts
Contracts REAL RIGHT PERSONAL RIGHT
- meeting of minds between two persons whereby one binds o the power belonging to o the power belonging to
himself, with respect to the other, to give something or to person over a specific one person to demand of
render some service thing without a passive another as a definite
- law between the parties, should be complied with in good subject individually passive subject, the
faith(according to the strict stipulation of the contract) determined against fulfillment of a
(autonomy of the will) whom such right may be prestation to give, to do
exercised or not to do
 why contracts are important: o gives to a person a
laws are default rules, contracts change default rules. direct and immediate
juridical power over a
Duties of debtor:obligation to give determinate thing thing, which is
(Applies to obligations to give determinate thing only) susceptible of being
1. to take care of the thing with the diligence of a good father exercised, not only
of a family11 – ordinary, due diligence-default rule against a determinate
2. to deliver fruits12, accessories and accessions13 person, but against the
 natural fruits – spontaneous products whole world
 industrial fruits – produced thru cultivation or labor o the rights of ownership
 accessories – fruits of a thing or additions to or and possession are real
improvements upon a thing rights
 accessions – things joined to or included with the **** from the time the obligation to deliver a determinate thing
principal thing for the latter’s embellishment, better arises, the creditor only has a personal right to the thing itself and
use, or completion to the fruits thereof. He can only demand that the debtor deliver
3. compliance in good faith such thing and its fruits. Delivery constitutes a necessary and
- compliance according to the terms and condition of the indispensable requisite for the purpose of acquiring the ownership
contract of the same by virtue of a contract. For the creditor to have a real
- same quality with everything in it right, it must be delivered
Rights of the creditor: obligation to give 1. demand delivery of the thing, it’s fruits, accessory and
 personal right – right or power of a person to demand accessions.
from another the fulfillment of the obligation 2. demand specific performance – substitute performance at
 real right – right or interest of a person over a specific expense of the debtor in case of delivery of indeterminate
thing, only acquired after delivery thing14.
3. resolution
4. damages (for fraud, gross negligence, bad faith, deceit)

11
A.1163
12
A.1164
13 14
A.1166 A.1165
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 Obligations and Contracts
15
Rights of creditor: obligation to do 2. party not in default21
1. specific performance unless amounts to voluntary servitude  Contact of sale with the condition that seller would fill the land with
escombro. Seller failed to fill the land, buyer did not make payments and
(compulsion is not allowed)
seller asks for resolution. Court did not grant resolution for a party may
2. substitute performance not ask for the resolution of the contract that they themselves breached.
3. damages (Central Bank of Phil vs. Bichara)
4. to demand debtor to undo what can be undone 3. person who can return whatever may be obliged
Rights of a creditor: obligation not to do16 to restore22
1. injunction/TRO
2. to demand debtor to undo what can be undone  General Rule: party must seek judicial rescission but parties
Remedies in case of breach/non-performance may agree in extra-judicial rescission and the injured party
1. specific performance may do acts (attachment, attack fraudulent alienation contracts by debtor)
2. resolution to protect its interest and to minimize its own damages23
3. damages
 Criticism to the general rule:
RESOLUTION (implied in reciprocal obligation17) 1. penalizes injured party due to initial cost of filing an action
General Rule: only for SUBSTANTIAL breaches (when it totally defeats in court for rescission
the principal object/reason of entering into the contract)
2. party cannot transact with another party a new contract
 When the contract price was P3,920 plus 7% interest and the debtor
stopped making payments when the payments made already reached  Extra-judicial rescission requires notice to the adverse party24
P4,533.38. Creditor opt to resolve the contract, court ruled that breach
was only slight considering the principal was already paid. (Angeles vs.
Calasanz)
Resolution applies to portion affected by the breach:
 In a loan agreement, bank approved 80k loan, in exchange for the
 Obligation was: buyer would pay down-payment and seller would execute
mortgage of properties. Bank only released 17k. Upon failure of payment
deed of assignment. Seller failed to execute such deed, buyer asks for
of the 17k, bank foreclosed the properties. Court ruled that debtor still has
resolution. Court grants because such failure of seller is deemed a
to pay 17k and bank cannot foreclose the entire mortgaged property, only
substantial breach (de Dios vs. CA)
the property representing 17k should be foreclosed. (Central Bank of the
Exception: Phils. vs. CA)
1. time is of the essence18
2. when it is the basis of the contract

 In slight breach, court will give a period for the debtor to

perform obligation. If debtor fails to pay within such period, it
is deemed a substantial breach.19

Who may ask for resolution:

1. injured party20

15
A.1167
16
same
17 21
A.1191 Rose Packaging Co. Inc. vs. CA
18 22
Barzaga vs. CA Co vs. CA
19 23
Ocampo vs. CA, Taguba vs. de Leon UP vs. De los Angeles
20 24
Reliance Commodities Inc. vs. IAC, Rose Packaging Co. Inc vs. CA Pulay Inc. vs. Clave
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 Obligations and Contracts
DAMAGES
DELAY / DEFAULT
When can creditor claim for damages25:
1. Fraud, Deceit, Bad Faith Ordinary delay
 Fraud – include an inducement through insidious - failure to perform an obligation on time
machinations(deceitful scheme or plot with an
evil/devious purpose) Legal delay
 Deceit – with intent to deceive, conceal or omits to - delay that constitutes a breach of the contract
state material facts
 Bad Faith – imports dishonest purpose, does not Who may be in default: (kind of default)
connote bad judgment/negligence26 1. debtor (mora solvendi)
 Gross negligence is equivalent to bad faith Effects of Mora Solvendi (debtor is in delay)
 Insurance company has obligation to provide insurance for the 1. when it has for its object a determinate thing, the delay
premium paid by Areola. When payment that Areola made to the
places the risks of the thing on the debtor
manager was not remitted to the insurance company, it cancelled his
insurance policy. Court ruled that since there was breach on the part 2. he becomes liable for damages of the delay
of the insurance company, it was liable for damages due to the fraud
committed by the manager. (Areola vs. CA)  remedies of creditor: resolution, specific
2. Negligence – failure to exercise due diligence 27 performance, claim for damages
 Obligation in telegram service, company is obliged to transmit
message accurately for a price paid by customer. When company
transmitted offensive messages not included in the original message 2. creditor (mora accipiendi)30
that was supposed to be sent due to the negligence of its employees, Mora Accipiendi requisites
court ruled that company is liable for damages (Radio Comm vs. CA) 1. an offer of performance by the debtor who has the required
3. Delay/default capacity
4. Breach 2. the offer must be to comply with the prestation as it should
* in case both committed breach, liability of first infractor shall be
be performed
equally tempered by the courts. If it cannot be determined who first
committed the breach, parties shall bear their own damages 28 3. the creditor refuses the performance without just cause

Contract of sale – already conveyed property Effects of Mora Accipiendi

Contract to sell – no conveyance yet 1. the responsibility of the debtor for the thing is reduced and
limited to fraud and gross negligence
 Negligence when deliberately committed = bad faith 2. debtor is exempted from the risks of loss of the thing,
Negligence with bad faith = gross negligence which automatically pass to creditor
Gross negligence = fraud 3. all expenses incurred by the debtor for the preservation of
the thing after the mora shall be chargeable to the creditor
 Waiver of future frauds invalid because it negates the juridical 4. if the obligation bears interest, the debtor does not have to
tie29 pay the same from the moment of the mora
5. the creditor becomes liable for damages
25
A.1170 6. the debtor may relieve himself of the obligation by the
26
Cathay Pacific Airways vs. Vasquez consignation of the thing
27
Far East Bank and Trust Company vs. CA
28
A.1192
29 30
A.1171 Republic vs. CA
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 Obligations and Contracts
Parties in bilateral contracts can state the order of the fulfillment
of their obligations, in the absence of such, fulfillment must be
reciprocal and simultaneous
In Mora Accipiendi:
 tender of payment merely preserves debtor’s right
under the contract but does not extinguishes the
obligation31
 remedy of debtor: consignation to extinguish
obligation
3. both (compensatio morae) ‘in reciprocal obligations’
Why is the determination of default important?
1. for claims of damages and penalties
2. for liability in case of fortuitous event
3. for claims of breach (no default=no breach)
General Rule:
32
Default starts upon demand (judicial/extrajudicial)
Exception:
1. when contract expressly stipulates
mere stipulation of due date does not equal a demand. Must
stipulate: ‘or else in default’ or ‘w/o need of demand’
2. when law stipulates
3. when demand is useless
In the case of a deed of exchange of land to be inherited one of the
parties waived her right to inherit the land subject to the exchange, in
favor of her sister who is not a party to the exchange, thus rendering
the performance of the obligation impossible. Demand is useless.
(Marin vs. Adil)
4. when time is of the essence (debtor should have knowledge
of this)
5. in simultaneous performance, the moment the other party
fulfills his part, the other is in default.
How to make demand:
General rule: no form required
Exception: when otherwise provided by law
In reciprocal obligations,
 Delay starts when the other party is ready, willing and able to
comply33
 Neither party incurs delay if the other party does not comply or
is not ready to comply with what is incumbent of him34
Art 1170: Fraud
o Any voluntary and willful act or omission which
prevents the normal realization of the prestation,
knowing and intending the effects which naturally
and necessarily arise from such act, I fraud under
this article
o Fraud here is synonymous to bad faith;
The test for fraud: the element of Intent and not the degree of
actual harm done is the test
o Fraud, as a ground for damages under this article,
implies some kind of malice or dishonest and it
cannot cover cases of mistake and errors of
judgment made in good faith
o It is fraud in the performance of an already existing
obligation as distinguished from the fraud referred
in art 1338 which is a cause of nullity of contract
and which exists before and at the moment of
creating the obligation
o Deliberate and intentional evasion of the normal
fulfillment of obligations

Benefits arising from default/delay may cease upon: Excuse for non-performance: if debtor delays due to fortuitous
1. renunciation by the creditor events or force majeure, he cannot be held liable unless there is
2. Prescription an express agreement to the contrary or the law otherwise
provides in particular cases.

31 33
McLaughlin vs. CA Agcaoili vs. GSIS
32 34
A.1169 Tan vs. CA
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 Obligations and Contracts
General rule: with regard to damages in established businesses,
satisfactory evidence of the amount of the business transacted
before and after the injury complained of must be submitted
before damages can be awarded.
Art 1171
Prohibited Renuciation: the renunciation which is prohibited by this
article is that which is made in advance of the fraud (fraud which
the malice or bad faith in performance of an existing obligation in
art 1170 and not the fraud or deceit used to procure a contract)
Art 1172
o In culpa aquiliana, not involving a breach of existing
obligation, an employer or master may exculpate or
exempt himself from liability under the last par of art 2180,
by proving that he had exercised due diligence to prevent
the damage, whereas his defense is not available if the
liability of the master arises from a breach of contractual
duty or from culpa contractual
o In an accident, the non-responsibility of the driver to the
injured party is article 1170 while the owner is the party
directly responsible for the fulfillment of the contract
o In the matter of mitigation of damages
Culpa contractual: the court is given discretion to
mitigate the liability according to the circumstance of
the case under 1172
Culpa aquiliana: the court is not given the discretion
to mitigate the liability arising under 2176
Stipulations on Liability for negligence
1. graduating the responsibility of the debtor by determining
the degree of diligence required which may be more or less
than the standard fixed by law
2. imposing a liability for fault or negligence where the law
does not impose it
Stipulations exempting one from liability due to fault or
negligence
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1. in which a party to a contract is relieved from the effects of
his fault or negligence by a third person (e.g. insurance)
2. in which one party to a contract renounces in advance the
right to enforce liability arising from the fault or negligence
of the other
VOID!!! Stipulations exempting from liability for gross
negligence because, gross negligence = fraud
Not void stipulation exempting from liability for simple
negligence
Contracts of Adhesionor in a contract where the parties are in
manifestly in such an inequality of positions that one could not
freely bargain with the other in the determination of the terms of
contract
Irresponsibility clauses/ exempting one party from liability for
damages due to the others negligence should be taken with
caution because they may effect become an encouragement of
negligence which may occasion considerable loss to society and
interested party
Art 1173:
Degree of diligence required: a good father of a family or “bunis
paterfamilias”
“In contracts with specific establishments pertaining to the nature
of their business, simple negligence on the part of the company
with regard to factors that are integral to their business is gross
negligence.”
PRESUMPTIONS
Kinds
1. Conclusive presumptions – cannot be contradicted
2. Disputable presumptions – can be contradicted
Presumptions when there is no reservation35(rebuttable)
1. with respect to the interest: receipt of principal means
interest already paid
35
A1176
 Obligations and Contracts
2. with respect to installments: receipt of later installment
means earlier installments have been paid.
FORTUITOUS EVENT
2 kinds: act of man and act of god
Requisites:
1. independent of the will of the debtor
2. unforeseen or inevitable36
Court ruled that petitioner was liable for the collapse of the windmill
even if it was due to a strong wind. Court found that there was defect
in the construction of the windmill because such windmill should’ve
withstood such strong winds w/c was also foreseeable. (Tanguilig vs.
CA)
3. event must render it impossible for the debtor to
comply with his obligation in a normal manner
4. there is no concurrent negligence on the part of the
debtor (no participation) – negligence ‘humanized’
act of god37
Court ruled that when jeepney got into an accident because its tire
blew, driver is still liable for the damage because the driver was over-
speeding. Due to the negligence of the driver, such was not
considered fortuitous (Juntilla vs. Fontanar)
General Rule:
- A person is not responsible for loss or damage caused by
fortuitous event38
In a contract of service, fire broke down in the company premises so
Cosmos cannot perform the obligation within the company premises
(as stipulated in the contract) Cosmos requested extension of the
contract. Court did not grant such extension. Since either party is at
fault, both would bear the consequences of suspension. (Ace-Agro
Dev. Corp vs. CA)
- It extinguishes the obligation
Exceptions (still liable even if loss is due to fortuitous event)
1. when expressly specified by law
a. debtor guilty of delay39, fraud, negligence or breach40
36
National Power Corporation vs. CA
37
Juan Nakpil & Sons vs. CA
38
A.1174
39
A.1165
40
A.1170
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b. debtor promise to deliver the same specific thing to 2 or
more persons who do not have the same interest41
c. obligation to deliver a specific thing arises from a crime
d. obligation to deliver generic thing
2. when expressly stipulated in the contract
e.g. insurance
3. nature requires assumption of risks
 Usury law is now inexistent. Parties can now freely stipulate
any amount of interest as long as (1) parties are equal footing
(2) entered the contract w/ same knowledge w/ each other 42
Rights of the creditors to satisfy their claims against the
debtors
1. to levy by attachment and execution upon all the property
of the debtor except such as are exempt by law from the
execution
2. to exercise all the rights and action of the debtor, except
such as are inherently personal to him
3. to ask for the resolution of the contracts made by the
debtor in fraud of their rights
for a creditor to the debtor’s rights:
1. the creditor has an interest in the right or action not only
because of his credit but because of the insolvency of the
debtor
2. malicious or negligent inaction of the debtor in the exercise
of his right or action of such seriousness as to endanger the
claim of the creditor
3. the credit of the debtor against a third person is certain,
demandable, and liquidated
4. the debtor’s right against the third person must be
patrimonial, or susceptible of being transformed to
patrimonial value for the benefit of the creditor
41
A.1165
42
A.1175
 Obligations and Contracts

CLASSIFICATIONS OF OBLIGATION
Other remedies:  primary
1. pursue the leviable property 1. Pure and Conditional obligations
2. action subrogatoria – exercise all the rights and bring all the 2. Obligations with a period
actions of the debtor (i.e.if debtor is creditor to another, one may file for 3. Alternative and Facultative obligations
attachment of the right of the debtor to the debt) 4. Joint and Solidary obligation
the action which the creditor may exercise in the place 5. Divisible and Indivisible obligations
of his negligent debtor in order to preserve or recover for 6. Obligations with a Penal Clause
the patrimony of the debtor the product of such action and  secondary
then obtain therefrom the satisfaction of his own creditIt is 4. Unilateral and Bilateral obligations
mainly to: 5. Real(to give) and Personal (to do) obligations
1. conserve the patrimony of the debtor by 6. Determinate and Generic obligations
bringing into it property abandoned or 7. Civil and Natural obligations
neglected by him 8. Legal, Conventional and Penal obligations
2. making the execution on such property
effective thereafter What determines demandability of an obligation:
1. condition
The Personal rights (cannot be subrogated/levied upon) of 2. term
the debtor are:
1. right to existence
2. right or relations of a public character PURE AND CONDITIONAL OBLIGATIONS
3. rights of an honorary character
4. rights consisting of powers which have not been used Pure obligation
5. non-patrimonial rights - demandable at once
6. patrimonial rights not subject to execution - not subject to suspensive condition
7. patrimonial rights inherent in the person of the debtor - may be subject to resolutory condition44

3. action pauliana – impugn the acts which the debtor may Conditional obligation
have done to defraud the creditor43 - acquisition of rights, as well as extinguishment or loss of those
**creditors are protected from debtor’s voluntary acts and judicial acquired depend upon the happening of an event which
acts constitutes the condition45
**payments of pre-existing obligations already due cannot be
impugned by an accion paulina whether natural or civil
Condition
- future and uncertain event
- past but unknown event

44
A.1179
43 45
A.1177 A.1181
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 Obligations and Contracts
Kinds of condition
 effect
1. suspensive – will give rise to an obligation46
 In a contract of lease with option to purchase, a condition for the sale
is that the lessors obtain a TCT in their favor. Lessor failed to obtain
such TCT and seeks for the rescission of the contract to sell. Court
ruled that parties cannot resolve such obligation to purchase because
the condition was not fulfilled, thus the obligation to purchase is
inexistent. There can be no resolution of a non-existent obligation
(Gonzales vs. Heirs of Thomas and Paula Cruz)
2. resolutory – extinquishes the obligation47
*when resolutory condition fulfilled, the parties shall return to each other
what they have received48
 form
1. express – clearly stated
2. implied – merely inferred
 possibility – physically or legally
1. possible
2. impossible
 cause or origin
1. potestative – depends upon the will of one of the parties.
2. casual – depends upon chance or a third person
3. mixed – depends partly upon chance and partly upon a third
person
 mode
1. positive – based on the happening of an event
* condition deemed not fulfilled and obligation
extinguished:
1. time expires without the event taking place
2. as soon as it has become indubitable that the event will not take
place although the time specified has not expired 49
2. negative – based on the event not happening
* condition deemed fulfilled and obligation shall become
effective:
1. time indicated has elapsed without the event taking place
2. from the moment it has become evident that the event cannot
occur, although the time indicated has not yet elapsed 50
 numbers of condition
1. conjunctive – several conditions and all must be fulfilled
2. disjunctive – several conditions and only one or some of
them must be fulfilled.
 divisibility
3. divisible – susceptible of partial performance
4. Indivisible – not susceptible for partial performance
Kinds of potestative condition
1. the simple potestative condition (presupposes not only a
manifestation of will but also the realization of an external
act such as If you sell your house)
2. the purely potestative condition (depends solely and
exclusively upon the will)
o simple potestative condition on the part of the debtor does not
prevent the formation of a valid obligation ( I agree to make
the first offer to you should I decide to sell my house)
o purely potestative condition destroys the efficacy of the legal
tie
o if potestative condition depends exclusively upon the will of the
debtor, that the conditional obligation is void; to sanction such
is to sanction illusory obligations
o in purely potestative condition depends exclusively on the
debtor, not only is condition void, but the whole obligation is
void as well
o when the fulfillment of the condition does not depend upon the
will of the obligeor but on that of a third person who can in no
way be compelled to carry it out, and its found by the court
that the obligor has done all in his power to comply with the
obligation, the other party may be ordered to comply with his
part of the contract.

46  Conditions deemed fulfilled when the obligor voluntary

Jacinto vs. Kaparaz
47
Ducusin vs. CA prevents its fulfillment51
48
A.1190  Requisites:
49
A.1184
50 51
A.1185 A.1186
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 Obligations and Contracts
1. condition is suspensive 2. debtor may recover what he has paid by mistake pending
2. obligor actually prevents the fulfillment of the the fulfillment of the condition56
condition *for #’s 3-8 only applicable if:
1. obligation is a real(to give) obligation
3. he acts voluntary
2. object is a specific or determinate thing
Void Conditions 3. subject to suspensive condition
- makes the obligation depending on it void 4. condition is fulfilled
1. Potestative suspensive condition, based solely on the will of 5. there is loss, deterioration, or improvement during pendency of the condition
the debtor52  in case of loss
 When the adjustment of the price was based on “mutual 3. debtor has no fault, obligation is extinguished
agreement”, it was held that it was based on the sole will of the 4. fault of the debtor, he shall pay damages
debtor because all the debtor has to do was to disagree.
 in case of deterioration
Therefore the obligation of Ferrer to recognize the right of
Security Bank to fix the adjustment is void. (Security Bank vs. 5. debtor has no fault, impairment borne by the creditor
CA) 6. fault of debtor, creditor may choose between rescission, its
2. Impossible conditions, contrary to good customs or public fulfillment with indemnity for damages
policy, prohibited by law53  improvement
7. improved by its nature or time, creditor benefits
General Rule: Condition has retroactive effect 8. at the expense of the debtor, he shall have no other right
 In an agreement to buy and sell, the condition is the receipt of the than that granted to the usufructuary57
surveyor’s report. The seller sold the property to a third person before
 fruits and interests
the fulfillment of such condition. When the buyer received the surveyor’s
report, the right of the buyer over the property accrues (Cole vs. Vda. De 9. for reciprocal obligations, fruits and interest of both parties
Gregorio) deemed compensated by each other
Exceptions: 10. for unilateral, fruits and interests remains with the debtor
1. in reciprocal obligations, fruits and interest pending the because it is gratuitous.
condition shall be deemed to have been mutually
compensated  Power to rescind(resolution-Art.1191) obligations is implied in
2. in unilateral obligations, unless the parties intended the reciprocal ones.58- this is retaliatory.
contrary
3. in obligations to do or not to do, when courts determine
extent of retroactivity54

Rules pending the fulfillment of the condition: OBLIGATIONS WITH A PERIOD

*also applicable for obligations with a period55
1. creditor may bring the appropriate actions for the Art 1193
preservation of his right

52
A.1182, Rustan Pulp and Paper Mills Inc. vs. IAC
53 56
A.1183 A.1188
54 57
A.1187 A.1189
55 58
A.1194 and A.1195 A. 1191
11 ogie 1-e
 Obligations and Contracts
Term/period: space of time which exerting an influence on
obligations as a consequence of a juridical act, suspends their  definiteness
demandibility or determines their extinguishments 1. definite – fixed or known when it will come
2. indefinite – not fixed when it will come
Period / Term
– future and certain event59 Test for detemining the constitutionality of a moratorium
- presumed to be for the benefit of both party60 law(postponement of the fulfillment of an obligation or
 When debtor loses the right to use period extension decreed by a statute): The determination of the
1. insolvency Unless a guarantee or security is provided period of suspension of the remedy. It is required that such
2. if he does not give the guarantee or security promised suspension be definite and reasonable otherwise it would be
3. when he impairs the guarantee or security unconstitutional
4. if debtor violates any of the reason of the creditor for Condition Term/period
entering into the contract Fulfillment Uncertain; even when must necessarily come
5. debtor attempts to abscond. an event must whether on a date
necessarily happen, the known before hand or at
Kinds of period obligation will be a time which cannot be
 Effect conditional when the pre-determined.
1. Suspensive period – obligations begins from arrival of the condition is that such
period event shall or shall not
2. Resolutory period – obligation is valid up to the day certain and happen within a certain
terminates upon the arrival of the period time
Influence Gives rise to an No effect upon the
 Source on obligation or existence of obligations
1. legal period – provided by law obligation extinguishes existing but only upon their
2. conventional/voluntary – agreed upon by the parties obligations demandibility or
3. judicial – fixed by courts performance; does not
* presupposes a valid contract61 carry retroactive effect
* Courts cannot fix the rental, they can only fix the period 62 unless otherwise agreed
a. If obligation does not fix a period, but from it’s nature upon
and circumstances, it can be inferred that a period was Time May refer to a past even Always refers to the
intended unknown to the parties future
 In a case wherein the payment should be made after the
Tobacco was sold, it was held that there was a valid period but must show proof on
stipulated: when the Tobacco was sold. The courts need not knowledge of past event
fix a period. (Lim vs. People) Will of A condition which a period left to the
b. Period that depends upon the will of the debtor63 debtor Depends exclusively on debtor’s will merely
59
the will of the debtor empowers the court to
annuls the obligation fix such period
60
A.1196
61
Millare vs. Hernando Article 1195:
62
Roxas vs. Alcantara
63
A.1197 as to 1180
12 ogie 1-e
 Obligations and Contracts
o the creditor who accepts payment in bad faith or with
knowledge that the period has not yet arrived shall pay legal Alternative Obligations
interest if a sum of money is involved or shall be liable for - several prestations are due but the performance of one is
fruits received or which shold have been received if the thing sufficient
produces fruits; if creditor acted in good faith, he is only liable - creditor cannot be compelled to receive part of one and part of
for the fruits in so far as they benefited him the other65

General Rule: Right of choice belongs to the debtor

Exception:
1. expressly granted by the creditor66
Despite premature payment, fruits and interests cannot be 2. if only 1 among the prestations is practicable67
recovered when:  debtor have no right to choose impossible prestations68
1. the obligation is reciprocal and there has been premature  choice shall produce no effect except form the time it has been
performance on both sides communicated69 and from then on, obligation shall cease to be
2. when the obligation is a loan on which the debtor is bound alternative.70
to pay the interest  Debtor has to choose but did not choose, deemed as waiver,
3. when the period is exclusively for the benefit of the creditor creditor may choose
because the debtor by paying in advance loses nothing  When creditor has the right to choose but doesn’t, debtor will
o Debtor who paid in advance is presumed to have known the never be in default
period and thus has the burden of proving ignorance of the
period Article 1198
o If payment was made in advance with knowledge of the term, Loss of term: when does the obligation become due and
the payment cannot be recovered as such is a tacit waiver of demandable even if the period has not been expired yet?
the benefits of a term (1)When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or security
Article 1197: courts may fix the period(but not rent) 64 when the for the debt;
obligation does not contain a period and when parties intended to (2) When he does not furnish to the creditor the
have a period. The court cannot always fix the period nor a term guaranties or securities which he has promised; cdt
in all cases. (when employment shall last, an obligation that is (3) When by his own acts he has impaired said
payable on demand, pure simple and unconditional obligation) guaranties or securities after their establishment, and when
o The only action that can be maintained on obligations under through a fortuitous event they disappear, unless he
1197 is an action to ask the court to fix a term within which immediately gives new ones equally satisfactory;
the obligor must comply with his obligation. (4) When the debtor violates any undertaking, in
o The fulfillment of the obligation cannot itself be demanded until consideration of which the creditor agreed to the period;
the court has already fixed a period (5) When the debtor attempts to abscond. (1129a)
o Action to have term fixed is subject to prescription (10 years) 65
A.1199
66
A.1200
67
A.1202
ALTERNATIVE AND FACULTATIVE OBLIGATIONS 68
A.1200
69
A.1201
64 70
Roxas vs. Alcantara A.1205
13 ogie 1-e
 Obligations and Contracts
o The insolvency of the debtor that would deprive him of the - loss or deterioration of the substitute thru fault of debtor shall
benefit of the term need not be judicially declared in an not render him liable, unless substitution has already been
insolvency proceeding but it is enough that he is in such a made75
state of financial difficulty the he is unable to pay debts. The
degree of insolvency that would justify immediate enforcement
of the obligation should be left to the courts
o Does not apply to moratorium laws
o Impairment of securities need not be total when it is caused by
the acts of the debtor Alternative Facultative
o If the cause is a fortuituous event, there must be total Contents of the Various prestations Only the principal
disappearance (loss of a thing as defined by law) in order to obligation all of which obligation constitutes
deprive the debtor of the benefit of the term constitute parts of the obligation the
the obligation accessory being only
as a means to
Effect of loss of choices: facilitate payment;
 fault of creditor, that debtor cannot choose: debtor may only the principal
rescind the contract with damages71 prestation is
 fault of debtor, compliance became impossible: creditor has a demandable
right to indemnity for damages72 Nullity Nullity of one The nullity of the
* indemnity shall be equal to the value of the last thing that disappeared prestation does not principal invalidates
or that of the service which last became impossible 73 invalidate the the obligation and
obligation which is the creditor cannot
Responsibility of the debtor until the choice has been made: still in force with demand the
1. 1 of the things is lost thru fortuitous event: creditor shall respect to those substitute even if it
choose from the remaining which have no vice is valid
2. 1 of the things lost thru fault of debtor: creditor may claim As to choice The right to choose The debtor can
any of the subsisting or the price of the thing that may be given to choose the
disappeared w/ damages the creditor substitute prestation
3. all the things lost thru fault of the debtor: creditor may Effect of loss Only the The impossibility of
choose from the prices of the lost things, w/ damages74 impossibility of all the principal
the prestations due prestation is
Facultative Obligations without failt of the sufficient to
- only one prestation is due but the obligor may render another debtor extinguishes extinguish the
in substitution the obligation obligation even if the
substitute is possible

JOINT AND SOLIDARY OBLIGATIONS

71
A.1203 Joint obligation- default rule
72
A.1204
73
same
74 75
A.1205 A.1206
14 ogie 1-e
 Obligations and Contracts
- whole obligation is to be paid proportionately by different 2. legal – imposed by the law
debtors or to be demanded proportionately by the different 3. real solidarity – imposed by the nature of obligation
creditors76
Rights and duties:
Solidary obligation  solidary creditors
- where each one of debtors is bound to render the entire 1. any of them may do whatever may be useful to the others,
obligation to any/each of the creditors77 but not anything that may be prejudicial to the others85
* When one of the solidary debtor dies, creditor is not obliged to go after
the estate of the deceased debtor. Creditor has the option of going after
2. cannot assign his rights without the consent of the others86
any of the surviving debtors78 3. debtor can pay any one of them, but if there was a
- not presumed demand, payment shall be made to whoever made the
- does not imply indivisibility, and indivisibility does not give rise demand87
to solidarity79 4. Novation, compensation, confusion or remission of debt
- may exist even if solidary creditors/debtors are not bound by made by any of them shall extinguish the obligation, but
the same periods and condition80 creditor who executed such acts or one who collects shall
When obligation is solidary: be liable to the others for the share corresponding to
1. When expressly so states them88
* The admission of solidary liability does not affect the character of  solidary debtors
the obligation when it is stipulated in the contract that such obligation
is joint.81
1. creditor may proceed against any one of them for some or
* “individually and severally” and “joint and severally” means that all of them simultaneously as long as the debt has not been
obligation is solidary82 fully collected89
2. When law requires: 2. payment made by any one of them extinguishes the
e.g. obligation arising from quasi delicts83 obligation, with the right to reimbursement from the other
3. nature of the obligation requires debtors their share plus interest if any (if payment made
* mere relationship of agency does not create solidary liability 84
before due date, no interest for that period)
3. if one of them shall be insolvent, his share borne by all co-
Kinds of solidary obligation
debtors
 parties bound
4. if 2 debtors offer to pay, creditor may choose90
1. passive – on the part of the debtors
5. no reimbursement shall be made for payment of one of the
2. active – on the part of the creditors
debtors of a prescribed or illegal obligation 91
3. mixed – on the part of debtors and creditors
6. if remission is made for the share of 1 solidary debtor, he is
 source
not excused from responsibility to his co-debtors if
1. conventional – agreed upon by the parties
payment has already made by one of them92
76
A.1208
77 85
A.1207 A.1212
78 86
The Imperial Insurance Inc. vs. David, PNB vs. Independent Planters Asso. A.1213
79 87
A.1210 A.1214
80 88
A.1211, Operators Incorporated vs. American Biscuit Co. Inc. A.1215
81 89
Tui vs. CA A.1216
82 90
Ronquillo vs. CA A.1217
83 91
Rubio vs.CA A.1218
84 92
Smith, Bell & Co. Inc. vs. CA A.1219
15 ogie 1-e
 Obligations and Contracts
7. if there was remission of the whole obligation obtained by
one of them does not entitle him to reimbursement from Indivisible – not capable of fulfillment in parts96
his co-debtors93
“if creditor only wants a specific debtor to benefit from a
condonation/remission, the creditor can assign/subrogate * divisibility/indivisibility of the objects of obligation in
him his rights as creditor through deed of assignment. This w/c there is only one debtor and only one creditor does not alter of modify
would enable the debtor to collect from his co-solidary the nature and effects of the obligation97
debtor as an agent, the corresponding parts pertaining to
Factors to determine divisibility or indivisibility:
them while benefiting from the effect of the subrogation”
8. he may avail all defenses which are derived from the 1. will or intent of parties (expressed or presumed)
2. objective or purpose of prestation
nature of the obligation and those personal to him, and
those personal to others but only as regards to their share94 3. nature of the thing (prestation)
4. provisions of law affecting prestation
Rules in case of loss or impossibility
Kinds of division
1. without fault of any of the solidary debtors: obligation is
extinguished 1. Qualitative- if obligation is not homogenous. i.e. inherittance
2. Quantitative-if homogenous, parts may be separated
2. fault / delay by any of solidary debtors: all shall be
respondible to creditor for the price and damages but may 3. Ideal or intellectual- not separated physically, parts are assigned to
different creditors.
file action against guilty debtor
article 1216: applies only to solidary obligations and not to koint Kinds of indivisibility
ones 1. legal
General rule: sureties or guarantors are only subsidiarily liable 2. conventional
Exception: if they bund themselves jointly and severally or In 3. natural
Solidum with the principal debtor, the creditor may bring an action
against anyone of them, either alone or together with the principal  If obligation is joint and indivisible, the right of creditors may
debtor
be prejudiced only by their collective acts, and the debt can be
enforced only by proceeding against all of the debtors. In case
Passive solidarity Suretyship
of insolvency of one, others are not liable for his share98
o liable not only for his co- o liable only for co-debtors
debtor’s obligation but also obligation  In joint indivisible obligation, non-compliance of one of the
for his own; Both principal o subsidiary responsibility
debtors with regard to his part gives rise to indemnity for
debtor and surety o extension of time damage. Debtors who are ready to fulfill their promise shall not
o responsibility is primary releases solidary contribute to the indemnity beyond the corresponding portion
o extenstion of time would guarantor or surety of their share in the price99
not release a solidary
codebtor
DIVISIBLE AND INDIVISIBLE OBLIGATIONS Solidarity Indivisibility

Divisible – capable of fulfillment in parts95

96
same
93 97
A.1220 A.1223
94 98
A.1222 A.1209
95 99
A.1225 A.1224
16 ogie 1-e
 Obligations and Contracts
o Refers to the vinculum o Refers to the prestation 2. punishment – penalty will substitute indemnity for damages
and principally to the or the object of the in case of non-comliance. Thus no burden to prove fraud,
subjects of the obligation obligation simple breach is enough
o Requires plurality of o Plurality of subjects is * but damage shall be paid plus penalty if obligor refuses to pay
penalty or is guilty of fraud in the fulfillment of obligation 100
subjects not required
 kinds
o if the obligation is o When an indivisible
(according to origin)
solidary, such solidarity obligation is converted
1. legal- from law
remains even when there into one to pay
2. conventional- from stipulation of parties
has been non- damages, the reason for
(according to purpose)
performance and the the indivisibility ceases
1. compensatory – penalty takes place of damages
debtors became liable for to exist, and each debtor
2. punitive – penalty as punishment for breach
damages becomes liable for his
(demandability or effect)
o the death of the debtor own part of the
1. subsidiary/alternative – only the penalty can be enforced
terminates solidarity indemnity
2. joint/cumulative – principal and penalty can be imposed
which is not transmitted o Affects the heirs of the
 Debtor cannot exempt himself from performance by paying
to the heirs debtor in tht they remain
penalty
bound to perform the
 Creditor cannot demand fulfillment and payment of penalty at
same prestation
the same time unless right clearly(may be implied) granted to
him, or unless performance become impossible101
OBLIGATION WITH A PENAL CLAUSE
 Proof of actual damages not necessary in order to demand
- One which contains an accessory undertaking to pay a
previously stipulated indemnity in case of breach penalty. Proof of breach is sufficient102
 Party cannot demand or ask for more than what is stipulated.
Principal obligation – one which can stand by itself  When there is demand, after which the object is lost without
the fault of creditor, penalty may be imposed.103
Accessory obligation –attached to a principal, extinguishment of
principal extinguishes accessory obligation.
Void principal=No penalty When Judge may reduce penalty
Exception: 1. there is partial performance
1. when penalty is undertaken by 3rd person precisely for the 2. penalty is iniquitous or unconscionable 104 i.e. attorney’s
obligation which is equivalent to guarantee-valid under Art. fees
2052
2. when nullity of principal gives rise to damages, penalty can  Nullity of penal clause does not make principal obligation void.
be imposed as substitute But nullity of principal obligation makes penal clause void.105
Penal Clause
- accessory undertaking attached to an obligation to assume 100
A.1226
greater liability in case of breach 101
A.1227
 purpose 102
A.1228
1. reparation 103
A.1229
104
A.1229
105
A.1230
17 ogie 1-e
 Obligations and Contracts
Obligations with Penal Clause VS. CONDITIONAL 2. they are both accessory and subsidiary obligations
OBLIGATION OPC Guaranty
OPC Conditional obligation o obligation to pay penalty is o the object of the obligations
o there is already an existing o There is no obligation before different from the payment of the principal debtor and
obligation from the very the suspensive condition of the principal obligation the guarantor is the same
beginning happens it is the fulfillment o principal obligation and the o the principal debtor cannot
o of the condition that gives penalty may be assumed by be guarantor of the same
o it is accessory obligation rise to the obligation one person obligation
which is dependent upon o The principal obligation is o penalty is extinguished by o subsists even when the
non-performance of the dependent upon an the nullity of the principal principal obligation is
principal obligation uncertain event obligation except when the voidable or unenforceable or
penal clause is assumed by is a natural one.
a third person
OPC vs. Alternative Obligation
OPC Alternative obligation
o There is only one prestation o two or more obligations are MODES OF EXTINGUISHMENT
1. payment / performance
and it is only when this is due, but fulfillment of one of
2. loss
not performed that the them is sufficient
3. condonation
penal clause is enforceable o the impossibility of one of
4. confusion
o the impossibility of the the obligations without the
5. compensation
principal obligation fault of the debtor, still
6. novation
extinguishes also the leaves the other subsisting
7. fulfillment of resolutory condition
penalty o the debtor can choose which
8. annulment / rescission
o debtor cannot choose to pay prestation to fulfill
9. prescription
the penalty to relieve
himself of the principal
PAYMENT
obligation, unless that right
Requisite of payment:
is expressly granted to him
1. the one who pays
OPC v. Facultative obligation 2. the one to pay
OPC Facultative obligation 3. the thing to be paid
o the penalty of the payment o the power of the debtor to 4. time, manner and place
in lieu of the principal make the substitution is
obligation can be made only absolute
be express stipulation o the creditor can never
o such right to demand both demand both prestation
may be granted to him
OPC v. Guaranty Identity clause
Similarities:
1. both intended to insure performance of the principal
obligation
18 ogie 1-e
 Obligations and Contracts
- Creditor cannot be compelled to accept a different thing 106 3. when 3rd person does not intend to be reimbursed, it is a
even if it is of a higher value107 donation. It is invalid to the debtor if there is no consent
Integrity clause from debtor. Still valid as to the creditor115
- Creditor cannot be compelled to accept partial payment108 Place of payment116
Exception to the integrity rule 1. place stipulated
1. expressly stipulated 2. place where the thing is located at the time of constitution
2. obligation part liquidated/part unliquidated (delivery of determinate immovable thing or in obligation to
3. obligation consist of many subject w/ different terms and do)
condition 3. place of debtor (in all other cases)
4. substantial performance in good faith109
5. creditor accepted partial payment without protest / Whom shall debtor pay
reservation110-(implied waiver) 1. creditor
2. his assignees, successor
Requisite of Valid Waiver: (applies to Art. 1235)
1. A right exists 3. his legally authorized representatives
4. the court in case of consignation
2. Person entitled knows his right exists
* must be legally capacitated
3. The person intentionally waives the right

Debtor may refuse payment:  payment to the wrong party cannot extinguish the obligation
rd 111
1. from 3 persons
112 of such debtor to its creditor117
2. from incapacitated - this will be valid to the extent he is
benefitted(intelligent use of the proceeds, purchase of necessaries)
General Rule: Payment to 3rd person is invalid
Effect of payment of 3rd person/
Except:
accepted by creditor/
1. payment to the “bearer” of promissory note
against the will of the debtor:
2. valid to the extent creditor has benefited
1. 3rd person may recover up to the extent debtor was
benefited113  Burden of proof on the debtor: creditor benefited
2. 3rd person cannot compel creditor to subrogate him of the Except when there is presumed benefit118:
rights of the debtor114 1. 3rd party acquired the rights of the creditor after payment
2. creditor ratifies payment
3. acts of creditor led debtor to believe that 3rd person has
authority to receive payment
106
A.1244
107
Hahn vs. CA  Payment after judicial order of retention of
108
A.1248 debt shall be invalid119 (debtor’s remedy is to consign)
109
A.1234
110 115
A.1235, Azcona vs. Jamandre A.1238
111 116
A.1236 A.1251
112 117
A.1239 Arañas vs. Tutaan
113 118
A.1236 A.1241
114 119
A.1237 A. 1243
19 ogie 1-e
 Obligations and Contracts
Payment of monetary obligation
1. currency stipulated
2. Philippine currency w/c is legal tender
c25 and above – up to P50
c10 and below – up to P25
3. checks – after it has been cashed, cleared or deposited in
the account of the creditor eg. Manager’s check/ cashier’s check120
 Check for payment not legal tender and creditor has option to
accept or reject121
“may use New Pacific as ground of validity of payment in
check or Tibajia as ground for invalidity of payment in
check, whichever may be the case”
- if there is stipulation, the one for whom the benefit is
constituted may waive the right to choose
- if there is interest, payment applied to interest first before the
debt123
- if debtor does not choose/default rule does not apply, must be
applied to the most onerous124
- if all debts are the same nature, application to all
proportionately125
Dacion
- delivery of property in exchange of payment of the obligation
- conveys ownership
- borrower has control of the assets so he has bargaining power
“Dacion is governed by the law on sales (subject to
warranties for buyer) if property delivered is to pay for
money obligations”

Extraordinary Inflation Dacion is considered novation as a change in object. It may

extinguish the obligation to the extent of the value of the property
- exist when there is a decrease or increase in the
or upon agreement (express or implied) of the parties that it is
purchasing power of Peso w/c is unusual or beyond the
equivalent to full performance.
common fluctuation w/c could not have been seasonably
foreseen or was manifestly beyond contemplation122
Cession
- act of ceding all properties in favor of creditors to sell them
“Court may not rule on extra-ordinary inflation because it may
and apply to credits
set a precedent rule that would impose the burden on the
- no conveyance of ownership
creditor while allowing the debtor to get away from his
- borrower has no control of the assets thus no bargaining power
obligation.”
Cession only has the effect of extinguishing the obligation to the
extent equivalent to the proceeds; no automatic extinguishment of
“may be argued as financial crisis in rebus sic stantibus”
obligation.
no danger of starting precedent because it is transaction based

Tender of payment:
Application of payment default rule:
- debtor must be willing and able to pay
- debtor has the right to apply / choose unless stipulated
120 123
New Pacific Timber vs. Seneris, McLaughlin vs. CA A. 1253
121 124
Tibajia Jr. vs. CA, Far East Bank vs. Diaz Realty A. 1254
122 125
Sangrador vs. Valderama A. 1254
20 ogie 1-e
 Obligations and Contracts
- must have actual offering of the payment 126
Requisites of consignation:132
- preserves the right, debtor not considered in default127 1. debt due
- does not extinguish obligation therefore debtor still has to pay 2. tender of payment unless no longer needed
3. previous notice of consignation133
interest128 or rent129
4. deposit of amount in court
5. notice after consignation
 consideration for a valid tender of payment
Ability to pay
 For every monthly rental, tender of payment and notices are
Intent to pay
Actual payment required for each month134

Consignation Relevance of notices:

- depositing of payment in court - to avoid litigation
- extinguish the obligation - to afford the creditor the chance to avoid costs (creditor pays
consignation costs)
General Rule:
Tender of Payment is a requisite of consignation Consignation Process
Except:
1. creditor is a minor
2. creditor is absent
3. creditor refuses to issue a receipt
4. 2 or more creditors claim the same right to collect
5. when title of obligation is lost
eg. Bearer note passed to person to person

rationale: creditor is not proper/capacitated, tender of payment

is in no way going to be valid, thus is of no effect
Creditor may withdraw consignation only before:
When no consignation is needed / Tender of payment is 1. creditor accepts,
enough to exercise a right: Or before:
1. to repurchase130 – court action is equivalent to tender of 2. consignation adjudged as valid135
payment131 except: when creditor consents/waiver: this releases co-
2. to redemption debtors, guarantors, sureties and converts solidary obligation to
3. option – notice is sufficient joint136

other debtors can not object to withdrawal by the debtor of that

which he consigned
126
Vda. De Zulueta vs. Octaviano
127 132
Valarao vs. CA Soco vs. Militante
128 133
State Investment Corp. vs. CA Valdellion vs. Tengco
129 134
McLaughlin vs. CA Soco vs. Militante
130 135
Legaspi vs. CA, Hulganza vs. CA Reisenbeck vs. CA
131 136
Bacus A. 1261
21 ogie 1-e
 Obligations and Contracts
- difficulty to perform obligation may release the debtor
before creditor accepts or the court declares proper consignation,
other creditors may still attach that which has been consigned requisites:
1. Parties could not have foreseen the change in
“to prevent withdrawal by the debtor, creditor may accept circumstances / event
with reservation to future actions for recovery of unsettled 2. it makes the performance difficult but not impossible
part” 3. event not due to the act of any of the parties
4. the contract is for future pestation
“creditor/debtor may ask the court for consignment to a 5. must not be speculative transaction
bank”
Financial crisis…
consignation in court vs. with the bank:
- with the bank, it earns interest and is easily accessible … as force majuere: difficult to invoke because it may set a
precedent
LOSS
… as extra-ordinary inflation: rarely applies because it may
For obligation… set a precedent
…to give : loss of determinate thing or an entire kind
…to do/not to do: impossibility (legal/physical impossibility) … as rebus sic stantibus: may be easily invoked because it
would not create a precedent since it is transaction based.
General rule: Loss will extinguish obligation when
1. debtor not at fault
2. debtor not in delay
CONDONATION / REMISSION
“Loss of object in possession of debtor gives rise to the - gratuitous like donation
presumption of fault on his part.”
Requisites
Exception to general rule of extinguishment: 1. debt due
1. debtor promises to deliver thing to 2 persons 2. gratuitous and w/o any consideration
2. law provides 3. debtor must accept
3. expressly stipulated *but for unilateral renunciation (waiver/quitclaims), no acceptance
needed from the debtor.
4. nature of obligation assumes risk
5. debtor in default or delay
Extinguishment of the obligation due to loss without any party in
fault may give rise to 3rd party liability in some cases.137

Rebus sic stantibus: Presumptions:

Parties enter into contract under prevailing circumstances as 1. when creditor delivers private document evidencing
consideration, if this circumstances cease to exist, contract should obligation to debtor -does not apply to public documents evidencing
the debt because of multiple copies, therefore, no surrender of means of
cease to exist. enforcement
137 - presumes a voluntary delivery
A. 1269
22 ogie 1-e
 Obligations and Contracts
- presumes renunciation 3. both debts are liquidated and demandable – amount are
- rebuttable presumption determinate / determinable
2. condonation of principal obligation extinguish accessory 4. There are no liens/retention commenced by 3rd persons
obligation *court action necessary
- but condonation of accessory obligation will not extinguish
 Presupposes a debt and not merely a claim142
principal obligation

MERGER / CONFUSION Requisite of Conventional Compensation

- creditor and debtor become 1 person with respect to 1 1. Ability of both parties to dispose of the credit
obligation 2. They both agree to compensate

Requisites Kinds
1. takes place between creditor and principal debtor 2. legal – when all requisites are present, automatic
2. only 1/same obligation is involved 3. facultative – there is one lacking requisite/ one who
3. confusion is total/covers entire obligation benefits waives right
4. conventional – by agreement, when requisites are lacking
Confusion in principals extinguishes obligation 138 5. judicial- declared by court i.e. when there is counter claim
Confusion in subsidiaries (guarantors, security) does not
extinguish obligation139 Cannot be applied to the ff:
If security(mortgage) is acquired by the creditor, the 3. deposits of safekeeping – involves trust relationships
obligation is not extinguished but merely becomes 4. support – except support in arrears
unsecured.140 5. civil liability arising from penal offense
6. taxes – not a contractual debt but a duty143
7. obligation arising from gratuitous title
COMPENSATION except when parties agree
- offsetting of 2 obligation of the parties who are mutual
debtor/creditor to each other.  guarantee/surety may claim/invoke compensation with regard
to obligations of the principals to each other because it benefits
Requisites141 of legal Compensation (automatic by operation them144
of law)
1. obligors are bound principally/parties principal debtor and
creditor debt consist of money/things of the same kind or  banks has no duty to compensate debt of depositor from his
quality account145 (depositum146)
2. both debt are due/subject to resolutory condition/voidable
obligation  offsetting, even legal which is automatic, can exist prior to
*rescission/condition has retroactive effect to the compensation so declaration of nullity of void contracts due to its dependence
there must be payment of principal (interest no longer needed)
142
EGV Realty vs. CA
138 143
A. 1276 Fransia vs. IAC
139 144
ID A. 1280
140 145
ID BPI vs. CA
141 146
UyTong vs. Silva A. 1287
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 Obligations and Contracts
on demandability. A contract that is void can not be
demandable, thus the question of validity has to be settled
first. After declaration of nullity and restitution is declared,
there may be set off to the extent only of the value of the
thing to be restituted; i.e. the benefit inured to the aggrieved
party.147
 If obligation is subject to resolutory condition, there may be
offsetting while the obligation is demandable with prejudice to
the resolutory condition.
 Compensation to be applied to multiple debts applicable using
rules in application of payment
 Compensation cannot be claimed against civil liability from
delicts148
- delegacion, accepted by creditor: no liability from old debtor
- delegacion, insolvency already existing and known to old
debtor: old debtor is liable
Modes of Novation
1. Express – stipulated in the contract/agreement
2. Implied – old and new obligations are incompatible (very
hard to prove)
*Consolidated loan did not novate the original 3 separate loans
*No implied novation when promissory note was assigned to a 3 rd person
*Discount offered for a period of time did not novate old contract after
the lapse of the period.
Assignment of Credit
- process of transferring the rights to proceed against debtor
- there are no standing obligation on the part of the assignor
- consent of debtor not needed

Subrogation
NOVATION - transfer of all the rights of the creditor to 3rd persons
- extinguishment of obligation by substitution or changing the - happens when in the assignment, there is a standing obligation
object or the parties on the part of the assignor
- needs consent of all the parties
Kinds
1. Subjective/personal – change of subject Requisites of novation
a. passive – change of debtor 1. old obligation must be valid/voidable but not yet
a.1. expromission – upon the instance and annulled
with consent of creditor and 3 rd party as new 2. valid new obligation – maybe subject to a condition
debtor. consent/ knowledge of debtor not 3. all parties should agree: except expromission
needed 4. old obligation must be extinguished (definitely
a.2. delegacion – upon the instance of the declared in express novation or totally incompatible
debtor. Consent of all parties needed with new one in implied novation149)
b. active – change of creditor/ subrogatorys
*3 consents needed for all: debtor, creditor, 3 rd persons. Except for Test for existence of Novation:
expromission Whether the old and new obligation with essential (i.e. object,
2. Objective/Real – change of principal obligation parties, conditions, circumstances) changes can stand together,
each one having an independent existence.
Rules on insolvency of new debtor i.e. increase in debt is novation, decrease in debt is not but merely
- expromission, no consent/against will/no knowledge of debtor: partial condonation
no liability from old debtor
147 Legal Subrogation
A. 1284
148 149
A. 1288 A. 1292
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 Obligations and Contracts
1. Creditor pays another creditor who is preferred even w/o 2. Perfection – offer is accepted and there is an agreement
debtor’s knowledge 3. Consummation – fulfillment of the terms of obligations;
2. when 3rd person, not interested in the obligation pays w/ death of the contract
tacit/express approval of the debtor
3. person w/ interest in the fulfillment of the obligation pays Autonomy of Contracts
even w/o knowledge of the debtor - contracting parties may stipulate anything except those
*When solidary debtor pays, there is no legal subrogation. Paying contrary to law, public policy, morals, customs
debtor only has the right to reimburse.

 restrictions on use/disposition valid only if there is a limited

CONTRACTS
time stipulated. Perpetual restriction is invalid
- agreement between/among 2/more parties to bind themselves
to an obligation for a cause/consideration
Relativity of contracts
- law between the parties
- contracts bind only the parties and their heirs (only up to what
they received)
General Rule: contracts perfected by consent
Except: real contracts where delivery of thing is required. Eg.
Pledge, deposit, commodatum, mortgage
Requisites for contract to bind 3rd persons:
1. stipulation in favor of 3rd person (pour autrui)
General Rule: contracts only bind the parties 2. stipulation is a part, not whole of the contract
Exception: 1. Contracts pour autrui, which binds 3rd partie 3. parties clearly and deliberately conferred a favor to 3 rd
2. Art 1312: contracts creating real rights must be person and not merely incidental
respected by 3rd parties who come into possession of 4. favor not in exchange of compensation/condition
the object (i.e. mortgage)150 5. 3rd person communicated acceptance before its revocation
3. Art 1313: Creditors protection from contracts 6. neither of contracting parties bears legal representation or
intended to defraud them151 (i.e. fraudulent alienation of authorization of the 3rd party
property) Requisite for action against 3rd party inducement (tortuous
4. Art 1314: if 3rd party induces one party to interference)
violate contract he is liable to the other party 152 1. there is a valid contract
(tortuous interference) 2. 3rd party has knowledge of the existence of the contract
3. interference of 3rd person in contractual relation w/o legal
elements of tortuous interference: justification, intended and there is gross negligence.
1. valid contract exists
Perfect promise- not yet a contract but may be the reason for
2. 3rd person knows contracts exists
the perfection of a contract in the future, no determinable rights
3. interference by the 3rd person interferes with the and obligation.
contract without justification Imperfect promise-(policitacion) unaccepted offer
Stages of contract: Pact- similar to stipulation, incidental and separable from contract
1. Preparatory – there is an offer/negotiation
Elements of contract
1. consent of parties
150
A. 1312 2. cause/consideration
151
A. 1313 3. object
152
A. 1314
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 Obligations and Contracts
Except:
CONSENT Option
- agreement between the parties w/ regards to cause and object - offer w/ a period of time to accept
- there is a consideration distinct from the price
Elements of consent: - offeror may not revoke offer w/in the period
1. Plurality of subjects – must be at least 2 parties * 1
person may execute a contract when he acts in 2 capacities/2 Option Money Earnest Money
wills
- distinct consideration - part of purchase price
2. Capacity - applies to sale not - applies to perfected
3. Intelligence and free will perfected sale
4. express/tacit manifestation of the will - buyer is not required - buyer is bound to pay
5. conformity of the interval of will and its to buy the balance
manifestation - offeror may not revoke
w/in given period
 A party cannot unilaterally change stipulations in a contract.
Right of First Refusal(right of preferred buyer)
Offer – must be complete as to object and cause - if owner offers to holder at a certain price, holder refuse,
Acceptance owner lowers the price: it must be again offered to the holder
- must be absolute - if property mortgaged and foreclosed: right of first refusal does
- conveyed while offer exists not apply to involuntary sale
- applies to voluntary sale even if not for money
Qualified acceptance – considered as a counter offer. - 3rd person when notified of existence of right, complainant may
* if counter offer is amplified it includes the previous offer or is lower,
remaining is deemed as a waiver. Eg. Offer of buyer to buy it at 10, seller sold sue 3rd person for damages on grounds of tortuous interference
it at 5. to a contract/to violate a right

General Rule: offer may be revoked at anytime

Except:  Ang Yu(right of first refusal: One cannot file for specific
1. if it is accepted performance of an option contract, only for damages
2. if there is abuse of rights (holder may claim damages)  Serra(lease with option to buy): Court allowed enforcement
3. if there is consideration distinct from the price of option contract
personal notes: option- option lies with buyer
right of first refusal- option lies with seller
Acceptance may be implied like silence if there has been previous
contractual relation between the parties, immediate compliance or Advertisements153
consummation of the object. - only binding when there is a definite offer
Acceptance may be revoked if the notice of revocation reaches the
offeror before the notice of acceptance Bidding154
Offeror may fix stipulations of acceptance
Offer may be revoked anytime by notification before acceptance 153
A. 1325
154
A. 1326
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 Obligations and Contracts
- does not bind advertiser to accept the highest/ lowest bid - one party unable to read: other party must prove that contract
unless contrary appears. was explained to the illiterate if validity of contract is
attacked155
Who may give consent:
1. Natural – capacity based on legal age Mistakes – wrong perception/understanding
2. Juridical persons – capacity based on rules governing 1. mistake of fact – must refer to the cause/object of the
personality (i.e. corporations) contract; must be substantial to vitiate consent
Who may not give consent 2. mistake of law – does not vitiate consent unless the error is
1. minors mutual and frustrates the purpose of the agreement
except: For mistake to invalidate consent, it must refer to substance of the
a. thru a guardian object. 156
b. when law provides (necessaries/estoppel) Mistake of identity of party only invalidates consent if identity is
2. insane person (presumption is to sanity) the primary consideration of entering to contract.157
except: Mistake must be excusable to invalidate consent
a. thru guardian
b. in lucid interval General Rule: motive does not vitiate consent
3. deaf mute who doesn’t know how to read/write Except: if motive is so intertwined w/ cause.
4. impaired capacity/mental faculties
a. drunk General Rule: mistake may be alleged for lack of info
b. high on drugs Except: when there is an opportunity to access facts
c. under hypnotic spell
5. specially disqualified by law Violence
a. under insolvency proceedings - use of physical force to get consent
b. civil interdiction - must be the determinative cause of consent
c. receivership Requisite of Violence
How consent is given 1. irresisteible physical force must be employed
1. spontaneously 2. must be determinative cause of consent
2. freely Intimidation/Threat
3. intelligently - must be determinative cause of consent
- produce reasonable well grounded fear w/c is illegal
Vices of consent - imminent or grave
1. Fraud - must be upon the person/property of party, spouse,
2. violence ascendant, descendant
3. intimidation - may be employed by 3rd person
4. threat Requisite of Intimidation
5. Undue influence 1. intimidation must be determinative cause of consent
6. mistake 2. threat must be unjust or unlawful
3. threat must be real and serious
General Rule: whoever alleges fraud must prove it
155
Except: A. 1332
156
A. 1331
157
ID
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 Obligations and Contracts
4. must produce reasonable and well grounded fear
Consideration to determine Intimidation on Person
1. age
2. sex
3. condition
Undue influence
- person takes improper advantage of his power over the will of
another depriving him of a reasonable freedom of choice
Fraud
- through insidious words or machination of one of the
contracting parties, the other is induced to enter into a
contract, w/c w/o them we would not have agreed to.
Types:
1. Causal Fraud – fraud w/c causes the consent
2. Incidental Fraud – fraud in performance
Requisite of Fraud
1. Contracting parties must employ the fraud
2. fraud should be the determining cause of the consent
3. it must be serious (efficient cause to consent)
4. must result to damage/injury to the other party
Fraud not inferred:
1. usual exaggerations in trade when there is an opportunity
to know otherwise158
2. mere expression of opinion unless made by an expert, used
by a party and the other relied on it159
3. misrepresentation of 3rd persons unless it is cause of
mutual substantial mistake160
4. error in good faith
Misrepresentation in good faith is not fraud but it may be
error161
Nondisclosure of facts may constitute fraud if there is duty to
reveal the said facts (i.e. when parties are bound by confidential
relations)162
Fraud should be serious and employed by 3 rd person to make
contract voidable163
Incidental Fraud only makes doer liable for damages164
Simulated contract
- contracts that do not express true intention of the parties
kinds:
1. Absolutely simulated – parties do not intend to be bound
at all; void contract
*deed of absolute sale to facilitate a loan, w/o purchase price (Cruz vs.
Bancom)
*sale of land to children to avoid indemnity arising from criminal case
(Dilag vs. IAC)
2.
Relatively simulated – parties conceal true agreement;
valid and binds parties to their real agreement unless it is
prejudicial to 3rd person or is contrary to law, public policy,
morals or customs.
 To refute simulation: show valid consideration
OBJECT
- must be within commerce of men
- may pertain to future things except:
1. future inheritance
Requisite Future Inherittance
1. the succession has not been opened
2. object forms part of inheritance
3. promissory has expectancy of a purely hereditary
right
2. mortgage/pledge item
- must be possible165
- transmissible rights may be valid objects of contracts166
- must be determinate as to its kind167
CAUSE
- Onerous Contracts-prestation to be performed by the other
party
- Remuneratory Contracts-service or benefit which is
remunerated

158 163
A. 1340 A. 1344
159 164
A. 1341 ID
160 165
A. 1342 A. 1348
161 166
A. 1343 ID
162 167
A. 1339 A. 1349
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 Obligations and Contracts
168
- Pure Beneficience-mere liberality
- if contract is unilateral: cause is the liberality of the benefactor
- on an option to purchase in contract of lease: cause is the
undertaking of the lessee in the lease contract
- cause is presumed
A contract without cause or with cause that is contrary to
law, morals, good customs, public policy and order has no
effect.
General Rule:
Motive does not affect the validity of the contract
Except:
Motive is so intertwined with the cause that it predetermined the
cause
FORM
Default Rule: There is no form required in a contract
Exception: Unless law requires a form for
validity/enforceability169
 Party may compel the other party to execute necessary form
required for contract to be enforceable (Art. 1357)
 Does not apply for contract that lacks form required for its
validity
 Art. 1358 enumeration are not requirements for validity or
enforceability. Only for convenience or to bind 3rd persons.
INTERPRETATION
Rule: If the contract is clear, there is no room for interpretation
Considerations in interpreting intent of parties:
Contemporaneous and subsequent acts170
 Primary consideration is the intention of the parties171
 Contract of adhesion does not always mean that is should be
construed against the one who prepared the contract
 Written stipulations prevail over printed ones173
When courts cannot resolve ambiguity…
… if ambiguity refers to cause: contract is void
… if contract onerous: greatest reciprocity of interest prevails
… if contract gratuitous: construed in favor of the least
transmissible rights
*rationale: to preserve the property of the donor. Assumes that a person will
only part with his property for equal consideration
REFORMATION
Requisites:
1. there is a valid and enforceable contract
2. written document does not express the true intention of the
its parties
3. there is meeting of minds but there is failure to express
true intention due to
a. Fraud
b. Mistake
c. Accident
d. Inequitable Conduct
“but if a-d prevented meeting of minds, proper action is
annulment”174
 First filed for specific performance and then filed reformation
after: cannot prosper except if specific performance based on
unenforceability/ nullity of the contract
 First filed for reformation and then filed for specific
performance: will prosper

 Contract is construed against the party who caused it172

168
A. 1350
169
A. 1356 Who may file for reformation:
170
A. 1371
171 173
A. 1370 A. 1379
172 174
A. 1377 A. 1359
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 Obligations and Contracts
- based on mutual error: both parties 2. made by a person against whom a judgment/writ of
- other causes: aggrieved party attachment was issued

 Wills/gratuitous contract may not be reformed by donee Badges of Fraud:

1. Relationship
RESCISSION (Art. 1381) 2. Timing
- when there is a lesion(economic prejudice) 3. Insufficiency of funds
- when law so provides
RESCISSIBLE Contracts176:
Resolution Rescision 1. entered into by guardians when ward suffers lesion
basis: substantial breach law of more than ¼ of value of the object of the contract
action: principal action subsidiary action *acts of guardian disposing property of ward needs court approval
otherwise void
- may be filed - must exhaust all
2. entered into by representation of absentee and
immediately legal remedy
absent person suffered lesion of more than ¼ of the
effect: completely annuls annuls the contract
value of the object of the contract
the contract to the extent necessary
3. in fraud of creditors (payment made in insolvency by debtor to
debt not yet demandable177)
General Rule: creditor claiming for rescission due to fraud 4. thins under litigation entered by defendant w/o court
against creditor, he must be a creditor before the transaction approval
sought to be rescinded 5. all other contracts provided by law
Except: if conveyance was made in anticipation of the debt
Cures to the defect of a rescissible contract:
Requisites: 1. ratification
1. plaintiff asking for the rescission has a credit prior to the 2. waiver
alienation
2. debtor made subsequent contract conveying benefit to 3 rd  Rescission can be only up to the extent of damages caused178
person  Rescission gives way to mutual restitution unless the object to
3. creditor has no other legal remedy (Art. 1381 is a
be returned has already been conveyed to and is in lawful
subsidiary action175)
possession of 3rd person in good faith in which case there will
4. act impugned is fraudulent
be indemnity179
5. 3rd person is not in good faith and not for a value
 If 3rd person in bad faith and he cannot return, he will
indemnify, if 2 or more alienation, there is successive liability 180
 if there is court participation, it is presumed that the interest of
the party is protected
General Rule: fraud must be proven by one alleging it
Except:
176
1. transfer was gratuitous and there is no sufficient funds left A. 1381
177
to cover debt Uy Tong
178
A. 1384
179
A. 1385
175 180
A. 1383 A. 1388
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 Obligations and Contracts
 contract of sale in violation of right to first refusal is rescissible fraud is so extensive as to prevent meeting of the mind of the
because it is in fraud of creditor(holder of the right) parties: contract void

* Contracts in behalf of minors and absentees shall be valid
if it is approved by the court181
* All gratuitous alienation of property contracts as well as
onerous title by person adjudged or attached even if
property attached or adjudged may be different shall be
presumed to be in fraud of creditors182
Prescriptive period: 4 years (for absentees and minors, start
when right of action accrues)
VOIDABLE CONTRACTS
- valid until annulled
Kinds
1. consent vitiated by fraud, mistake, violence, undue
influence, intimidation, threat
2. 1 party is incapacitated
 Fraud must be done by 1 of the parties
 If fraud is done by 3rd person: causes mistake
General Rule: Fraud is proved by the 1 alleging it
Except: if the one alleging it is illiterate, the other party must
prove that the contract was fully explained to the illiterate
Effect of Annulment: Mutual restitution. Parties must
restore to each other what was received
… to minors/incapacitated: may only restore to the extent
they were benefited (intelligent use)183
 If property to be returned to the minor was lost: the other
party presumed to be at fault (one who is in control of the
object is presumed at fault): he is liable for the value of the
thing
 If annulment based on fraud, object to be returned is lost due
to fortuitous event: no need to return the value of the thing
lost.184
 If the aggrieved party loses the thing at his own fault: he may
not file for annulment
 If aggrieved party loses the thing due to fortuitous event: he
can still file for the return of the value of the thing185
 Value to be based on price at the time of decree of annulment
Prescriptive period: 4 years (from when right of action accrues
in case of mistake, fraud(discovery), intimidation, violence, undue
influence(when it ceases), minority(when it ceases)

Who can file an action:

1. aggrieved party
2. 3rd persons w/ interest

How to cure: by ratification

Who may ratify: aggrieved party/its guardian
UNENFORCEABLE Contracts
General Rule: - Defect in capacity of executor or a party to a contract or those
If fraud is used to get consent of the parties: contract is voidable under statute of frauds
Except: - unenforceable until ratified
183
A. 1399
181 184
A. 1386 A. 1401
182 185
A. 1387 ID
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 Obligations and Contracts
NoneRequisites of Ratification (express or implied 188):
Kinds: 1. Contract is voidable, annullable, defective in consent,
1. contract where both parties is incapacitated unenforceable
2. entered into w/o authority 2. At the time of ratification, cause of defect ceased to exist
3. those that do not comply w/ statute of fraud 3. Ratification is made with knowledge of defect
-Ratification does not require the consent of the person
Statute of Frauds who has no right to bring action189
- contract required to be in writing and can establish -Ratification retroacts to the time of constitution of
authorship contract190
- does not cover partially executed contracts. Only
executory contracts VOID Contracts
i.e. - has no legal effect whatsoever
1. agreement not to be performed w/in 1 year - cannot be ratified in any way except by law of equity
2. special promise to answer for debt, - does not bar the parties from entering another contract
fault/miscarriage
3. agreement made in consideration of marriage other kinds:
than mutual promise to marry 1. cause, object, purpose is contrary to law, morals,
4. sale of goods, chattels, things in action not less than good customs, public order or public policy
P500 2. absolutely simulated
5. lease of real property for more than 1 year or sale of 3. cause/object did not exist at the time of the
real property transaction
6. representation to the credit of a 3rd person 4. object outside the commerce of men
5. contemplate an impossible service
contracts infringing statute of fraud may be ratified 6. intention of the parties relative to the principal
1. by failure to object upon presentation of oral object of the contract cannot be ascertained
evidence 7. expressly prohibited or declared void by law
2. by receiving the benefits
Contracts where both parties are incapacitated when ratified by
both guardians is valid.186
If only one guardian ratifies, it has the effect of a contract with
only one party incapacitated187 Who may file: innocent party
 if both parties aware that contract is void: they cannot file an
Right to first refusal not covered by statute of fraud: need action against each other.
not be in writing  If nullity is from illegality of cause and act constitutes crime
with both parties at fault (in pari delicto), no cause of action
Who may assail: only the parties against each other, and both may be prosecuted191

Prescriptive Period: None

188
A. 1393
189
A. 1395
186 190
A. 1407 A. 1396
187 191
ID A. 1411
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 If it is merely prohibited and does not constitute crime and
both party is at fault, no cause of action against each … as to prescription:
other192..but if only one is at fault, innocent party may recover Rescissible: 4 years
from the guilty party with no obligation to perform and the Voidable: 4 years
guilty cannot ask for fulfillment193 Unenforceable: no period
“one may get around the rules of 1411 and 1412 by alleging legal acts Void: no period
otherwise not prohibited” (see pg. 636- Perez v Herranz)
 When part of a contract was performed for an illegal purpose, … as to ratification
one may recover by repudiating contract before illegal purpose Rescissible: possible
is achieved194 Voidable: possible
 If illegal part of contract is separable, as in divisible contracts, Unenforceable: possible
the valid part is enforced195 Void: not possible unless new contract
 Contract directly resulting from such void contracts is also void
 3rd person may not raise illegality of contracts as defense196 … as to who can assail
Rescissible: All parties interested
 Prescriptive Period: none Voidable: All parties interested
Unenforceable: no period
o “void contracts may be a way out of Void: All parties interested
prescription of action” i.e. transfer of property
defrauding creditor if done through simulation which … as to validity
are only rescissible and prescribes in 4 years may Rescissible: Valid until rescinded
be assailed as void by alleging absolute simulation. Voidable: valid until annulled
This way the action does not prescribe. Unenforceable: valid but may not be enforced until
Also payment to creditor who is not preferred after ratified
insolvency of debtor, which defrauds other creditor Void: no effect whatsoever
and thus is rescissible, may be attacked as void
under insolvency law by alleging prohibition, thus
instead of prescription of 4 years, the action does
not prescribe
RECAP:
… as to cause:
Rescissible: due to lesion/law
Voidable: vice of consent
Unenforceable: failure to comply to form, want of
authority, incapacity TRUST
Void: lack of essential element - legal relationship between one person having an equitable
ownership in property and another person owning the legal
192
A. 1412 title to such property, the equitable ownership of the former
193
ID entitling him to the performance of certain duties and exercise
194
A. 1414 of certain powers by the latter
195
A. 1420 Parties:
196
A. 1421
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 Obligations and Contracts
1. trustor – person who establishes trust – requires continued(may have interruptions of not more that
2. trustee – one in whom confidence is reposed as regards 1 year) peaceful possession adverse to the rights of
property for benefit of beneficiary others
3. beneficiary – one for whose benefit the trust is constituted – does not apply to real property registered under
torrens system
characteristics 2. extinctive
4. it is a relationship – extinguishes right
5. relationship of a fiduciary character – starts when the party acquires right of action
6. relationship based on property
7. involves existence of equitable duties for the benefit of Acquisitive Prescriptive period:
another Movable Immovable
8. arises as a result of a manifestation of intention to create Good Faith Possession 4 years 10 years
the relationship Bad Faith Possession 8 years 30 years

types: “uninterrupted possession”- naturally interrupted if it cease for

1. implied- by operation of law.
2. express- by intention of the trustor
 no form required except for immovable property
“to get around evidence and form requirement with
regard to express trust of immovables, one may
allege implied trust which does not require form and
may be proved by parol/oral evidence”
Types of ownership
1. legal – owner that reflects in the documents
2. beneficial – person to w/c the benefit goes
PRESCRIPTION
more than 1 year, if less than a year it counts in favor of
prescription. Judicial summon served on possessor serves as civil
interruption
*Good Faith-lack of knowledge of the defect of the ownership
*color of title – buyer thought seller was the owner
eg. X – sold real property – Y
Y -------- Z
GF:7yrs BF: 9yrs (7x3=21 years of bad faith + 9 = 30)
BF:21yrs GF: 3yrs
Extinctive Prescriptive Period:
30 years –real actions over immovable property(assertion of right)
10 years – actions upon a written contract/prescribed by law,
mortgage action
8 years - to recover movable property
6 years – actions upon an oral contract and quasi-contract
5 years – all actions not fixed by law
4 years – action to rescind or annul, quasi-delict
1 year - forcible entry and detainer and defamation

Kinds:
1. acquisitive
– mode of acquiring property
ESTOPPEL
- admission /representation is binding to the one who made it
34 ogie 1-e
 Obligations and Contracts

types:
1. by deed – estoppel by record
2. in pais – estoppel by conduct
a. admission
b. representation
c. silence when one should have spoken

Requisites:
1. there is a representation/concealment of material facts
2. representation is w/ the knowledge of the true state of
facts
3. party who acted must no know the facts are false
4. representation/concealment made w/ the intention of
making the other act based on wrong state of facts

LACHES
- based on delay in filing an action
- rule based on equity

Requisites:
1. party have right of action
2. party know of such right
3. party slept on his right/ did not file an action for no reason
at all
4. lead the other party to believe that no action was
forthcoming

NATURAL OBLIGATION
- obligation w/o a juridical tie
- assumes that obligation was done by obligor knowing there is
no juridical tie

35 ogie 1-e