OUTLINE IN OBLIGATIONS AND CONTRACTS

Title I. Obligations
I. General Provisions
A. Concept
1. Definition of an OBLIGATION - Art. 1156
- An obligation is a juridical necessity (to comply with a prestation, in
particular) to give, to do, or not to do. It is a juridical necessity because
in case of non-compliance by the obligor, the courts can be called
upon to compel said obligor to comply with the obligation.
2. Criticism of the definition
- The definition of the civil code of an obligation is incomplete in that it
only talks about the duty of the obligor (passive element) towards the
obligee without emphasizing the corresponding right in favor of the
creditor (active element). Justice JBL Reyes quotes then the following
definition given by Arias Ramos:
An obligation is a juridical relation whereby a person (called
the creditor) may demand from another (called the debtor) the
observance of a determinative conduct (the giving, the doing, or not
doing), and in case of breach, may demand satisfaction from the assets
of the latter.
B. Elements
1. Active Subject
- The possessor of the right; he in whose favor the right is
constituted.
2. Passive Subject
- The one who has the obligation to give, to do, or not to do.
3. Prestation
- The subject matter of the obligation which may consist of giving,
doing or not doing.
4. Efficient Cause/ Juridical Tie/ Vinculum Juris
- The reason why the obligation exists or the source of the
obligation.
a) Concept of Prestation? (BAR QUESTION)
- A prestation is an obligation; more specifically, it is the subject
matter of an obligation which may consist of giving, doing or not
doing. The law speaks of an obligation as a juridical necessity to
comply with a prestation. It is a juridical necessity because in case
of non-compliance, the creditor may ask
C. Distinction Between Natural and Civil Obligations Art. 1423
- A civil obligation grants a right to the person in whose favor the
obligation is constituted, to enforce the obligation through court
action. A natural obligation, on the other hand, does not grant a
right but after voluntary fulfillment of the obligation, authorizes
 the retention of what has been received or rendered in view of the
obligation. Voluntary fulfillment meaning that the obligor
performed the obligation despite knowing that he could not have
been compelled to do so.
D. Sources of Obligations- Art. 1157
- Obligations arise from:
o Law;
o Contract;
o Quasi-contract;
o Delict or acts and omissions punished by law; and
o Quasi-delicts or torts.
1. Criticisms of Sources Listed Down
- The enumeration by the civil code is not scientific. The civil code lists
down five sources of obligation when in reality, there are only two sources
namely the law and contracts. This is because quasi-contracts, delicts, and
quasi-delicts are really sources of obligation which the law enforces.
2. Enumeration is exclusive
- The enumeration of the civil code of the sources of obligation is exclusive.
(I ENDED EDITING HERE)
A. Law (obligations ex lege) - Art. 1158

B. Contracts (obligations ex contractu) - Art. 1159, 1305

- Meaning of the Article

- Explain is the law inferior to contracts?
- Difference between contracts and obligations

C. Quasi-Contracts (obligations ex quasi-contractu) - Art.1160, 2142

- Define Quasi-contracts (obligations ex quasi-contractu)

- Is a Quasi-contract an implied contract?

1. Kinds
a. Negotiorum gestio- Art.2144
b. Solutio indebiti- Art. 2154
c. Other quasi-contracts- Arts. 2164 to 2175

D. Acts or omissions punished by law (obligations ex maleficio or ex

delicto) - Art. 1161

Governing Rules of Obligations Ex Maleficio or Ex Delicto

A. Revised Penal Code and other penal laws, subject to the

provisions of Art. 2177

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 B. Chapter 2, Preliminary Title, on Human Relations of the Civil
Code
C. Title XVIII of Book IV of the Civil Code on damages.

- Effect of acquittal in Criminal Case, can he still be held civilly

liable?

E. Quasi-Delicts or Torts (obligations ex quasi-maleficio or ex quasi-

delicto) - Art.1162, 2176

Governing Rules on Obligations Ex Quasi-Delicto/Maleficio

(a). Chapter 2 Title 17, Book IV, Civil Code
(b). Special Laws

- Definition of Quasi-delicts
- Definition of Negligence
- Test for determination of Negligence
- Requisites of Quasi-delicts

1. Distinction between quasi-delicts and crimes

2. Liability for fault of others- Art. 2180; Art. 218, 219 of FC
3. Civil liability arising from crime- Art. 1161; Rules on Criminal
Procedure (2000), Rule 111

Cases
E. Barredo v. Garcia, 73 Phil. 607
(1942)
Mendoza v. Arrieta, 91 SCRA 113 (1975)
PSBA v. CA, 205 SCRA 729 (1992)
Amadora v. CA 160 SCRA 315 (1988)
Air France vs. Carrascoso 18 SCRA 155 (1966)

II. Classification of Obligations

A. Primary Classification Under the Civil Code

1. Pure and Conditional (Arts. 1179-1192)

2. With a period or term (Arts. 1193-1198)

3. Alternative and Facultative (Arts. 1199-1206)

4. Joint and Solidary (Arts. 1207-1222)

5. Divisible and Indivisible (Arts. 1223-1225)

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 6. With a penal clause (Arts. 1226-1230)

B. Secondary Classification
1. Legal (Art. 1158); Conventional (Art. 1159); Penal (Art. 1161)

2.
Real (to give) and Personal (to do or not to do)
3.
Determinate and Generic (as to subject matter of obligation)
4.
Positive (to give, to do) and Negative (not to give, not to do)
5.
Unilateral and Bilateral
6.
Individual and Collective
7.
Accessory and Principal 8. As to object or prestation:
Simple
Multiple
Conjunctive
Distributive
Alternative
Facultative
9. Possible and Impossible
Chapter 2. Nature and Effects of Obligations

III. Kinds of Prestation

A. Obligation to

give

1. a.

specific thing

a. Duties of the obligor

i. To deliver thing itself- Art.

1244
ii. To preserve thing (exercise due
diligence of a good father of
family) - Art. 1163
Define diligence of a good
father of a family Art. 1173
iii. To deliver the accessions and
accessories- Art. 1166
-distinction between accession and accessory
iv. To deliver the fruits- Art.1164 par. 1

2. a generic thing- Art. 1246

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QUESTION: When a thing may be ordered undone? Art. 1167 & 1168

B. Obligation to do- Art.1244

- Remedy of the creditor/obligee in case obligor fails to comply with

his obligation?
- Same remedy is available when he does it in contravention of the
tenor of the obligation.

C. Obligation not to do- Art. 1244

1) When does a creditor acquire personal rights or real rights over a thing? Art. 1164

a) Difference between personal right and real right.

b) When does the obligation to deliver arise?

2) Difference between a Determinate and an Indeterminate thing.

a) Particularity

i) Determinate thing those which are capable of identification or separation

from its class or genus; while

ii) Indeterminate thing refers only to a class or genus and cannot be pointed

out with particularity.

b) Remedy

i) Determinate thing in obligations to deliver a determinate thing, the remedy

of the creditor is specific performance (Art. 1165 1st par) and claim damages

(Art. 1170); while

ii) Indeterminate thing in obligations to deliver an indeterminate thing, the

remedy of the creditor/ obligee is not specific performance instead he may ask

for the obligation to be complied with at the expense of the debtor/ obligor.

c) Fortuitous Event

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i) Determinate thing when the obligation consists in the delivery of a specific

thing, loss through a fortuitous event extinguishes the obligation; while

ii) Indeterminate thing when the obligation consists in the delivery of an

indeterminate thing, fortuitous events do not extinguish the obligation to

deliver.

NOTE: Two instances when loss of a specific thing through a fortuitous event

does not extinguish an obligation.

Loss though a fortuitous event will not extinguish the obligation to give when the

obligor is guilty of:

(1) Default or mora; or

(2) Bad Faith as when he promises to deliver the thing to two or more

persons who do not have the same interests.

Difference between ordinary delay and legal delay.

- Simple delay is non-performance of the obligation at the stipulated

time of performance while in legal delay it is non-performance

which amounts to virtual non-fulfillment of the obligation. (As a

rule, demand for fulfillment is necessary to put someone in legal

delay, either judicial or extrajudicial subject to certain

exceptions.)

IV. MORA/ Default Art. 1169

1. Exceptions to the rule that demand is necessary to put debtor

in default.

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 a. When the obligation or the law expressly declares;

b. When from the nature or the circumstances of the

obligation it appears that the designation of the time

when the thing is to be delivered or the service to be

rendered was a controlling motive for the establishment

of the contract (in other words time is of the essence) ;

or

c. When demand would be useless as when the obligor

has rendered it beyond his power to perform.

2. Kinds of Mora

a. Mora Solvendi

- Default on the part of the debtor.

b. Mora Accipiende

- Default on the part of the creditor. When such

creditor unjustifiably refuses to accept payment

at a time payment or performance can be done.

c. Compensatio Morae

- When in a reciprocal obligation both parties are

in default; here it is as if neither is in default.

II. Breach of Obligation

A. Concept

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 1. Distinction between substantial and casual/slight breach
Cases:
Song Fo v. Hawaiian Phils. 47 Phil 821 (1928)
Velarde, et al v. CA 361 SCRA 56 (2001)
Angeles, et al. vs. Ursula Calasanz, et al., G.R. No.
L-
42283, March 18, 1985
Delta Motor Corp. vs. Genuino & CA, G.R. No.
55665,
F. February 8, 1989
Vermen Realty vs. CA, GR 101762, July 6, 1993,
224
SCRA

B. Modes of Breach- Art.1170

- those who in ther performance of their obligation are guilty of (1)
fraud, (2) negligence, or (3) delay and those who in any manner (4)
contravene the tenor thereof, are liable for damages.

1. Fraud (dolo)

a. Concept
i. dolo (1171) vs. dolo
incidente ii. dolo (1171)
vs. dolo causante

G. Case
Woodhouse v. Halili, 93 Phil. 526
(1953)
Lydia L. Geraldez, vs. CA &
Kenstar Travel Corporation, G.R.
No. 108253, February 23, 1994.
b. Nonwaiver- Art. 1171

c. Effects

2. Negligence- Art. 1172

a. Concept- Art. 1173

i. culpa v. dolo ii. culpa
aquiliana v. culpa contractual

8
 1. Cases
Gutierrez v. Gutierrez, 56 Phil. 177 (1932)
Vasquez v. Borja, 74 Phil. 560 (1944)

b. Standard of care required- Art. 1173 par. 2

2. Cases
De Guia v. Manila Electric Co., 40 Phil. 706 (1920)
US v. Barias, 23 Phil. 434 (1912)
Sarmiento v. Sps. Cabrido, 401 SCRA 122 (2003)
Crisostomo v. CA, 409 SCRA 528 (2003)

c. Effects

3. Delay (Mora)- Art. 1169

a. Concept

b. Kinds
i. mora solvendi
- requisites
- General Rule: Creditor should make
demand before debtor incurs delay- Art.
1169

3. Case
Cetus Development Corp. v.
CA , SCRA 72 (1989)
Aerospace Chemical Industries vs.
CA,
GR No. 108129, September 23,1999,
315
4. SCRA
Santos Ventura Hocorma
Foundation vs.
Santos, GR 153064, November 4,
2004
H. 441 SCRA
Dr. Daniel Vazquez & Ma. Luisa M.
Vazquez, vs. Ayala Corporation,
G.R. No. 149734, November 19,
2004.

Exceptions:- Art. 1169

9
 1. Case
Abella v. Francisco, 55 Phil. 447
(1931) Eusebio De La Cruz vs.
Apolonio Legaspi & Concordia
Samperoy, G.R. No. L-8024.
November 29, 1955.

ii. mora accipiendi

- requisites
- see also 1268

2. Case
a) Vda. De Villaruel v. Manila Motor
Co., Inc., 104 Phil. 926 (1958)

iii. compensatio morae

- requisites

3. Case
Central Bank v. CA, 139 SCRA 46
(1985)

c. Effects

4. Contravention of the tenor

Cases
a) Chavez v. Gonzales, 32 SCRA 547
(1970) Telefast v. Castro, 158 SCRA 445
(1988) Arrieta v. NARIC, 10 SCRA 79 (1964)
Victoriano Magat vs. Medialdea (206 Phil 341)

III. Remedies Of Creditor in Case of Breach

A. Action for performance

1. Action for specific performance in obligation to give a

specific thing- Art. 1165 par.1; ROC 39 Sec. 10

2. Action for substituted performance in obligation to

give a generic thing- Art.1165 par. 2
3. Action for substituted performance or undoing of poor
work in obligation to do - Art. 1167

Cases:

10
 b) Chavez v. Gonzales, supra Tanguilig v. CA, 266
SCRA 78 (1997)

a. Exception

4. Action for undoing in

obligation not to do- Art.
1168 a. Exception

B. Action for damages- Art.1170

C. Action for rescission- Art. 1191, 1192

IV. Subsidiary Remedies of Creditor

A. Accion Subrogatoria- Art.1177

1. Concept
2. Requisites
3. Exceptions- inherent rights of debtor; Art. 772

B. Accion Pauliana- Art. 1177, 1381 par. 3

1. Concept
a. Distinction between accion pauliana and accion subrogatoria

2. Requisites

(1) Case
Khe Hong Cheng v. CA, 355 SCRA 701 (2001)
Maria Antonia Siguan vs. Rosa Lim, Linde Lim, Ingrid
Lim and Neil Lim, G.R. No. 134685, November 19, 1999.

C. Other Specific Remedies- Art. 1652, 1729, 1608, 1893

V. Extinguishment of Liability in Case of Breach Due to Fortuitous Event- Art.

1174

A. Concept of Fortuitous Event

1. Act of God
2. Act of Man
B. Requisites
1. Effect of concurrent fault

11
 (2) Cases
Juan Nakpil & Sons v. CA, 144 SCRA 597 (1986)
Republic v. Luzon Stevedoring Co., 21 SCRA 279 (1967)
Dioquino v. Laureano, 33 SCRA 65 (1970)
Austria v. CA, 39 SCRA 527 (1971)
NPC v. CA, G.R. No. L-47379, 161 SCRA 334 (1988)
Yobido v. CA, 281 SCRA 1 (1997)
Bacolod-Marcia Milling vs. CA and Gatuslao, GR. No.
81100-
c) 01, Feb. 7, 1990, 182
SCRA
Philcomsat vs. Globe Telecom, GR No. 147324, May 25,
2004, 430 SCRA

C. Extinguishment of Liability; Exceptions- Art. 1174, 1165 par. 3, 552,

1942,
1979, 2001, 2147

VI. Usurious Transactions- Art. 1175, 1413, 1961

A. PD 858; PD 1685
B. Central Bank Circular 416
C. Monetary Board Circular # 905 lifting the interest rate ceiling- (vs.
2209)

(1) Cases
Eastern Shipping Lines v. CA, 234 SCRA 781 (1994)
Crismina Garments v. CA, 304 SCRA 356 (1999)
Keng Hua Products v. CA, 286 SCRA 257 (1998)
Security Bank v. RTC Makati, 263 SCRA 453 (1996)
Almeda v. CA, 256 SCRA 292 (1996)
Angel Warehousing vs. Cheldea 23 SCRA 19 (1968)
First Metro Investment vs. Este. Del Sol (Nov. 15, 2001, 369
SCRA)

VII. Fulfillment of Obligations

A. see Chapter 4: Payment

B. Presumptions in payment of interests and installments- Art. 1176

VIII. Transmissibility of Rights- Art. 1178

12
Chapter 3. Different Kinds of Obligations
I. Pure and Conditional Obligations A.

Pure Obligations- Art. 1179

par. 1

B. Conditional Obligations- Art. 1181

1. Condition
a. Concept
b. Condition v. Period/Term

Cases
d) Gaite v. Fonacier, 2 SCRA 830 (1961)
Gonzales v. Heirs of Thomas, 314 SCRA 585
(1999)

2. Kinds of Conditions

a. As to effect on obligation- Art. 1181

Gonzales v. Heirs of Thomas, 314 SCRA 585
(1999)

i. Suspensive (condition precedent)

- retroactive effect when condition is
fulfilled-
Art. 1187
Romulo A. Coronel, et. al., vs. CA and
Concepcion D. Alcaraz , G.R. No.
103577, October 7, 1996.
- rights of creditor and debtor before
fulfillment of condition- Art. 1188

ii. Resolutory (condition subsequent)

(1) Cases
Parks v. Province of Tarlac, 49 Phil. 142
(1927)
Central Philippine University v. CA, 246
SCRA
(a) 511 (1995)
Alfonso Quijada, et al., vs. CA, G.R. No.
126444, December 4, 1998.

13
b. As to cause or origin- Art. 1182

i. Potestative
- effect if fulfillment of condition depends
solely on the will of the debtor (Cf. term)
- debtors promise to pay when he can is
not a conditional obligation- Art. 1180
Francisco Lao Lim vs. CA, G.R. No. 87047,
October 31, 1990.

ii. Casual
Naga Telephone Co., Inc. (NATELCO) vs.
CA, G.R. No. 107112, February 24, 1994.

iii. Mixed

Cases
e) Osmea v. Rama, 14 Phil. 99 (1909)
Hermosa v. Longora, 93 Phil. 971 (1953)
Taylor v. Uy Tieng Piao, 43 Phil. 873 (1922)
Smith Bell v. Sotelo Matti, 44 Phil. 875
(1922)
Rustan Pulp and Paper Mills v. IAC, 214
SCRA
(1) 665 (1992)
Virgilio Romero vs. CA, GR No. 107207,
November 23, 1995, 250 SCRA

c. As to possibility- Art. 1183

i.
Possib
le ii.
Impos
sible
- effect

(2) Case
Roman Catholic Arch of Manila v.
CA, 198 SCRA 300 (1991)

d. As to mode

14
 i. Positive- Art.
1184 ii.
Negative- Art.
1185

3. Rules in case of loss, deterioration or

improvement pending the happening of the
condition- Art. 1189, 1190
Heirs of Timoteo Moreno vs. Mactan Cebu
International Airport Authority, G.R. No. 156273,
October 15, 2003.

a. Meaning of loss (Art. 1189[2]), deterioration and

improvement

b. Effect of loss or deterioration

i. without debtors fault
ii. with debtors fault

c. Effect of improvement
i. by nature
or time ii. at the
debtors expense

4. Effect of prevention of the fulfillment of the

condition by the obligor- Art. 1186

Case
f) Taylor v. Uy Tieng Piao, supra
Jose V. Herrera vs. Leviste, G.R. No. 55744,
February 28, 1985.

II. Reciprocal Obligations- Art. 1191, 1192

1. Concept

2. Alternative remedies of injured party in case of breach

a. Action for Fulfillment

i. whe
n
fulfi
llme
nt
no

15
 long
er
poss
ible;
effe
ct

b. Action for Rescission

i. requ
isite
sii.
how
mad
e
iii. effects

Cases
Song Fo v. Hawaiian-Philippines, 47 Phil.
821
(1925)
Boysaw v. Interphil Promotions, 148 SCRA
365
g) (1987)
U.P. v. De Los Angeles, 35 SCRA 365
(1970)
De Erquiaga v. CA, 178 SCRA 1 (1989)
Angeles v. Calasanz, 135 SCRA 323 (1985)
James G. Ong v. CA, 310 SCRA 1 (1999)
Iringan v. CA, 366 SCRA 41 (2001)
Visayan Saw Mill vs. CA and RJ Trading,
GR. 83851, March 3, 1993, 219 SCRA
Ernesto Deiparine vs. CA and Trinidad,
GR.
h) 96643, April 23, 1993
Grace Park Engineering Co., Inc. vs.
Mohamad Ali Dimaporo, G.R. No. L-
27482. September 10, 1981.
Felipe C. Roque vs. Nicanor Lapuz, G.R.
No. L32811, March 31, 1980.
Margarita Suria vs. IAC, G.R. No. 73893,
June 30, 1987.
See also Art. 1786, 1788; Arts. 1484-86; RA 6552

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II. Obligation With a Period- Art.1193, 1180

A. Period or Term
1. Concept
2. Period/Term vs. Condition

B. Kinds of Period/Term
1. As to effect
a. Suspensive (Ex die)- Art. 1193 par. 1
b. Resolutory (In diem)- Art. 1193 par. 2

2. As to expression
a. Express
b. Implied

3. As to definiteness
a. Definite
b. Indefinite

4. As to source
a. Voluntary
b. Legal
c. Judicial

C. Rules in case of loss, deterioration or improvement before arrival of

period- Art. 1194, 1189

D. Effect of payment in advance- Art. 1195 Note: Art.1197 par. 3

E. Benefit of Period

1. For whose benefit

a. creditor
b. debtor
c. both

2. Effects
3. Presumption- Art. 1196

(1) Cases
Lachica v. Araneta, 47 OG No. 11, 5699, August 4,
1949
Ponce de Leon v. Syjuco, 90 Phil. 311 (1951)

17
 i) Buce v. CA, 332 SCRA 151 (2000)

4. When debtor loses right to make use of period- Art.1198

F. When Court May Fix Period- Art. 1197

1. Period is implied
2. Period depends solely on will of debtor (Cf. condition)

(1) Cases
Araneta v. Philippine Sugar Estate Development
Co., 20 SCRA 330 (1967)
Central Philippine University v. CA, supra
Florencio Deudor vs. JM Tuason, GR 13768, May
30, 1961, 1 SCRA

III. Alternative Obligations

A. Concept- Art.1199

B. Right of choice- Art. 1200

C. Effect of notice of choice

D. When notice produces effect- Art. 1201

E. Effect of loss or impossibility of one or all prestations- Art. 1202 to

1205

F. Facultative Obligation- Art. 1206

1. Concept
2. Distinguished from Alternative Obligation
3. Effect of Substitution

IV. Joint and Solidary Obligations

A. Joint Obligations

1. Concept
a. Requisites
b. Words used to indicate joint obligations

2. Presumption- Art. 1207, 1208

18
 3. Effects- Art. 1207, 1208
a. Extent of liability of debtor
b. Extent of right of creditor
c. In case of novation, compensation, confusion (Art.
1277), remission

B. Solidary Obligations

1. Concept
a. Requisites
b. Words used to indicate solidary obligations

2. Kinds

a. As to source- Art. 1208

i. Legal- Art. 1915, 1945, 2194; Art. 119
of RPCii. Conventional iii. Real

b. As to parties bound
i. Activeii. Passive iii. Mixed

c. As to uniformity
i. Uniform
ii. Varied/Non-uniform- Art. 1211
- effects

(2) Case
Ynchausti v. Yulo, 34 Phil. 978
(1916)
Baldomero Inciong vs. CA et al, GR
96405, June 26, 1996, 257 SCRA
RCBC vs. CA, GR 85396, Oct 1989,
178
j) SCRA
Lafarge Cement Phil vs.
Continental
Cement, GR 155173, November 23,
2004,
I. 443 SCRA

3. Effects
a. Solidary creditor in relation to:

i. common debtor

19
 - right to demand- Art. 1215, 1214, 1216,
1217 par. 1
- in case of novation, compensation,
confusion, remission by a creditor- Art.
1215 par. 1

ii. solidary co-creditor/s

- in case of novation, compensation,
confusion, remission- Art. 1215 par. 2
- prejudicial acts prohibited- Art. 1212
- assignment of rights not allowed- Art.
1213

b. Solidary debtor in relation to:

i. common creditor
- obligation to perform- Art. 1207
- in case of novation, compensation,
confusion, remission by a creditor- Art.
1215 par. 1

ii. solidary co-debtor

- in case of payment by a co-debtor- Art.
1217,
1218, 1220, 1219
- in case of fortuitous event- Art. 1221

1. Cases
Jaucian v. Querol, 38 Phil. 718 (1918)
RFC v. CA, O.G. No. 6, p. 2467
Quiombing v. CA, 189 SCRA 325 (1990)
Inciong v. CA, 257 SCRA 578 (1996)

4. Defenses available to a solidary debtor against the creditor- Art. 1222

a. Types

i. those derived from the nature of the

obligation ii. personal defenses iii. defenses
pertaining to his share iv. those personally
belonging to the other co-debtors

b. Effects

Cases

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 2. Ynchausti v. Yulo, supra
Alipio v. CA, 341 SCRA 441 (2000)
C. Joint Indivisible Obligations

1. Concept
i. Distinguished from Joint
Obligations ii. Distinguished from
Solidary Obligations

2. Indivisibility distinguished from solidarity- Art. 1210

3. Effects- Art. 1209

a. Liability for damages in case of breach- Art. 1224

V. Divisible and Indivisible Obligations

A. Divisible Obligations

1. Concept
2. Effects- Art. 1223, 1233

B. Indivisible Obligations

1. Concept
a. Distinguished from solidary obligations

2. Kinds

a. Natural- Art. 1225 par. 1

b. Legal- Art. 1225 par. 3
c. Conventional- Art. 1225 par. 3

3. Presumptions

a. Of indivisibility- Art. 1225 par. 1

b. Of divisibility- Art. 1225 par. 2

4. Divisibility and indivisibility in obligations not to do- Art. 1225

par. 3

5. Effects- Art. 1223, 1233, 1224

- see Joint Indivisible Obligations

6. Cessation of indivisibility

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VI. Obligations with a Penal Clause
A. Concept

1. Principal vs. Accessory Obligation

2. Distinguished from Conditional Obligations
3. Distinguished from Alternative Obligations
4. Distinguished from Facultative Obligations
5. Distinguished from Guaranty

B. Kinds of Penal Clause

1. As to effect
a. Subsidiary
b. Complementary

2. As to source
a. Conventional
b. Legal

3. As to purpose
a. Punitive
b. Reparatory
C. Demandability of Penalty- Art. 1226 par. 2

D. Effects of Penal Clause

1. Substitute for indemnity for damages and payment of interest-

Art.
1226
a. Exception- Art. 1226

a) Cases
Makati Development Corp. v. Empire Insurance
Co., 20 SCRA 557 (1967)
Antonio Tan v. CA, 367 SCRA 571 (2001)
Country Bankers Insurance vs. CA, GR. 85161,
Sept 9,
1991, 201 SCRA

2. Not exempt debtor from performance- Art. 1227

a. Exception- Art. 1227

3. Creditor cannot demand both performance and penalty at the

same time-
Art. 1227

22
 a. Exceptions- Art. 1227

4. Creditor cannot collect other damages in addition to penalty-

Art. 1226
a. Exceptions- Art. 1226
E. When penalty shall be equitably reduced- Art. 1229

F. Nullity of Principal Obligation or Penal Clause

1. Effects- Art. 1230

2. Rationale

Chapter 4. Extinguishment of Obligations

I. Modes of Extinguishment- Art. 1231

A. Payment or Performance
B. Loss or Impossibility
C. Condonation or Remission
D. Confusion or Merger
E. Compensation
F. Novation
G. Other Causes

II. Payment or Performance

A. Concept- Art. 1232

B. Requisites

1. Who can pay

a. in general

b. third person who is an interested party

i. meaning of interested
partyii. effects- Art.
1302[3]

c. third person who is not an interested party but with

consent of debtor
i. effects- Art. 1302[2], 1236
par. 1

d. third person who is not an interested party and without

23
 knowledge or against the will of the debtor
i. effects- Art. 1236 par. 2,
1237, 1236 par.1

e. third person who does not intend to be reimbursed-

Art. 1238

f. in obligation to give- Art. 1239, 1427

i. effect of incapacity
g. in case of active solidarity- Art. 1214

2. To whom payment may be made

a. in general- Art. 1240

b. incapacitated person- Art. 1241 par. 1

i. requisites

c. third person- Art. 1241 par. 2

i. requisites
ii. when proof of benefit not
required- Art. 1241 par. 3,
1242

d. in case of active solidarity- Art. 1214

3. What is to be paid (Identity)

a. in general

b. in obligations to:
i. give a specific thing- Art.
1244ii. give a generic
thing- Art. 1246 iii. pay
money- Art. 1249, 1250;
R.A. 529, R.A. 4100

3. Cases
Arrieta v. NARIC, supra
Kalalo v. Luz, 34 SCRA 377 (1970)
St. Paul Fire and Marine Insurance
v. Macondray, 70 SCRA 122
(1976)

24
 Papa v. A.V. Valencia, et.al, 284
SCRA
a) 643 (1998)
PAL vs. CA 181 SCRA 557 (1990)

c. payment of interest- Art. 1956

4. How is payment to be made (Integrity)

a. in general- Art. 1233

General Rule: Partial payment is not allowed- Art.
1248

Exceptions:- Art. 1248

b. substantial performance in good faith- Art. 1234

c. estoppel- Art. 1235

d. presumptions in payment of interests and installments-

Art.
1176

5. When payment is to be made

a. in general- Art. 1169

b. see Chapter 2: Delay

6. Where payment is to made- Art. 1251 par. 1

a. if no place is expressly designated- Art. 1251 par. 2 to par. 4

7. Expenses of making payment- Art. 1247

C. Application of Payments

1. Concept- Art. 1252

Cases
Reparations Commission v. Universal Deep Sea
Fishing,
J. 83 SCRA 764 (1978)
Paculdo v. Regalado, 345 SCRA 134 (2000)

2. Requisites

3. Rules in application of payments- Art. 1252, 1253

25
 a. if rules inapplicable and application cannot be inferred- Art.
1254
i. meaning of most onerous to debtor

D. Payment by Cession

1. Concept- Art. 1255

2. Requisites
3. Effects

E. Dation in Payment

1. Concept- Art. 1245

a. distinguished from Payment by Cession
Development Bank of the Philippines vs. Court Of
Appeals, G.R. No. 118342, January 5, 1998.

2. Requisites

3. Effects

Case
Filinvest Credit Corporation vs. Philippine Acetylene,
GR L-
1. 50449, Jan 1982, 111
SCRA

F. Tender of Payment and Consignation

1. Tender of Payment

a. Concept
b. Requisites

2. Consignation

a. Concept
i. purpose

b. Requisites
i. when tender and refusal not required- Art.
1256 par. 2
ii. two notice requirement- Art. 1257 par. 1,
1258 par. 2
- effects of noncompliance

26
 c. Effects- Art. 1260 par. 1

d. Withdrawal by debtor before acceptance by creditor or

approval by court; effects- Art.1260 par. 2

e. Withdrawal by debtor after proper consignation- Art.

1261
i. with creditors approval; effectsii. without
creditors approval; effects

f. Expenses of consignation- Art.1259

Cases
De Guzman v. CA, 137 SCRA 730 (1985)
TLG International Continental Enterprising, Inc. v.
Flores,
K. 47 SCRA 437 (1972)
McLaughlin v. CA, 144 SCRA 693 (1986) Soco
v. Militante, 123 SCRA 160 (1983) Sotto v.
Mijares, 28 SCRA 17 (1969) Reisenbeck vs.
CA, 209 SCRA 657 (1992)
Rural Bank of Caloocan vs. CA (April 21, 1981, 104
SCRA)
1. Licuanan vs. Diaz (175 SCRA, July 21,
1989)
Chan vs. CA (March 3, 1994, 230 SCRA)
Meat Packing Corp vs. Sandiganbayan (June 22, 2001,
359 SCRA)

III. Loss or Impossibility

A. Loss of Thing Due

1. Concept- Art. 1189[2]

2. Kinds
a. As to extent
i. T
o
t
a
l

27
 i
i
.
P
a
r
t
i
a
l

3. Requisites- Art. 1262

4. Presumption- Art. 1265, 1165

a. when not applicable

5. Effects

a. in obligation to give a specific thing- Art. 1262, 1268

b. in obligation to give a generic thing- Art. 1263
c. in case of partial loss- Art. 1264
d. action against third persons- Art. 1269

B. Impossibility of Performance

1. Concept- Art. 1266, 1267

2. Kinds
a. As to extent
i. T
o
t
a
l
i
i
.
P
a
r
t
i
a
l

28
 b. As to source
i. l
e
g
a
l
i
i
.
p
h
y
s
i
c
a
l

3. Requisites- Art. 1266

4. Effects
a. in obligations to do- Art. 1266, 1267, 1262 par. 2 (by
analogy)
i.
i
m
p
o
s
s
i
b
i
l
i
t
y

d
i
s
t
i
n
g

29
 u
i
s
h
e
d
f
r
o
m

d
i
f
f
i
c
u
l
t
y

Cases
2. Occea v. CA, 73 SCRA 637 (1976)
Naga Telephone Co. v. CA, 230 SCRA 351 (1994)
PNCC vs. CA, GR 116896, May 5, 1997, 272 SCRA

b. in case of partial impossibility- Art. 1264

IV. Condonation or Remission

A. Concept

B. Kinds

1. As to extent
a. Total
b. Partial

2. As to form- Art. 1270 par. 1

a. Express
b. Implied

C. Requisites

30
 a. when formalities required- Art. 1270
par. 2 YAM vs. CA, G.R. No. 104726,
February 11, 1999.

D. Presumptions- Art. 1271, 1272, 1274

E. Effects

1. in general
2. in case of joint or solidary obligations

F. Governing Rules- Art. 1270

G. Renunciation of Principal or Accessory Obligation

1. effects- Art. 1273

2. rationale

V. Confusion or Merger of Rights

A. Concept
B. Requisites

C. Effects

1. in general- Art. 1275

2. in case of joint (Art. 1277) or solidary obligations

D. Confusion in Principal or Accessory Obligation- Art. 1276

VI. Compensation

A. Concept- Art. 1278

1. Distinguished from Confusion

B. Kinds

1. As to extent
a. Total
b. Partial

2. As to origin
a. Legal
b. Conventional- Art. 1279 inapplicable, 1282
c. Judicial- Art. 1283

31
 d. Facultative

C. Legal Compensation

1. Requisites- Art. 1279, 1280

a. due distinguished from demandable

a) Cases
Gan Tion v. CA, 28 SCRA 235 (1969)
BPI v. Reyes, 255 SCRA 571 (1996)
PNB v. Sapphire Shipping, 259 SCRA 174 (1996)
CKH Industrial Development vs. CA (May 7, 1997, GR
111890, 272 SCRA)
Mirasol vs. CA (GR 128448, Feb 1, 2001, 351 SCRA)
Associated Bank vs. Vicente Henry Tan (GR 156940, Dec.
14, 2004)

Villanueva vs. Francisco Tantuico Jr. (GR. 53585, Feb 15,

1990, 82 SCRA)

Perez vs. CA (GR 56101, February 1984, 127 SCRA)

Silahis Marketing Corp vs. IAC (Dec 7, 1989, 180 SCRA)

BPI vs. CA (GR 116792, March 29, 1996, 255 SCRA)

2. Effects- Art. 1290, 1289

D. When Compensation is Not Allowed- Art. 1287, 1288

E. Compensation of Debts Payable in Different Places- Art. 1286

F. Effect of Nullity of Debts to be Compensated- Art. 1284

G. Effects of Assignment of Credit

1. with consent of debtor- Art. 1285 par. 1

2. with knowledge but without consent of debtor- Art. 1285 par. 2
3. without knowledge of debtor- Art. 1285 par. 3
a. rationale

VII. Novation

A. Concept- Art. 1291

B. Kinds

32
 1. As to form
a. Express
b. Implied

2. As to origin
a. Conventional
b. Legal

3. As to object
a. Objective or Real
b. Subjective or Personal

C. Requisites- Art. 1292

Cases
3. Millar v. CA, 38 SCRA 642 (1971)
Dormitorio v. Fernandez, 72 SCRA 388 (1976)
Magdalena Estate v. Rodriguez, 18 SCRA 967
(1966) Reyes v. Secretary of Justice, 264 SCRA 35 (1996)
Conchingyan vs. RB Surety and Insurance (June 30,
1987, 151 SCRA)
Broadway Centrum Condominium Corp vs. Tropical Hut
(July 5, 1993, 224 SCRA)
Molino vs. Security Diners International (GR 136780,
Aug. 16,
2001, 363 SCRA)
Romeo Garcia vs. Dionisio Llamas (GR. 154127,
December 8,
2003, 417 SCRA)
California Bus Line vs. State Investment (GR 147950,
December 11, 2003, 418 SCRA)
Chester Babst vs. CA (GR 99398, Jan. 26, 2001, 350
SCRA)

D. Effects

1. in general- Art. 1296

2. when accessory obligation may subsist- Art. 1296

E. Effect of the Status of the Original or New Obligation

1. nullity or voidability of original obligation- Art. 1298

2. nullity or voidability of new obligation- Art. 1297

33
 3. suspensive or resolutory condition of original obligation- Art.
1299

F. Objective Novation
1. meaning of principal conditions

G. Subjective Novation

1. By change of debtor a. Expromision

i. requisites- Art.
1293 ii. effects-
Art. 1294

b. Delegacion
i. requisites- (vs. Art.
1293) ii. effects- Art.
1295

a) Case
Garcia v. Llamas, 417 SCRA 292 (2003)
Quinto vs. People, G.R. No. 126712, April 14, 1999.

2. By change of creditor: Subrogation of a third person in the

rights of the creditor- Art. 1300

a. Conventional subrogation
i. requisites- Art. 1301
ii. distinguished from Assignment
of Creditiii. effects- Art. 1303, 1304

Licaros Vs. Gatmaitan, G.R. No. 142838, August

9, 2001.

b. Legal subrogation
i. requisites
ii. when presumed-
Art. 1302iii. effects-
Art. 1303, 1304
Astro Electronics Corp. vs. Philippine Export And
Foreign Loan Guarantee Corporation, G.R. No.
136729, September 23, 2003.

34
Title II. Contracts

Chapter I. General Provisions

A. Definition Art. 1305

B. Elements
1. Essential elements (see Chapter II, infra)
a. Consent
b. Object
c. Cause
2. Natural elements
3. Accidental elements (see D., 3., infra)

C. Characteristics
1. Obligatory force Art. 1308
2. Mutuality Arts. 1308-1310 (see also Art. 1473)
Case
4. GSIS v. CA, 228 SCRA 183
(1993)
Professional Academic Plans, Inc. Francisco Colayco and
Benjamin Dino vs. Crisostomo (G.R. No. 148599, March
14, 2005.)
3. Relativity
a) Contracts take effect only between the parties, their assigns and
heirs -
Art. 1311
a) Cases
Manila Railroad Co. v. La Compaia
Trasatlantica, 83 Phil. 875 (1918)
DKC Holdings Corp. v. CA, 329 SCRA 666 (2000)
b) No one may contract in the name of another Art. 1317

b) Case
Gutierrez Hmnos. v. Orense, 28 Phil. 571 (1914)

D. Parties

1. Auto-contracts
2. Freedom to contract Art. 1306

c) Cases
Gabriel v. Monte de Piedad, 71 Phil. 497 (1941)
Pakistan International Airlines v. Ople, 190 SCRA 90 (1990)

35
 a. Special disqualifications
1) Art. 87, Family Code
2) Arts. 1490 and 1491, CC
3) Art. 1782, CC

3. What they may not stipulate Art. 1306

a. Contrary to law, e.g.:

1) pactum commissorium (Art. 2088)
2) pactum leonina (Art. 1799)
3) pactum de non alienado (Art. 2130)

b. Contrary to morals
c. Contrary to good customs
d. Contrary to public order
e. Contrary to public policy
d) Cases
Cui v. Arellano, 2 SCRA 205 (1961)
Arroyo v. Berwin, 36 Phil. 386 (1917)
Filipinas Compaia de Seguros v. Mandanas,
L. 17 SCRA 391 (1966)
Bustamante v. Rosel, 319 SCRA 413 (1999)

E. Classification
1. According to
subject-matter
a. Things
b. Services
2. According to
name a.
Nominate
b. Innominate Art. 1307
1. Case
Dizon v. Gaborro, 83 SCRA 688 (1978)
Corpuz vs. CA (93 SCRA 424)

1) do ut des
2) do ut facias
3) facio ut facias
4) facio ut des
3. According to perfection
a. By mere consent (consensual) Art. 1315
b. By delivery of the object (real) Art. 1316
4. According to its relation to other contracts

36
 a. Preparatory
b. Principal
c. Accessory
5. According to form
a. Common or informal
b. Special or formal
6. According to purpose
a. Transfer of ownership, e.g., sale
b. Conveyance of use, e.g., commodatum
c. Rendition of services, e.g., agency
7. According to the nature of the vinculum produced
a. Unilateral
b. Bilateral
c. Reciprocal
8. According to cause
a. Onerous
b. Gratuitous or lucrative
9. According to risk
a. Commutative
b. Aleatory

F. Stages
1. Preparation
2. Perfection
3. Consummation or death

G. As distinguished from a perfected promise and an imperfect promise

(policitacion)

H. With respect to third persons

1. Stipulations in favor of third persons (stipulations pour autrui) Art.
1311, 2nd par.
2. Cases
Florentino v. Encarnacion, 79 SCRA 192 (1977)
Coquia v. Fieldmens Insurance Co., 26 SCRA 178 (1968)
Constantino v. Espiritu, 39 SCRA 206 (1971)
Young vs. CA (169 SCRA 213) 1989
Marmont Resort vs. Guiang (168 SCRA 373) 1988
3. Mandarin Villa vs. CA (257 SCRA 538)
1996

2. Possession of the object of contract by third persons Art. 1312

3. Creditors of the contracting parties Art. 1313
4. Interference by third persons Art. 1314

37
 Cases
4. Daywalt v. Corp., 39 Phil. 587
(1919) So Ping Bun v. CA, 314 SCRA 751
(1999)
Jose Lagon vs. CA and Lapuz (G.R. No. 119107. March
18, 2005)

Chapter II. Essential Requisites of Contracts

A. Consent
1. Requisites Art. 1319
a. Must be manifested by the concurrence of the offer and acceptance
a) Cases
Rosenstock v. Burke, 46 Phil. 217 (1924)
Malbarosa v. CA, 402 SCRA 168 (2003)
San Lorenzo Development Corporation vs. CA
(G.R.
No. 124242. January 21, 2005)
MMDA vs. Jancom (G.R. No. 147465. January
30,
2002)
Malbarosa vs. CA (G.R. No. 125761. April 30,
2003)
1) Offer
a) Must be certain Art. 1319
b) What may be fixed by the offeror Art. 1321
c) When made through an agent Art. 1322
d) Circumstances when offer becomes ineffective
Art. 1323
e) Business advertisements of things for sale Art.
1325
f) Advertisements for bidders Art. 1326
2) Acceptance
a) Must be absolute Art. 1319
b) Kinds
i. Express Art. 1320
ii. Implied Art. 1320
iii. Qualified Art. 1319
c) If made by letter or telegram Art. 1319, 2nd par.
i. Four theories on when the contract is
perfected:
1. Manifestation theory
2. Expedition thory

38
 3. Reception theory
4. Cognition theory Art. 1319, 2nd par.

d) Period of acceptance Art. 1324

b) Case
Sanchez v. Rigos, 45 SCRA 368
(1972)

e) Contract of option Art. 1324

b. Necessary legal capacity of the parties

1) Who cannot give consent Art. 1327
2) When offer and/or acceptance is made
a) during a lucid interval
b) in a state of drunkenness
c) during a hypnotic spell

c. The consent must be intelligent, free, spontaneous, and real

Arts.
1330-1346
1) Effect Art. 1330
2) Vices of consent
a) Mistake or error
i. kinds
1. Mistake of fact
a. as to substance of the
object
b. as to principal conditions
c. as to identity or
qualifications of one of the
parties
d. as to quantity, as
distinguished from a
simple mistake of account
c) Case
Asiain v. Jalandoni,
45 Phil.
(1)296 (1923)
Heirs of William Sevilla,
et.al
v. Leopoldo
Sevilla,
402 SCRA 501 (2003)

39
 Dometilla Andres
vs.
Manufacturers
Hanover and Trust
(GR 82670, Sept.
5. 15, 1989)
Spouses Theis vs. CA
(GR
L126013, Feb 12,
1997)

2. Error of law
a. General rule: Ignorantia
legis neminem excusat
Art. 3
b. Exception: Mutual error of
law
Art. 1334
ii. When one of the parties is unable to read Art.
1332
a) Cases
Dumasug v. Modelo, 34 Phil.
252 (1916)
Maxina Hemedes v. CA, 316
SCRA (1990)
Lustan vs. CA (G.R. 111924,
Jan 27, 1997)
Katipunan vs. Katipunan
(G.R. No.
132415. January 30, 2002)
Leonardo vs. CA et al (G.R. No.
125485.
6. September 13, 2004)
iii. Inexcusable mistake Art. 1333

b) Violence and intimidation Art. 1335

i. Effect Art. 1336
a) Case
Martinez v. Hongkong and Shanghai
Bank, 15
Phil. 252 (1910)
Lee vs. CA (G.R. No. 90423, September
6, 1991)

40
c) Undue influence Art. 1337
d) Fraud or dolo Art. 1338
b) Cases
Hill v. Veloso, 31 Phil. 161 (1915)
Woodhouse v. Halili, supra
Geraldez v. CA, 230 SCRA 320
(1994)
Sierra vs. CA (G.R. No. 90270, July
24,
1992)
i. Kinds
1. dolo causante Art 1338
2. dolo incidente Art. 1344, 2nd par.

ii. Failure to disclose facts; duty to reveal

them Art. 1339
Cases
Tuason v. Marquez, 45 Phil.
381
7. (1923)
Rural Bank of Sta. Maria v.
CA, 314 SCRA 255 (1999)

iii. Usual exaggerations in trade; opportunity

to know the facts Art. 1340
a) Cases
Azarraga v. Gay, 52 Phil. 599
(1928)
Laureta Trinidad v. IAC,
204 SCRA 524 (1991)

iv. Mere expression of an opinion Art. 1341

1. Effects Art.
1344 Case
Songco v. Sellner, 37 Phil.
(1)254 (1917)
e) Misrepresentation
i. By a third person Art. 1342
ii. Made in good faith Art. 1343
iii. Active/passive
b) Cases
Mercado and Mercado v.
Espiritu, 37 Phil. 215
(1917)

41
 Braganza v. Villa Abrille,
105 Phil.
456 (1959)
f) Simulation of Contracts
c) Cases
Rodriguez v. Rodriguez, 28 SCRA 229
(1914) Suntay v. CA, 251 SCRA 430
(1995) Pangadil et al vs. CFI (G.R. No.
L-32437.
August 31, 1982)
Umali et al vs. CA (G.R. No. 89561.
8. September 13, 1990)
i. Kinds Art. 1345
1.
Absol
ute 2.
Relati
ve
Macapagal vs. Remorin, Caluza
(G.R.
No. 158380. May 16,
2005.) ii. Effects Art.
1346

B. Object of Contracts
1. What may be the objects of contracts Art. 1347
a. All things not outside the commerce of man
b. All rights not intransmissible
c. All services not contrary to law, morals, good customs, public,
or public policy
2. Requisite - must be determinate as to its kind Art. 1349
3. What may not be the objects of contracts
a. Future inheritance, except when authorized by law Art. 1347
Case
9. Blas v. Santos, 1 SCRA 899 (1961)
J.L.T. Agro, Inc. vs. Balansag and Cadayday
(G.R. No. 141882. March 11, 2005)

b. Impossible things or services Art. 1348

C. Cause of Contracts
1. Meaning of cause Art. 1350
a. In onerous contracts
b. In remuneratory contracts

42
 c. In contracts of pure beneficence 2. As
distinguished from motive Art. 1351 3. Defective causes and
their effects:
a. Absence of cause and unlawful cause Art. 1352
Case
10. Liguez v. CA, 102 Phil. 577 (1957)

b. Statement of a false cause in the contract Art. 1353

c. Lesion or inadequacy of cause Art. 1355
Cases
11. Carantes v. CA, 76 SCRA 514 (1977)
Sps. Buenaventura, et. al. v. CA, 416 SCRA 263 (2003)

4. Presumption of the existence and lawfulness of a cause, though it is not

stated in the contract Art. 1354

Chapter III. Form of Contracts

A. General rule: Contracts shall be obligatory, in whatever form they may have
been entered into, provided all the essential requisites for their validity are
present.
(Spiritual system of the Spanish Code) - Art. 1356

B. Exception: When the law requires that a contract be in some form in order that
it may be valid or enforceable. (Anglo-American principle) - Art. 1356
a) Case
Hernaez v. De los Angeles, 27 SCRA 1276 (1969)

C. Kinds of formalities required by law:

1. Those required for the validity of contracts, such as those referred to in
Arts. 748, 749, 1874, 2134, 1771, 1773;
2. Those required, not for validity, but to make the contract effective as
against third persons, such as those covered by Arts. 1357 and 1358; and
3. Those required for the purpose of proving the existence of the contract,
such as those under the Statute of Frauds in Art. 1403.
Case

12. Resuena vs.CA (G.R. No. 128338. March 28, 2005)

Chapter IV. Reformation of Instruments

A. Requisites (Art. 1359):

1. Meeting of the minds upon the contract;

43
 2. The true intention of the parties is not expressed in the instrument; and
3. The failure of the instrument to express the true agreement is due to
mistake, fraud, inequitable conduct, or accident.
Cases
13. Garcia v. Bisaya, 97 Phil. 609
(1955) Bentir v. Leande, 330 SCRA 591
(2000)
Quiros vs. Arjona [G.R. No. 158901. March 9, 2004.]

B. Cases where no reformation is allowed - Art. 1366

C. Implied Ratification Art. 1367

D. Who may ask for reformation Art. 1368

E. Procedure of reformation Art. 1369

a) Cases
Atilano v. Atilano, 28 SCRA 2232 (1969)
Carantes v. CA, supra
Sarming, et. al. v. Cresencio Dy, et. al., 383 SCRA 131 (2002)

Chapter V. Interpretation of Contracts (Compare with Rules on Statutory

Construction)

A. Primacy of intention Arts. 1370, 1372

b) Cases
Borromeo v. CA, 47 SCRA 65 (1972)
Kasilag v. Rodriguez, 69 Phil. 217 (1939)
Santi vs. CA (GR 93625, 227 SCRA 541, 1993)

B. How to determine intention Art. 1371

Rapanut vs CA 246 SCRA 323 (1995)

C. How to interpret a contract

1. When it contains stipulations that admit several meanings Art.
1373 Oil And Natural Gas Commission vs. Court Of Appeals
[G.R. No. 114323. July 23, 1998.]

2. When it contains various stipulations, some of which are doubtful

Art. 1374
Spouses Rigor vs. Consolidated Orix Leasing And Finance Corporation
[G.R. No. 136423. August 20, 2002.]

3. When it contains words that have different significations Art. 1375

44
 4. When it contains ambiguities and omission of stipulations Art. 1376
Chua vs. Court Of Appeals [G.R. No. 119255. April 9, 2003.]

5. With respect to the party who caused the obscurity Art. 1377
Rizal Commercial Banking Corporation vs. Court Of Appeals [G.R.
No. 133107, March 25, 1999]

6. When it is absolutely impossible to settle doubts by the rules above

Art.
1378
a. in gratuitous contracts
Gacos vs. Court Of Appeals [G.R. Nos. 85962-63, August 3,
1992]
b. in onerous contracts

7. When the doubts are cast upon the principal object so that the intention
cannot be known Art. 1378

D. Applicability of Rule 123, Rules of Court (now Secs. 10-19, Rule 130)

DEFECTIVE CONTRACTS

Chapter VI. Rescissible Contracts

A. Kinds Art. 1381

B. Characteristics
1. Their defect consists in injury or damage either to one of the contracting
parties or to third persons.
2. They are valid before rescission.
3. They can be attacked directly only, and not collaterally.
4. They can be attacked only either by a contracting party or by a third
person who is injured or defrauded.
5. They can be convalidated only by prescription, and not by ratification.

C. Rescission Art. 1380

1. Definition
2. As distinguished from rescission under Art. 1191
c) Case
Universal Food Corp. v. CA, 33 SCRA 1 (1970)
Pryce Corporation vs. PAGCOR (G.R. No. 157480. May
6, 2005)
Sps. Cannu vs. Sps. Galang [G.R. No. 139523. May 26,
2005.]

45
 Iringan vs. Court Of Appeals [G.R. No. 129107.
September 26, 2001.]
Rivera vs. Del Rosario [G.R. No. 144934. January 15,
2004.]
Equatorial Realty Development vs. Mayfair Theatre
(G.R. No.
(1) 133879. November 21, 2001)
3. Requisites:
a. The contract is rescissible;
b. The party asking for rescission has no other legal means
to obtain reparation Art. 1383;
The Union Insurance Society Of Canton vs. Court Of
Appeals [G.R. No. 100319. August 8, 1996.]
c. He is able to return whatever he may be obliged to
restore if rescission is granted Art 1385;
Rivera vs. Del Rosario [G.R. No. 144934. January 15,
14. 2004.]
d. The object of the contract has not passed legally to the
possession of a third person acting in good faith Art.
1385;
e. The action for rescission is brought within the
prescriptive period of four (4) years Art 1389.
4. Effect of rescission Art. 1385
a. with respect to third persons who acquired the thing in
good faith Art. 1385, 2nd and 3rd par.
5. Extent of rescission Art. 1384
Siguan v. Lim, et. al. , 318 SCRA 725 (1999)

6. Presumptions of fraud Art. 1387

a. Badges of fraud
Cases
15. Oria v. Mcmicking, 21 Phil. 243 (1912)
Siguan v. Lim, et. al. , 318 SCRA 725 (1999)
Suntay v. CA, supra
China Banking Corporation vs. Court Of Appeals
[G.R.
16. No. 129644. March 7, 2000.]
MR Holdings Ltd vs. Carlos (G.R. No. 138104. April
11, 2002)

7. Liability for acquiring in bad faith the things alienated in fraud of

creditors Art. 1388

46
Chapter VII. Voidable or Annullable Contracts

A. Kinds Art. 1390

B. Characteristics
1. Their defect consists in the vitiation of consent of one of the contracting
parties.
2. They are binding until they are annulled by a competent court.
3. They are susceptible of convalidation by ratification or by prescription.
Case
17. Felipe vs. Heirs of Aldon (120 SCRA
628)

C. Annulment
1. As distinguished from rescission
2. Grounds Art. 1390
3. Who may and may not institute action for annulment Art. 1397
a) Case
Singsong v. Isabela Sawmill, 88 SCRA 623 (1979)
Samahan Ng Magsasaka Sa San Josep vs. Valisno [G.R.
No.
158314. June 3, 2004.]
Malabanan vs. Gaw Ching (181 SCRA 84, 1990)
Armentia vs. Patriarca (18 SCRA 1253, 1966)

4. Prescription Art. 1391

b) Case
Carantes vs. CA (76 SCRA 514)

5. Effect
a. Mutual restitution Arts. 1398 and 1402
c) Cases
Cadwallader & Co. v. Smith, Bell & Co., 7 Phil.
461 (1907)
18. Velarde v. CA, supra
David Ines vs.Court Of Appeals [G.R. No. 114051.
August 14, 1995.]
Arra Realty Corporation vs. Guarantee
Development
Corporation (G.R. No. 142310. September 20, 2004)

1) When one of the parties is incapacitated - Art. 1399

47
 Katipunan vs. Katipunan [G.R. No. 132415. January
30, 2002.]

2) When the thing is lost through the fault of the party

obliged to return the same Art. 1400
6. Extinguishment of the action
a. By ratification Art. 1392
b. When the thing is lost through the fault of the person who has
the right to file the action Art. 1401

D. Ratification
1. Requisites:
a. The contract is voidable;
b. The ratification is made with knowledge of the cause for
nullity;
c. At the time of the ratification, the cause of nullity has already
ceased to exist.

2. Forms
a. Express or tacit Art. 1393

b. By the parties themselves or by the guardian in behalf of an

incapacitated party Art. 1394

3. Effects:
a. Action to annul is extinguished Art.
1392 Case
Uy Soo Lim v. Tan Unchuan, 38 Phil. 552 (1918)
b. The contract is cleansed retroactively
from all its defects Art. 1396

Chapter VIII. Unenforceable Contracts

A. Characteristics
1. They cannot be enforced by a proper action in court.
2. They are susceptible of ratification.
3. They cannot be assailed by third persons.

B. Kinds Art. 1403

1. Unauthorized contracts
a. Governing rules Art. 1404
2. Contracts covered by the Statute of Frauds

48
 a) Case
Asia Production Co., Inc. vs. Pao [G.R. No. 51058.
January 27, 1992.]
Western Mindanao Co. vs. Medalle (79 SCRA 703)
19. Limketkai Sons vs. CA (250 SCRA
523)
Babao vs. Perez (102 Phil 756)
Reiss vs. Memije (15 Phil 350)
Villanueva vs CA (G.R. No. 107624. January 28, 1997)

a. Purpose of Statute
a) Case
Philippine National Bank v. Philippine Vegetable
Oil Co., 49 Phil. 857 (1927)

b. How ratified Art. 1405

b) Cases
Carbonnel v. Poncio, et al., 103 Phil. 655
(1958) First Philippine International Bank vs.
CA (G.R. No. 115849. January 24, 1996)

c. Right of the parties when a contract is enforceable but a public

document is necessary for its registration Art. 1406
3. Contracts executed by parties who are both incapable of giving consent
to a contract
a. Effect of ratification by the parents or guardian of one of the
parties
Art. 1407
b. Effect of ratification by the parents or guardian of both parties
Art.
1407
Chapter IX. Void or Inexistent Contracts

A. Characteristics
1. Void from the beginning
2. Produces no effect whatsoever
3. Cannot be ratified Art. 1409
Cases
Tongoy vs. CA (123 SCRA 99)

49
 20. Cui vs. Arellano University (2 SCRA
205) Chavez vs. PCGG (307 SCRA 394)
Guiang vs. CA (291 SCRA 372) Castillo vs.
Galvan (85 SCRA 526)

B. Kinds Art. 1409

1. Contracts that are void
a. Those whose cause, object, or purpose is contrary to law,
morals, good customs, public order or public policy
1) When the act constitutes a criminal offense Art. 1411
a) in pari delicto rule

2) When the act is unlawful but does not constitute a

criminal offense Art. 1412
a) in pari delicto rule
Cases
Menchacez vs. Teves (G.R. No. 153201.
January
21. 26, 2005)
Angel vs Modales(G.R. No. 145031.
January 22, 2004)

3) When the purpose is illegal, and money is paid or

property delivered therefor Art. 1414
4) When the contract is illegal and one of the parties is
incapable of giving consent Art. 1415
Cases
22. Liguez v. CA, supra
Relloza v. Gaw Cheen Hum, 93 Phil. 827 (1953)

5) When the agreement is not illegal per se but is prohibited

Art. 1416
a) Cases
Philippine Banking Corp. v. Lui She, 21
SCRA
(1) 52 (1967)
Frenzel v. Catito, 406 SCRA 55 (2003)
Acabal and Nicolas vs. Acabal (G.R. No.
148376.
March 31, 2005)
Frenzel vs. Catito (G.R. No. 143958. July 11,

50
 23. 2003)

6) When the amount paid exceeds the maximum fixed by

law Art. 1417
7) When by virtue of a contract a laborer undertakes to
work longer than the maximum number of hours of work
fixed by law Art. 1418
8) When a laborer agrees to accept a lower wage than that
set by law Art. 1419
9) When the contract is divisible Art. 1420
10)When the contract is the direct result of a previous illegal
contract Art. 1422
b. Those whose object is outside the commerce of man
c. Those which contemplate an impossible service
d. Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained
e. Those expressly prohibited or declared void by law

2. Contracts that are inexistent

a. Those which are absolutely simulated or fictitious (see Arts.
1345 and 1346)
b. Those whose cause or object did not exist at the time of the
transaction

C. Right to set up defense of illegality cannot be waived Art. 1409

D. The action or defense for the declaration of the inexistence of a contract

1. does not prescribe Art. 1410
2. is not available to third persons whose interest is not directly affected
Art. 1421

Title III. Natural Obligations

A. Definition Art. 1423

B. As distinguished from civil obligations Art. 1423

C. As distinguished from moral obligations

a) Cases
Villaroel v. Estrada, 71 Phil. 140 (1940)
Fisher v. Robb, 69 Phil. 101 (1939)

D. Conversion to civil obligation

1. By novation

51
 2. By ratification

E. Examples Arts. 1424-1430

Title IV. Estoppel

A. Definition Art. 1431

b) Case
Kalalo v. Luz, 34 SCRA 337 (1970)

B. Kinds
1. Technical estoppel
a. By record
b. By deed art. 1433
3. Equitable estoppel or estoppel in pais Art. 1433

C. Persons bound Art. 1439

Case
Manila Lodge No. 761 Benevolent and Protective Order of the
Elks
M. v. CA, 73 SCRA 168
(1976)

D. Cases where estoppel applies Arts. 1434-1438

1. Case
Miguel v. Catalino, 26 SCRA 234 (1969)
Read: Annotation, 32 SCRA 542
Mendoza vs. Reyes and CA (G.R. No. L-31618. August 17,
1983)

Title V. Trusts

Chapter I. General Provisions

A. Definition

B. Governing rules Art. 1442

C. Parties Art. 1440

1. Trustor

52
 2. Trustee
3. Beneficiary or cestui que trust

D. Kinds Art. 1441

2. Case
Salao v. Salao, 70 SCRA 168 (1976)

1. Express Trusts
a. Proof required Art. 1443
b. Form Art. 1444
c. Want of trustee Art. 1445
d. Acceptance by the beneficiary Art. 1441
2. Implied Trusts
a. How established Art. 1441
b. How proved Art. 1457
c. Examples Arts. 1448-1456
Cases
3. Fabian v. Fabian, 22 SCRA 231 (1968) Bueno v.
Reyes, 27 SCRA 1179 (1969) Tamayo v. Callejo, 46
SCRA 27 (1972)
Heirs of Sanjorjo vs. Quijano (GR. No. 140457.
January 19, 2005)
Aznar Brothers Realty Company vs. Aying (GR
No.
144773. May 16, 2005)

53