NOTES

ON
OBLIGATIONSANDCONTRACTS

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I. OBLIGATIONS which causes damage to another giving rise

to an obligation to pay for the damage done,
OBLIGATION there being fault or negligence but there is
 A juridical necessity to give, to do, or not to no pre-existing contractual relation between
do (Article 1156), one impressed with the the parties (Article 2176).
character of enforceability.
 Requisites:  Requisites:
a. juridical or legal tie or efficient cause 1. There must be an act or omission;
b. active subject (obligee or creditor) 2. There must be fault or negligence;
c. passive subject (obligor or debtor) 3. There must be damage caused to the
d. fact, prestation or service constituting the plaintiff;
object of the obligation 4. There must be a direct relation of cause
 Requisites: and effect between the act or omission
i) it must be licit and the damage; and
ii) it must be possible, physically & 5. There is no pre-existing contractual
juridically relation between the parties.
iii) it must be determinate or
determinable NOTES:
iv) it must have a possible equivalent in  The same negligent act or omission causing
money damage may produce civil liability arising
 Sources (Article 1157): from crime under Art. 100 of the RPC or
1. Law create an action for quasi-delict under Article
2. Contracts 2176.
3. Quasi-contracts  While it is true that in order that a person
4. Delicts may be liable for quasi-delicts, there must be
5. Quasi-delicts no pre-existing contractual relationship
QUASI-CONTRACTS between the parties, yet, “the act that breaks
 Those juridical relations arising from lawful, the contract may also be a tort.” (Air France
voluntary and unilateral acts, by virtue of vs. Carrascoso, 18 SCRA 155).
which the parties become bound to each
other, based on the principle that no one Nature of Obligations
shall be unjustly enriched or benefited at the 1. Personal Obligations - obligations to do
expense of another. a. Positive – obligation to do
b. Negative – obligation not to do
Principal Kinds of Quasi-contracts: 2. Real Obligations - obligations to give
1. Negotiorum gestio - arises whenever a a. Determinate or specific – object is
person voluntarily takes charge of the agency particularly designated or physically
or management of the segregated from all other of the same
business or property of another without any class
power or authority from the latter. b. Generic – object is designated merely by
2. Solutio indebiti - arises whenever a person its class or genus
unduly delivers a thing through mistake to c. Limited generic thing – when the generic
another who has no right to demand it. objects are confined to a particular class,
QUASI-DELICTS e.g. an obligation to deliver one of my
 An act or omission by a person (tortfeasor) horses (Tolentino, Volume IV, p. 91).
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PERSONAL vs. REAL RIGHT

Personal Real Principle of Balancing of Equities as Applied in
1. jus ad rem, 1. jus in re, a Actions for Specific Performance
a right right  In decreeing specific performance, equity
enforceable enforceable requires not only that the contract be just
only against a against the and equitable in its provisions, but that the
definite person whole world consequences of specific performance
or group of likewise be equitable and just. The general
persons rule is that this equitable relief will not be
2. right 2. right granted if, under the circumstances of the
pertaining to pertaining to a case, the result of the specific performance of
the person to person over a the contract would be harsh, inequitable,
demand from specific thing, oppressive or result in an unconscionable
another, as a without a advantage to the plaintiff. The courts may
definite passive passive subject adjust the rights of the parties in accordance
subject, the individually with the circumstances obtaining at the time
fulfillment of a determined of rendition of judgment, when these are
prestation to against whom significantly different from those existing at
give, to do or such right may the time of generation of those rights.
not to do. be personally (Agcaoili vs. GSIS, G.R. No. 30056, August 30,
enforced 1988)
OBLIGATIONS OF THE DEBTOR
RIGHTS OF A CREDITOR Determinate Generic
Determinate Generic 1. deliver the 1. deliver the
1. compel 1. ask for thing which he thing which is
specific performance of has obligated neither of
performance the obligation himself to give superior nor
2. recover 2. ask that the 2. take care of inferior quality
damages in obligation be the thing with 2. pay
case of breach complied with the proper damages in
of the at the expense diligence of a case of breach
obligation, of the debtor good father of of the
exclusive or in a family obligation by
addition to 3. deliver all reason of
specific accessions and delay, fraud,
performance accessories of negligence or
3. entitlement 3. recover the thing even contravention
to fruits, damages in though they of the tenor
interests from case of breach may not have thereof
the time the of the been
obligation to obligation mentioned
deliver arises. 4. pay
damages in
case of breach
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of the the obligor, consequences contrary to the

obligation by object of the obligation will have been
reason of produced which are permanent in character
delay, fraud, 2. Where it would be physically or legally
negligence or impossible to undo what has been undone
contravention because of the very nature of the act itself or
of the tenor because of a provision of law, or because of
thereof conflicting rights of 3rd persons
NOTE: In either case, the remedy is to ask for
EFFECTS OF BREACH damages.
Positive Negative
Personal Personal BREACH OF OBLIGATIONS
Obligations Obligations 1. Voluntary - debtor, in the performance of
The creditor can: If the obligor does the obligation, is guilty of:
1. have the what has been a. default (mora)
obligation forbidden him, b. fraud (dolo)
performed or the creditor can: c. negligence (culpa)
executed at the 1. have it undone d. contravention of the tenor of the
expense of the at the expense of obligation
obligor (except the obligor; and NOTE: debtor is liable for damages
in cases where 2. ask for
the personal damages 2. Involuntary - debtor is unable to comply
qualifications of with his obligation because of fortuitous
the debtor are event
taken into NOTE: debtor is not liable for damages
account in which
case the only DEFAULT or DELAY
remedy is an  Non-fulfillment of the obligation with respect
action for to time
damages)  Requisites:
2. ask that what 1. Obligation is demandable and already
has been poorly liquidated
done be undone 2. The debtor delays performance
3. recover 3. The creditor requires performance judicially or
damages extra-judicially
because of
breach of the  3 Kinds:
obligation 1. Mora solvendi - delay of the debtor to
perform his obligation. It may be:
Cases where the remedy granted under Article a. Ex re – obligation is to give
1168 is not available: b. Ex persona – obligation is to do
1. Where the effects of the act which is 2. Mora accipiendi - delay of the creditor to
forbidden, are definite in character, in which accept the delivery of the thing w/c is the
case, even if it is possible for the obligee to object of the obligation
ask that the act be undone at the expense of 3. Compensatio morae - delay of the parties or
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obligors in reciprocal obligation performance or perfection of

of a pre-existing the obligation
 obligation
When incurred:
General Rule: There must be a demand (judicial 2. Purpose is to 2. Purpose is to
or extra-judicial) before delay may be incurred. evade the secure the
Exceptions: normal consent of the
1. obligation or law expressly so declares fulfillment of other to enter
2. time is of the essence of the contract the obligation into a contract
3. demand is useless as when obligor has
rendered beyond his power to perform 3. Results in the 3. Results in the
4. there is acknowledgment of default non-fulfillment vitiation of
or breach of the consent
NOTES: obligation
 There can be delay only in positive
obligations (to give/to do). There can be no 4. Gives rise to 4. Gives rise to a
delay in negative obligations (not to give/not a right of the right of an
to do). creditor to innocent party to
 In reciprocal obligations one party incurs in recover annul the
delay from the moment the other party fulfills damages from contract
his obligation, while he himself does not the debtor
comply or is not ready to comply in a proper
manner with what is incumbent upon him.
The general rule is that fulfillment by both
parties should be simultaneous except when
different dates for the performance of
obligation is fixed by the parties. NEGLIGENCE
 Demand is still necessary if their respective  Omission of that diligence which is required
obligations are to be performed on separate by the nature of the obligation and
dates corresponds with the circumstances of the
persons, of the time and of the place
FRAUD NOTE: Negligence can be waived unless the
 Deliberate and intentional evasion of the nature of the obligation or public policy requires
fulfillment of an obligation extraordinary diligence as in common carrier.

NOTE: Future fraud cannot be waived because it Diligence Required

would result to illusory obligation. 1. That agreed upon by the parties
2. In the absence of stipulation, that required by
Incidental Causal law in the particular case
Fraud/dolo Fraud/dolo 3. If both the contract and law are silent,
incidente causante diligence of a good father of a family
(Article 1170) (Article 1338)
Concept of Diligence of Good Father of a
1. Present 1. Present during Family
during the the time of birth  That reasonable diligence which an ordinary
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prudent person would have done under the

same circumstances

Test of Negligence
 The test of negligence can be determined by GENERAL RULE: No liability in case of fortuitous
this standard: If the defendant, in committing event.
or causing the negligent act, had used EXCEPTIONS:
reasonable care and vigilance which a man of 1 When expressly declared by law
ordinary prudence would have employed NOTE: e.g. Article 552(2), 1165(3), 1268,
under the same situation, he is not guilty of 1942, 2147, 2148 and 2159 of the Civil
negligence. Otherwise, he is guilty. Code.
2 When expressly declared by stipulation or
Doctrine of Res Ipsa Loquitur as Applied in contract
Negligence Cases 3 When the nature of the obligation
 The thing or transaction speaks for itself requires the assumption of risk
 When the thing which caused injury, without 4 When the obligor is in default or has
fault of the injured person, is under the promised to deliver the same thing to 2
exclusive control of the defendant and the or more persons who do not have the
injury is such as in the ordinary course of same interest [Article 1165(3)].
things does not occur if he having such
control use proper care, it affords reasonable EFFECT OF FORTUITOUS EVENT
evidence, in the absence of explanation from Determinate Generic
the defendant, that the injury arose from Obligation Obligation
defendant’s want of care (Africa vs. Caltex, 16 obligation is obligation is not
SCRA 448 and Republic vs. Luzon extinguished extinguished
Stevedoring, 21 SCRA 279). based on the
rule that a genus
FORTUITOUS EVENT never perishes
 An event which could not be foreseen or (genus nunquam
which though foreseen was inevitable. peruit)

 Requisites:
1. cause is independent of the will of the debtor PRINCIPLE UNDER ARTICLE 1176
2. the event must be unforeseeable or  Before the presumption that a prior
unavoidable installment had been paid may arise, the
3. occurrence must be such as to render it receipt must specify the installment for
impossible for the debtor to fulfill his which payment is made.
obligation in a normal manner
4. debtor must be free from any participation in  REMEDIES OF CREDITOR TO PROTECT
5. the aggravation of the injury resulting to the CREDIT:
creditor (Lasam vs. Smith, 45 Phil. 657) 1. Exhaustion of debtor’s property
2. Accion subrogatoria - to be subrogated to all
NOTE: It must not only be the proximate the rights and actions of the debtor save
cause but it must be the ONLY and SOLE those which are inherent in his person.
CAUSE. 3. Accion pauliana - impugn all the acts w/c the
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debtor may have done to defraud them. good customs

NOTE: 2nd & 3rd remedies are subsidiary to the 7. Impossible - condition is not capable of
first realization according to nature, law, public
policy and good customs
GENERAL RULE: Rights acquired by virtue of an 8. Positive - condition involves the performance
obligation are transmissible in character of an act
 9. Negative - condition involves the omission of
EXCEPTIONS: an act
1. When they are not transmissible by their 10. Divisible - condition is susceptible of partial
very nature e.g. purely personal right realization
2. When there is a stipulation of the parties 11. Indivisible - condition is not susceptible of
that they are not transmissible partial realization
3. Not transmissible by operation of law 12. Conjunctive - where there are several
conditions, all of which must be realized
PURE OBLIGATION 13. Alternative - where there are several
 One whose effectivity or extinguishment does conditions but only one must be realized
not depend upon the fulfillment or non-
fulfillment of a condition or upon the Rule in Potestative Conditions
expiration of a term or period and is a. If the fulfillment of the potestative
demandable at once. condition depends upon the sole will of
the debtor, the condition as well as the
CONDITIONAL OBLIGATION obligation itself is void. It renders the
 One whose effectivity is subordinated to the obligation illusory. (Applicable only to a
fulfillment or non-fulfillment of a future AND suspensive condition and to an obligation
uncertain fact or event which depends for its perfection upon the
fulfillment of the potestative condition and
not to a pre-existing obligation.)
Kinds of conditions: b. If the fulfillment depends exclusively upon
1. Suspensive - fulfillment of the condition the will of the creditor, both the condition
results in the acquisition of rights arising out and obligation is valid.
of the obligation NOTE: In case of simple potestative condition,
2. Resolutory - fulfillment of the condition e.g. right of first refusal, such condition is
results in the extinguishments of rights arising valid.
out of the obligation
3. Potestative - fulfillment of the condition Rule in Impossible Conditions
depends upon the will of a party to the GENERAL RULE: They shall annul the obligation
obligation which depends upon them.
4. Casual - fulfillment of the condition depends EXCEPTIONS:
upon chance and/or upon the will of a third 1. pre-existing obligation
person 2. if obligation is divisible
5. Mixed - fulfillment of the condition depends 3. in simple or remuneratory donations
partly upon chance and/or the will of a third 4. in testamentary dispositions
person 5. in case of conditions not to do an impossible
6. Possible - condition is capable of realization thing
according to nature, law, public policy and Effects of Suspensive Condition
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1. Before fulfillment of the condition, the arises or extinguished

demandability as well as the acquisition or becomes
effectivity of the rights arising from the effective 2. if not
obligation is suspended 2. if not fulfilled, fulfilled,
2. After the fulfillment of the condition, the no juridical juridical
obligation arises or becomes effective relation is relation is
3. The effects of a conditional obligation to give, created consolidated
once the condition has been fulfilled, shall 3. rights are not 3. rights are
retroact to the day of the constitution of the yet acquired, already
obligation but there is acquired, but
4. When the obligation imposes reciprocal hope or subject to
prestations upon the parties, the fruits & expectancy the threat or
interests shall be deemed to have been that they will danger of
mutually compensated soon be extinction
5. If the obligation is unilateral, the debtor shall acquired
appropriate the fruits & interests received, Effects of Loss, Deterioration and Improvement
unless from the nature & circumstances it in real obligations (during the pendency of the
should be inferred that the intention of the condition)
persons constituting the same was different 1. Loss
6. In obligations to do or not to do, the court a. without debtor’s fault - obligation is
shall determine the retroactive effect or the extinguished
conditions that has been complied with b. with debtor’s fault - debtor pays damages
Constructive fulfillment of Suspensive 2. Deterioration
Condition a. without debtor’s fault - impairment to be
 The condition shall be deemed fulfilled when borne by the creditor
the obligor actually prevented the obligee b. with debtor’s fault - creditor may choose
from complying with the condition and such between the rescission of the obligation
prevention must have been voluntary and and its fulfillment with indemnity for
willful in character. damages in either case
Effects of Resolutory Condition 3. Improvement
1. Before the fulfillment of the condition, the a. by the thing’s nature or by time -
right which the creditor has already acquired improvement shall inure to the benefit of
by virtue of the obligation is subject to a the creditor
threat of extinction. b. at the debtor’s expense - debtor shall
2. If condition is not fulfilled, rights are have no other right than that granted to a
consolidated; they become absolute. usufructuary
3. Upon fulfillment of the condition, the parties
shall return to each other what they received NOTE: Applies only to determinate things
including the fruits A Thing is Lost when it:
SUMMARY: 1. perishes
SUSPENSIVE RESOLUTORY 2. goes out of commerce
CONDITION CONDITION 3. disappears in such a way that its existence is
unknown or it cannot be recovered
1. if fulfilled, 1. if fulfilled,
obligation obligation is
RECIPROCAL OBLIGATIONS
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 Those which are created or established at the extinguishment is subject to the expiration of
same time, out of the same cause, and which a term or period
result in mutual relationships of creditor &  Requisites:
debtor between the parties 1. future
2. certain
TACIT RESOLUTORY CONDITION 3. possible, legally and physically
If one of the parties fails to comply with what is
incumbent upon him, there is a right on the part CLASSIFICATION OF TERM OR PERIOD
of the other to rescind the obligation. 1. a. suspensive (ex die) – obligation becomes
demandable only upon arrival of a day certain
RIGHT TO RESCIND (ART 1191)
GENERAL RULE: The right to rescind needs b. resolutory (in diem) – arrival of day certain
judicial approval. terminates the obligation
EXCEPTIONS: 2. a. legal – granted by law
1. If there is an express stipulation of b. conventional – stipulated by parties
automatic rescission c. judicial – fixed by courts
2. When the debtor voluntarily returned the 3. a. definite – date/time is know beforehand
thing b. indefinite – the date/time of day certain is
NOTES: unknown
 Article 1191 refers to judicial rescission. It
does not apply if there is an express TERM CONDITION
stipulation to rescind, in which case such 1. interval of 1. fact or event
stipulation must prevail. There is nothing in time w/c is w/c is future and
the law which prohibits the parties from future & uncertain
entering into an agreement that violation of certain
the terms of the contract would cause its 2. interval of 2. future and
cancellation without court intervention. Said time w/c must uncertain fact or
stipulation is in the nature of facultative necessarily event w/c may or
resolutory condition (Angeles vs. Calasanz, come, although may not happen
135 SCRA 323). it may not be
 Rescission will be ordered only where the known when
breach is substantial as to defeat the object 3.exerts an 3. exerts an
of the parties in entering into the agreement. influence upon influence upon
 The injured party may choose between the time of the very
fulfillment and rescission of the obligations, demandability existence of the
with the payment of damages in either case. or obligation itself
These remedies are alternative, not extinguishment
cumulative. However, should fulfillment of an
become impossible, the injured party may obligation
also seek rescission. 4. does not 4. has retroactive
 The right to rescind belongs exclusively to the have any effect
injured party. retroactive
effect unless
OBLIGATION WITH A PERIOD there is an
 Those whose demandability or agreement to
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the contrary period: (IGIVA)

5. when it is 5. when it is left 1. when after the obligation has been
left exclusively exclusively to the contracted, he becomes insolvent, unless he
to the will of will of the gives guaranties or securities for the debt
the debtor, the debtor, the very (the insolvency need not be judicially
existence of existence of the declared)
the obligation obligation is 2. when he does not furnish to the creditor
is not affected affected the guaranties or securities he promised
3. when by his own act he has impaired said
guaranties or securities after their
GENERAL RULE: When a period is designated establishment, and when through fortuitous
for the performance or fulfillment of an event they disappear, unless he gives new
obligation, it is presumed to have been ones equally satisfactory when debtor
established for the benefit of both creditor and violates any undertaking, in consideration of
debtor. which the creditor agreed to the period or
EXCEPTION: When it appears from the tenor of 4. when debtor attempts to abscond
the obligation or other circumstances that the
period has been established in favor of one or of
the other. FACULTATIVE ALTERNATIVE
Obligations Obligations
When court may fix period: 1.comprehends 1. comprehends
1. if the obligation does not fix a period, but only one object several objects or
from its nature and circumstances it can be or prestation prestations which
inferred that a period was intended by the which is due, are due but may
parties but it may be be complied with
2. if the duration of the period depends upon complied with by the delivery or
the will of the debtor; and by the delivery performance of
3. If the debtor binds himself when his means of another only one of them
permit him to do so (Article 1180) object or
NOTE: The only action that can be maintained is performance of
an action to ask the court to fix the duration of another
the term or period. The fulfillment of the prestation in
obligation itself cannot be demanded until after substitution
the court has fixed the period for compliance 2. fortuitous 2. fortuitous loss
therewith, and such period has arrived. However, loss of all prestations
such technicality need not be adhered to when a extinguishes will extinguish the
prior and separate action would be a mere the obligation obligation
formality and would serve no other purpose than 3. culpable loss 3. culpable loss
to delay (Borromeo vs. CA, 47 SCRA 65). obliges the of any object due
debtor to will give rise to
Reason for Fixing the Period (ART 1197) deliver liability to debtor
 There can be no possibility of any breach of substitute
contract or failure to perform the obligation prestation
unless the period is fixed by courts. without liability
When debtor loses right to make use of to debtor
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4. choice 4. choice may

pertains only to pertain to creditor JOINT AND SOLIDARY OBLIGATIONS
debtor or even third GENERAL RULE: Obligation is presumed joint if
person there is concurrence of two or more debtors
and/or creditors.
EXCEPTIONS:
1. when expressly stated that there is
NOTES: solidarity
 In alternative obligations, choice takes effect 2. when the law requires solidarity
only upon communication of the choice to 3. when the nature of the obligation
the other party and from such time the requires solidarity
obligation ceases to be alternative.
 The debtor cannot choose those prestations JOINT DIVISIBLE OBLIGATIONS
or undertakings which are impossible,  Each creditor can demand for the payment of
unlawful or w/c could not have been the his proportionate share of the credit, while
object of the obligation. each debtor can be held liable only for the
EFFECT OF LOSS OF OBJECT OF OBLIGATION: payment of his proportionate share of the
1. If right of choice belongs to debtor debt.
a. If through a fortuitous event - debtor  A joint creditor cannot act in representation
cannot be held liable for damages of the other creditors while a joint debtor
b. If 1 or more but not all of the things are cannot be compelled to answer for the acts
lost or one or some but not all of the or liability of the other debtors.
prestations cannot be performed due to JOINT INDIVISIBLE OBLIGATIONS
the fault of the debtor, creditor cannot 1. If there are 2 or more debtors, the fulfillment
hold the debtor liable for damages of or compliance with the obligation requires
because the debtor can still comply with the concurrence of all the debtors, although
his obligation. each for his own share. Consequently, the
2. If right of choice belongs to the creditor obligation can be enforced only by
a. If 1 of the things is lost through a proceeding against all of the debtors.
fortuitous event, the debtor shall perform 2. If there are 2 or more creditors, the
the obligation by delivering that which concurrence or collective act of all the
the creditor should choose from among creditors, although each for his own share, is
the remainder, or that which remains if also necessary for the enforcement of the
only 1 subsists obligation.
b. If the loss of 1 of the things occurs
through the fault of the debtor, the Effect of breach – If one of the joint debtors
creditor may claim any of those fails to comply with his undertaking, the
subsisting, or the price of that which, obligation can no longer be fulfilled or
through the fault of the former, has performed. Consequently, it is converted into one
disappeared with a right to damages of indemnity for damages. Innocent joint
c. If all the things are lost through the fault debtors shall not contribute to the indemnity
of the debtor, the choice by the creditor beyond their corresponding share of the
shall fall upon the price of any 1 of them, obligation.
also with indemnity for damages
Effect of insolvency of a debtor – If one of the
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joint debtors should be insolvent, the others shall Effect of Assignment by Solidary Creditor
not be liable for his share. Without Consent of Others
INDIVISIBILITY SOLIDARITY 1. assignee is co-creditor – no violation of
1. refers to the 1. refers to the Article 1213 because there can be no invasion
prestation which legal tie or of the personal or confidential relationship
constitutes the vinculum juris & 2. assignee is third person – co-creditors and
object of the consequently to debtors are not bound by the assignment
obligation the subjects or Effect of Novation upon Solidary Obligation
parties of the 1. If the novation is prejudicial, the solidary
obligation creditor who effected the novation shall
2. plurality of 2. plurality of reimburse the others for damages incurred by
subjects is not subjects is them
required indispensable 2. If it is beneficial and the creditor who
3. in case of 3. when there is effected the novation is able to secure
breach, liability on the performance of the obligation, such creditor
obligation is part of the shall be liable to the others for the share
converted into 1 debtors because which corresponds to them, not only in the
of indemnity for of the breach, obligation, but also in the benefits
damages the solidarity 3. If the novation is effected by substituting
because of among the another person in place of the debtor, the
breach, debtors remains solidary creditor who effected the novation is
indivisibility of liable for the acts of the new debtor in case
the obligation is the is deficiency in performance or in case
terminated damages are incurred by the other solidary
creditors as a result of the substitution.
KINDS OF SOLIDARITY 4. If the novation is effected by subrogating a
1. Active solidarity third person in the rights of the solidary
 solidarity of creditors creditor responsible for the novation, the
 each creditor is empowered to exercise relation between the other creditors not
against the debtor not only the rights which substituted and the debtor or debtors is
correspond to him, but also all the rights maintained.
which correspond to the other creditors, with
the consequent obligation to render an Effect of Compensation and Confusion upon
accounting of his acts to such creditors Solidary Obligation
 creates a relationship of mutual agency 1. If the confusion or compensation is partial,
among solidary creditors the rules regarding application of payment
2. Passive solidarity shall apply. This is without prejudice to the
 solidarity of debtors right of other creditors who have not caused
 liability of each debtor for the payment of the the confusion or compensation to be
entire obligation, with the consequent right reimbursed to the extent that their rights are
to demand reimbursement from the others diminished or affected.
for their corresponding shares once payment 2. If the confusion or compensation is total, the
has been made obligation is extinguished, what is left is the
3. Mixed solidarity ensuing liability for reimbursement within
 solidarity among creditors and debtors each group:
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a. The creditor causing the confusion or own share

compensation is obliged to reimburse the 3. Defenses personal to the others, but only as
other creditors regards that part of the debt for w/c the
b. The debtors benefited by the latter are responsible
extinguishments of the obligation are
obliged to reimburse the debtor who DIVISIBLE OBLIGATIONS
made the confusion or compensation  Those which have as their object a prestation
possible. which is susceptible of partial performance
without the essence of obligation changed.
Effect of Remission upon Solidary Obligation
1. If the remission covers the entire obligation, INDIVISIBLE OBLIGATIONS
the obligation is totally extinguished and the  Prestation is not susceptible of partial
entire juridical relation among the debtors is performance, otherwise, the essence of the
extinguished all together. obligation will be changed
2. If the remission is for the benefit of one of
the debtors and it covers his entire share in NOTES:
the obligation, he is completely released  Divisibility or indivisibility of the obligation
from the creditors but is still bound to his refers to the performance of the prestation
co-debtors. and not to the thing which is the object
3. If the remission is for the benefit of one of thereof.
the debtors and it covers only a part of his  Intention of parties should be taken into
share in the obligation, his character as a account to determine whether obligation is
solidary debtor is not affected. divisible or not.

Effect of Payment by Solidary Debtor GENERAL RULE: The creditor cannot be

1. Whole or partial extinguishment of debt compelled partially to receive the prestation in
2. Right to recover against co-debtor which the obligation consists; neither may the
3. Right to recover interest from time the debtor be required to make partial payments.
obligation becomes due EXCEPTIONS:
1. When the obligation expressly stipulates
Effect of Loss or Impossibility of Performance the contrary;
1. If it is not due to the fault of the solidary 2. When the different prestations
debtors, the obligation is extinguished. constituting the objects of the obligation
2. If the loss or impossibility is due to the fault are subject to different terms and
of one of the solidary debtors or due to a conditions; and
fortuitous event after one of the solidary 3. When the obligation is in part liquidated
debtors had already incurred in delay, the and in part unliquidated.
obligation is converted into an obligation of
indemnity for damages but the solidary OBLIGATIONS WITH A PENAL CLAUSE
character of the obligation remains.  One to which an accessory undertaking is
attached for the purpose of insuring its
Defenses available to a Solidary Debtor performance by virtue of which the obligor is
1. Defenses derived from the very nature of the bound to pay a stipulated indemnity or
obligation perform a stipulated prestation in case of
2. Defenses personal to him or pertaining to his breach.
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 Purpose of Penalty: 3. compensation

1. To insure the performance of the 4. condonation or remission of the debt
obligation; 5. confusion or merger of rights of the creditor
2. to liquidate the amount of damages to be and debtor
awarded to the injured party in case of 6. novation
breach of the principal obligation 7. annulment
(compensatory); and 8. rescission
3. in certain exceptional cases, to punish the 9. prescription
obligor in case of breach of the principal 10. payment or performance
obligation (punitive).
Payment or Performance
GENERAL RULE: The penalty fixed by the parties  Means not only the delivery of money but
is a compensation or substitute for damages in also the performance, in any other manner, of
case of breach. an obligation.
EXCEPTIONS:
1. when there is a stipulation to the contrary; Integrity of Payment
2. when the debtor is sued for refusal to pay GENERAL RULE: A debt shall not be
the agreed penalty; and understood to have been paid unless the thing
3. when debtor is guilty of fraud or service in which the obligation consists has
been completely delivered or rendered, as the
NOTE: Article 1228 does not apply to these case may be.
exceptions; there must be proof of actual EXCEPTIONS:
damages. 1. When the obligation has been substantially
NOTES: performed in good faith;
 The debtor cannot exempt himself from the 2. When the obligee accepts performance,
performance of the principal obligation by knowing its incompleteness or irregularity &
paying the stipulated penalty unless when the w/out expressing any protest or objection;
right has been expressly reserved for him. 3. When there is an express stipulation; and
 The creditor cannot demand the fulfillment of 4. When the debt is in part liquidated and in
the principal obligation and the satisfaction of part unliquidated.
the stipulated penalty at the same time Identity of Payment
unless the right has been clearly granted him.  requires that the very thing, service or
forbearance, as the object of the prestation,
When penalty may be reduced must be performed or observed
1. If the principal obligation has been partly Persons who may pay the obligation:
complied with; 1. the debtor himself or his legal representative
2. If the principal obligation has been irregularly 2. any third person
complied with; and
3. If the penalty is iniquitous or unconscionable GENERAL RULE: Creditor is not bound to accept
even if there has been no performance. payment or performance by a third person.
EXCEPTIONS:
MODES OF EXTINGUISHMENT OF
1. when made by a third person who has an
OBLIGATIONS (LFC3NARP2)
interest in the fulfillment of the obligation;
1. loss of the thing due
2. when there is a stipulation to the contrary.
2. fulfillment of resolutory condition

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Rights of 3rd person who paid the obligation: 2. Payment in check or other negotiable
instrument - not considered payment; not
1. If payment was made with knowledge and
considered legal tender and may be refused
consent of the debtor:
by the creditor. It shall only produce the
a. can recover entire amount paid
effect of payment:
b. can be subrogated to all the rights
a. when it has been cashed or
of the creditor.
b. when it has been impaired through the
2. If payment was made without knowledge
fault of the creditor.
or against the will of the debtor, he can
LEGAL TENDER
recover only insofar as the payment has
 Such currency which may be used for the
been beneficial to the debtor.
payment of all debts, whether private or
To whom payment must be made:
public. The kind of currency which a debtor
1. The person in whose favor the obligation has
can legally compel a creditor to accept in
been constituted;
payment of a debt in money when tendered
2. His successor in interest; or
by the debtor in the right amount.
3. Any person authorized to receive it.
 Legal tender of the Philippines would be all
GENERAL RULE: If payment is made to a person
notes and coins issued by the Central Bank.
other than those enumerated, it shall not be
 Section 52, R.A. No. 7653
valid.
1. 25c and above, legal tender up to P50
EXCEPTIONS:
2. 10c and below, legal tender up to P20
1. Payment made to a 3rd person, provided
(Note: c, legal tender up to P100; P, legal
that it has redounded to the benefit of
tender up to P1,000)
the creditor. Such benefit to the creditor
is presumed in the following cases:
Extraordinary inflation or deflation
 If after the payment, the third person
 unusual or beyond the common fluctuation in
acquires the creditor’s rights;
the value of currency, which the parties could
 If the creditor ratifies the payment to
not have reasonably foreseen or which was
the third person;
manifestly beyond their contemplation at the
 If by the creditor’s conduct, the
time the obligation was established.
debtor has been led to believe that
 Applies only to contractual obligations
the third person had authority to
 Requisites:
receive the payment.
a. The decrease in the value of the currency
2. Payment made to the possessor of the
could not have been reasonably foreseen
credit, provided that it was made in good
by the parties or beyond their
faith.
contemplation at the time the obligation
Obligation to Deliver a Generic Thing
was established ;
 If the quality and circumstances have not
b. There must be a declaration of such
been stated, the creditor cannot demand a
extraordinary inflation or deflation by the
thing of superior quality; neither can the
Bangko Sentral. Without such declaration,
debtor deliver a thing of inferior quality.
the creditors cannot demand an increase,
Rules in Monetary Obligations:
and debtors a decrease, of what is due to
1. Payment in cash - must be made in the
or from them. (Ramos vs. CA, 275 SCRA
currency stipulated; if it is not possible to
167 and Mobil Oil Phils. vs. CA, 180 SCRA
deliver such currency, then in the currency
651)
which is legal tender in the Philippines.

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Place of payment been satisfied.

1. Place stipulated by the parties. 2. If the debts due are of the same nature and
2. No stipulation and the obligation is to deliver burden, payment shall be applied to all of
a determinate thing, payment shall be made them proportionately.
at the place where the thing might be at the b. Dation in Payment (DACION EN PAGO)
time the obligation was constituted.  Delivery and transmission of ownership of a
3. In any other case, the payment shall be made thing by the debtor to the creditor as an
at the domicile of the debtor. accepted equivalent of the performance of
the obligation.
Special Forms of Payment:  Requisites:
a. Application of payment a. existence of a money obligation
b. Dation in Payment b. alienation to the creditor of a property by
c. Payment by Cession the debtor with the consent of the former
d. Tender of payment and Consignation c. satisfaction of the money obligation of
the debtor
a. Application of Payment c. Payment by Cession
 Designation of the debt to which the  Debtor abandons all of his property for the
payment must be applied when the debtor benefit of his creditors in order that from the
has several obligations of the same kind in proceeds thereof, the latter may obtain
favor of the same creditor. payment of their credits.
 Requisites:  Requisites:
a. there must be only 1 debtor & only 1 a. plurality of debts
creditor; b. partial or relative insolvency of the debtor
b. there must be 2 or more debts of the c. acceptance of the cession by the creditors
same kind; DATION IN PAYMENT BY
c. all of the debts must be due; except: if PAYMENT CESSION
there’s stipulation to the contrary; or 1. one creditor 1. plurality of
application of payment is made by the creditors
party for whose benefit the term has been
2.not 2. debtor must
constituted; and
necessarily in be partially or
d. amount paid by the debtor must not be
state of relatively
sufficient to cover the total amount of all
financial insolvent
the debts.
difficulty
GENERAL RULE: The right to designate the debt
3. thing 3. universality of
to which the payment shall be applied primarily
delivered is property of
belongs to the debtor.
considered as debtor is what is
EXCEPTION: If the debtor does not avail of such
equivalent of ceded
right and he accepts from the creditor a receipt
performance
in which the application is made.
4. payment 4. merely
Legal Application of Payment (ART1254)
extinguishes releases debtor
1. If neither the debtor nor the creditor makes
obligation to for net proceeds
any application of payment, or if it cannot be
the extent of of things ceded
inferred from other circumstances, the debt
the value of the or assigned,
which is most onerous to the debtor, among
thing delivered unless there is
those which are due, shall be deemed to have
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as agreed contrary obligation is extinguished.

upon, proved intention 2. If the creditor contests the validity or
or implied from efficacy of the consignation or if the
the conduct of creditor is not interested or unknown or is
the creditor absent, the result is a litigation. If the
debtor complied with all the requisites,
the obligation is extinguished.
d. Tender of Payment and Consignation
Tender of Payment GENERAL RULE: Consignation shall produce
 Manifestation of the debtor to the creditor of effects of payment only if there is a valid tender
his decision to comply immediately with his of payment.
obligation. EXCEPTIONS: (TIRAT or TRAIT)
 It is the preparatory act and extrajudicial in 1. creditor is absent or unknown, or does not
character. appear at the place of payment
2. creditor incapacitated to receive payment at
Consignation the time it is due
 Deposit of the object of the obligation in a 3. when two or more persons claim the right to
competent court in accordance with the rules collect
prescribed by law, after the tender of 4. when the title of the obligation has been lost
payment has been refused or because of 5. when without just cause creditor refuses to
circumstances which render direct payment to give a receipt
the creditor impossible or inadvisable.
 It is the principal act and judicial in character. NOTES:
 It is the consignation which constitutes a
 Special Requisites: form of payment and must follow,
a. The debt sought to be paid must be due; supplement or complete the tender of
b. There must be a valid and unconditional payment in order to discharge the obligation.
tender of payment or any of the causes  A valid tender of payment has the effect of
stated by law for effective consignation exempting the debtor from payment of
without previous tender of payment exists; interest and/or damages.
c. The consignation of the thing due must  If tender is made by means of a check, such
first be announced to the persons tender is valid because it is an exercise of a
interested in the fulfillment of the right. Article 1249 is not applicable.
obligation;
d. Consignation shall be made by depositing LOSS OF THE THING DUE
the things due at the disposal of judicial In Determinate Obligations to Give
authority; and
e. The consignation having been made, the GENERAL RULE: Obligation is extinguished.
interested parties shall also be notified  Requisites:
thereof. 1. The thing which is lost is determinate;
2. The thing is lost without the fault of the
 Effects of consignation: debtor; and
1. If the creditor accepts the thing or 3. The thing is lost before the debtor has
amount deposited without contesting the incurred in delay.
validity or efficacy of the consignation, the
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EXCEPTIONS: any of the parties; and

1. when by law, obligor is liable even for 4. The contract is for a future prestation.
fortuitous event;
2. when by stipulation, obligor is liable even Principle of Subjective Impossibility
for fortuitous event;  When there is no physical or legal loss but
3. when the nature of the obligation requires the thing object of the obligation belongs to
the assumption of risk; another, the performance by the debtor of
4. when the loss of the thing is due partly to the obligation undoubtedly becomes
the fault of the debtor; impossible. Failure of performance is
5. when the loss of the thing occurs after imputable to the debtor. Thus, the debtor
the debtor incurred in delay; must indemnify the creditor for the damages
6. when the debtor promised to deliver the suffered by the latter. (Tolentino, Volume IV,
same thing to two or more persons who p. 336)
do not have the same interest; and
7. when the debt of a certain and Effect of Loss on Reciprocal Obligations
determinate thing proceeds from a  First view (Tolentino, Volume IV, pp. 337-338)
criminal offense – If an obligation is extinguished by the loss
of the thing or impossibility of performance
In Generic Obligations to Give through fortuitous events, the counter-
prestation is also extinguished. The debtor is
GENERAL RULE: Obligation is not extinguished released from liability but he cannot demand
because the genus of a thing cannot perish. the prestation which has been stipulated for
EXCEPTION: In case of generic obligations his benefit. He who gives nothing has no
whose object is a particular class or group with reason to demand anything.
specific or determinate qualities (Limited Generic
Obligations)  Second View (JBL Reyes) – The loss or
impossibility of performance must be due to
In Obligations to Do the fault of the debtor. In this case, the
injured party may ask for rescission under
Obligation is extinguished when prestation Article 1191 plus damages. If the loss or
becomes legally or physically impossible. impossibility was due to a fortuitous event,
the other party is still obliged to give the
Effect of Relative Impossibility or Doctrine of prestation due to the other.
Unforeseen Events (ART 1267)
 When the service has become difficult as to CONDONATION OR REMISSION OF THE DEBT
be manifestly beyond the contemplation of  An act of pure liberality by virtue of which the
the parties, the obligor may also be released obligee, without receiving any price or
therefrom, in whole or in part. equivalent, renounces the enforcement of the
 Requisites: obligation, as a result of which it is
1. The event or change in circumstances extinguished in its entirety or in that part or
could not have been foreseen at the time aspect of the same to which the remission
of the execution of the contract; refers.
2. It makes the performance of the contract  It is the gratuitous abandonment by the
extremely difficult but not impossible; creditor of his right.
3. The event must not be due to the act of  Requisites:
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a. It must be gratuitous 1. two persons 1. one person

b. It must be accepted by the debtor who are where qualities of
c. The obligation must be demandable mutual debtors debtor and creditor
and creditors are merged
NOTE: Express condonation or remission must of each other
comply with the formalities of donation. 2. there must 2. only one
be at least two obligation
CONFUSION OR MERGER OF RIGHTS obligations
 Merger of the characters of the creditor and
the debtor in one and the same person by Compensatio Payment
virtue of which the obligation is extinguished. n
 Requisites: 1. The requisites prescribe by
a. that the characters of creditor & debtor law for compensation are
must be in the same person; different from those prescribed
b. that it must take place in the person of by law for payment.
either the principal creditor or the 2. Takes effect 2. Takes effect
principal debtor; and by operation by act of the
c. it must be complete & definite of law parties
3. Capacity to 3. Capacity to
COMPENSATION
give and to give and to
 Extinguishment in the concurrent amount of acquire is not acquire is
the obligation of those persons who are necessary essential
reciprocally debtors and creditors of each 4. As a rule, it 4. As a rule,
other. is partial complete and
indivisible

 Requisites: (TM-DNLC)
a. there must be 2 parties, who, in their own Compensatio Counterclaim
right, are principal creditors & principal n
debtors of each other (except in case of
guarantor, Article 1280); 1. Requires 2 1. Not
b. both debts must consist in money, or if debts must necessary
the things due are fungibles, they must be consist in
of the same kind & quality; money or if
c. both debts must be due; fungibles,
d. both debts must be liquidated & same kind and
demandable; quality
e. there must be no retention or controversy
commenced by 3rd persons over either of
2. Both debts 2. Does not
the debts & communicated in due time to
must be require that
the debtor; and
liquidated debts be
f. compensation must not be prohibited by
liquidated
law.
3. Need not 3. Must be
Compensation Confusion
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be pleaded pleaded to be subrogating a third person in the rights of

effectual the creditor.
 Requisites:
a. a previous valid obligation;
b. agreement of the parties to the new
Kinds of Compensation obligation;
1. Legal – takes effect by operation of law c. extinguishment of the old obligation; and
2. Voluntary – agreed upon by the parties d. validity of the new obligation.
3. Judicial – takes effect by judicial decree
4. Facultative – when it can be claimed by Kinds:
one of the parties who, however, has the 1. As to its essence
right to object to it a. Objective/Real - refers to the change
either in the cause, object or principal
Debts not subject to Compensation: (DCS-CG) conditions of the obligations
1. debts arising from contracts of deposit b. Subjective/Personal - refers to the
2. debts arising from contracts of substitution of the person of the debtor
commodatum or to the subrogation of a 3rd person in
3. claims for support due by gratuitous title the rights of the creditor
4. obligations arising from criminal offenses c. Mixed
5. certain obligations in favor of government 2. As to its form/constitution
NOTE: Taxes are not subject to set-off or legal a. Express - when it is declared in
compensation because the government & unequivocal terms that the old obligation
taxpayers are not mutually creditors & debtors of is extinguished by a new one w/c
each other (Francia vs. IAC, 162 SCRA 753). substitutes the same.
b. Implied - when the old & new obligation
Facultative Compensation are incompatible w/ each other on every
 This is compensation which can be set up point.
only at the option of a creditor, when legal
compensation cannot take place because of Test of Incompatibility
want of some legal requisites for the benefit  Whether or not the old and new obligations
of the creditor. The latter can renounce his can stand together, each having its own
right to oppose the compensation and he independent existence. If they can stand
himself can set it up. It differs from together, there is no incompatibility;
conventional compensation because it is consequently, there is no novation. If they
unilateral while the latter depends upon the cannot stand together, there is
agreement of both parties. (Tolentino, incompatibility; consequently, there is
Volume IV, p. 367) novation.
Forms of Substitution of Debtors:
1. Expromision - effected with the consent of
NOVATION the creditor at the instance of the new
 Substitution or change of an obligation by debtor even without the consent or even
another, resulting in its extinguishment or against the will of the old debtor.
modification, either by changing its object or Requisites:
principal conditions, or by substituting a. Initiative for substitution must emanate
another in place of the debtor, or by from the new debtor
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b. Consent of the creditor to the substitution cured

2. Delegacion - effected with the consent of the 5. takes effect 5. as far as the
creditor at the instance of the old debtor, upon moment debtor is concerned,
with the concurrence of the new debtor. of novation or takes effect upon
Requisites: subrogation notification
a. Initiative for substitution must emanate Kinds of Subrogation
from the old debtor 1. Conventional – takes place by agreement of
b. Consent of the new debtor the parties; this kind of subrogation requires
c. Acceptance by the creditor the intervention and consent of 3 persons:
Effect of insolvency of new debtor the original creditor, the new creditor and the
1. Expromision – the new debtor’s insolvency or debtor.
nonfulfillment of the obligation shall not 2. Legal – takes place without agreement but by
revive the original debtor’s liability to the operation of law because of certain acts
creditor whether the substitution is (Article 1302).
effected with or without the knowledge or
against the will of the original debtor. GENERAL RULE: Legal subrogation cannot be
2. Delegacion – the creditor can sue the old presumed.
debtor only when the insolvency was prior EXCEPTIONS: (PIN)
to the delegation and publicly known or 1. Creditor pays another creditor who is
when the old debtor knew of such preferred, without debtor’s knowledge;
insolvency at the time he delegated the 2. A third person not interested in the
obligation. obligation pays with the express or tacit
NOTE: A change in the incidental elements of, or approval of the debtor; or
an addition of such elements to an obligation, 3. Even without debtor’s knowledge, a person
unless otherwise expressed by the parties, will interested in the fulfillment of the obligation
not result in its extinguishment. pays without prejudice to the effects of
confusion as to the latter’s share.
CONVENTIONA ASSIGNMENT OF
L RIGHTS II. CONTRACTS
SUBROGATION CONTRACT
1. governed by 1. governed by Arts.  A contract is a meeting of minds between
Arts. 1300 to 1624 to 1627 two persons whereby one binds himself, with
1304 respect to the other, to give something or to
2. debtor’s 2. debtor’s consent is render some service (Article 1305).
consent is not required  Elements
required 1. Essential – those without which there can be
3. extinguishes 3. transmission of no contract.
the obligation right of the creditor to a. Consent
and gives rise to third person without b. Object or Subject Matter
a new one modifying or c. Cause or Consideration
extinguishing the 2. Natural – those derived from the nature of
obligation the contract and ordinarily accompany the
4. defects and 4. defects and vices same.
vices in the old in the old obligation 3. Accidental – those which exist only when the
obligation are are not cured parties expressly provide for them for the
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purpose of limiting or modifying the normal the obligor before its revocation;
effects of the contract. d. the favorable stipulation should
Nominate contracts not be conditioned or
 Those which have their own distinctive compensated by any kind of
individuality and are regulated by special obligation whatever; and
provisions of law. e. neither of the contracting parties
Innominate contracts bears the legal representative or
 Those which lack individuality and are not authorization of the third person.
regulated by special provisions of law.
 Regulated by the stipulations of the parties, Test of Beneficial Stipulation – the fairest test
by the general provisions of the Civil Code on to determine whether the interest of a 3rd
obligations and contracts, by rule governing person in a contract is a stipulation pour atrui or
the most analogous nominate contracts and merely an incidental interest is to rely upon the
by the customs of the place. intention of the parties as disclosed by their
 Kinds: contract. Determine whether the contracting
a. Do ut des - I give that you give parties desired to tender him such an interest
b. Do ut facias - I give that you do (Uy Tam vs. Leonard, 30 Phil. 471).
c. Facio ut des - I do that you give
d. Facio ut facias - I do that you do
2. When a third person induces a party to
NOTE: According to some authorities. do ut
violate contract (ART1314)
des in no longer an innominate contract. It
 Requisites:
has already been given a name of its own, i.e.
a. Existence of a valid contract;
barter or exchange (Article 1638).
b. knowledge of contract by third person;
and
Characteristics of Contracts: (ROMA)
c. interference by third person without
1. Relativity (ART 1311)
legal justification or excuse.
2. Obligatory Force and Consensuality
3. Third persons who come into possession
(ART 1315)
of the object of the contract creating real
3. Mutuality (ART 1308)
rights
4. Autonomy (ART 1306)
4. Contracts entered into in fraud of
Relativity
creditors
GENERAL RULE: Contracts take effect only
between parties, their assigns and heirs.
Mutuality
EXCEPTIONS:
 The contract must bind both parties; its
1. Stipulation pour atrui - stipulation in favor
validity or compliance must not be left to the
of a third person.
will of one of them. (ART 1308)
 Requisites:
 The contract cannot have any stipulation
a. the stipulation must be a part, not
authorizing one of the contracting parties (a)
the whole of the contract;
to determine whether or not the contract
b. the contracting parties must have
shall be valid, or (b) to determine whether or
clearly and deliberately conferred a
not the contract shall be fulfilled.
favor upon a third person, not a
mere incidental benefit or interest;
Autonomy
c. the third person must have
 The parties are free to stipulate anything they
communicated his acceptance to
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deem convenient provided that they are not offer.

contrary to law, morals, good customs, public
order and public policy. (ART 1306) NOTE: Acceptance may be revoked before it
comes to the knowledge of the offeror.
Amplified Acceptance
 Under certain circumstances, a mere
Consensuality
amplification on the offer must be
 Contracts are perfected by mere consent and
understood as an acceptance of the original
from that moment, the parties are bound not
offer, plus a new offer which is contained in
only to the fulfillment of what has been
the amplification. (Tolentino, Volume IV, p.
expressly stipulated but also to all
452)
consequences which, according to their
Rule on Complex offers
nature may be in keeping with good faith,
1. Offers are interrelated – contract is perfected
usage and law.
if all the offers are accepted.
2. Offers are not interrelated – single acceptance
CONSENT
of each offer results in a perfected contract
 Manifested by the concurrence of the offer
unless the offeror has made it clear that one
and acceptance upon the thing and the cause
is dependent upon the other and acceptance
which are to constitute the contract.
of both is necessary.
 Requisites:
a. Legal capacity of the contracting parties
NOTES:
b. Manifestation of the conformity of the
contracting parties  Consensual contracts are perfected from the
c. The parties’ conformity to the object, moment there is a manifestation of
cause, the terms and conditions of the concurrence between the offer and the
contract must be intelligent, spontaneous acceptance regarding the object and the
and free from all vices of consent cause.
d. The said conformity must be real and not  Real contracts like deposit, pledge and
simulated or fictitious commodatum requires delivery of object for
perfection.
Offer  Solemn contracts are those which requires
 A proposal made by one party to another to compliance with certain formalities prescribed
enter into a contract. by law, such prescribed form being an
 It must be certain or definite, complete and essential element (i.e., donation of real
intentional. property).
 An offer made inter praesentes must be
NOTE: Offer/proposal may be withdrawn so long accepted IMMEDIATELY. If the parties
as the offeror has no knowledge of acceptance intended that there should be an express
by offeree. acceptance, the contract will be perfected
only upon knowledge by the offeror of the
Acceptance express acceptance by the offeree of the
 Manifestation by the offeree of his assent to offer. An acceptance which is not made in
the terms of the offer. the manner prescribed by the offeror is NOT
 It must me absolute. EFFECTIVE BUT A COUNTER-OFFER which the
 A qualified acceptance constitutes counter- offeror may accept or reject. (Malbarosa vs.
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CA, et al., G.R. # 125761, April 30, 2003) 2. Intimidation - when 1 of the contracting
 Contracts under the Civil Code generally parties is compelled by a reasonable & well-
adhere to the Cognition Theory (contract is grounded fear of an imminent & grave evil
perfected from the moment the acceptance upon his person or property, or upon the
comes to the knowledge of the offeror), while person or property of his spouse,
transactions under the Code of Commerce descendants or ascendants, to give his
use the Manifestation Theory (it is perfected consent.
from the moment the acceptance is declared 3. Mistake - should refer to the substance of the
or made). thing which is the object of the contract, or
to those conditions which have principally
PERSONS INCAPACITATED TO GIVE CONSENT: moved one or both parties to enter into the
1. Minors contact.
EXCEPTIONS:  Must be mistake of fact and not of law,
 Contracts where the minor is estopped to except under Article 1334.
raise minority as a defense through his  Requisites under Article 1334:
own misrepresentation a. Mistake must be with respect to the
 Contracts for necessaries legal effect of an agreement
 Contracts by guardians or legal b. Mistake must be mutual
representatives c. Real purpose of the parties must have
 Voluntary fulfillment of a natural been frustrated.
obligation provided that the minor is 4. Fraud - when, through insidious words or
between 18-21 years of age machinations of 1 of the contracting parties,
 Contracts of life, health or accident the other is induced to enter into a contract
insurance taken on the life of the minor which, without them, he would not have
2. Insane or demented persons, unless the agreed to.
contract was entered into during a lucid 5. Undue influence - when a person takes
interval improper advantage of his power over the
3. Deaf-mutes who do not know how to read will of another, depriving the latter of a
and write reasonable freedom of choice.

Effect of Misrepresentation of Age by the Reluctant Consent

Minor  A contract is valid even though one of the
 Misrepresentation by minors with regard to parties entered into it against his wishes and
their age when entering into a contract shall desires or even against his better judgment.
bind them in the sense that they are Contracts are also valid even though they are
estopped subsequently from impugning the entered into by one of the parties without
validity of the contract on the ground of hope of advantage or profit. (Martinez vs.
minority. It is necessary that the Hongkong and Shanghai Bank, 15 Phil. 252)
misrepresentation must be active (e.g. when
minors specifically stated in a contract that Simulation of Contracts
they were of age), not merely constructive. 1. Absolute – when the contracting parties do
not intend to be bound by the contract at all.
VICES OF CONSENT (VIMFU) Thus, an absolutely simulated contract is
1. Violence - when in order to wrest consent, VOID.
serious or irresistible force is employed. 2. Relative – when the contracting parties
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conceal their true agreement. A relatively service by the other.

simulate contract binds the parties to their 2. In remuneratory contracts, the service or
real agreement, when it does not prejudice a benefit w/c is remunerated.
3rd person and is not intended for any 3. In contracts of pure beneficence, the mere
purpose contrary to law, morals, good liberality of the donor or benefactor.
customs, public order or public policy. 4. In accessory contracts (mortgage or pledge),
OBJECT the cause is identical with the cause of the
 The thing, right or service which is the subject principal contract, that is, the loan from which
matter of the obligation arising from the it derives its life and existence.
contract.
 Requisites:
a. It must be w/in the commerce of man
b. It must be licit or not contrary law, morals,
good customs, public order or public
policy
c. It must be possible
d. It must be determinate as to its kind
CAUSE EFFECT
Things which Cannot be the Object of Contract the contract
1. Things which are outside the commerce of 1. Absence of confers no right
men cause and produces no
2. Intransmissible rights legal effect
3. Future inheritance, except in cases 2. Failure of does not render
expressly authorized by law cause the contract void
4. Services which are contrary to law, morals, 3. Illegality of the contract is
good customs, public order or public cause null and void
policy the contract is
5. Impossible things or services 4. Falsity of void, unless the
6. Objects which are not possible of cause parties show that
determination as to their kind there is another
cause which is
CAUSE true and lawful
 The immediate, direct and most proximate does not
reason which explains and justifies the 5. Lesion invalidate the
creation of obligation. contract, unless
 Requisites (a) there is fraud,
a. Cause should be in existence at the time mistake or undue
of the celebration of the contract influence; or (b)
b. Cause should be licit or lawful when the parties
c. Cause should be true intended a
donation or
 Rules: some other
1. In onerous contracts, the cause is contract
understood to be, for each contracting party,
the prestation of promise of a thing or
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relative simulation, fraud, or inequitable

conduct
c. clear and convincing proof of mistake,
accident, relative simulation, fraud, or
inequitable conduct

FORM OF CONTRACTS Instances when there can be no reformation:

GENERAL RULE: Contracts shall be obligatory, in 1. Simple unconditional donations inter
whatever form they may have been entered into, vivos;
provided all the essential requisites for their 2. Wills;
validity are present. 3. When the agreement is void;
EXCEPTIONS:
1. When the law requires that a contract be in When one of the parties has brought an action
some form in order that it may be valid to enforce the instrument, no subsequent
2. When the law requires that a contract be in reformation can be asked.
some form in order that it may be
enforceable

NOTES:
 Parties may compel each other to comply
with the form required once the contract has
been perfected. (Article 1357)
 Contracts under Art 1358 which are required
to be in some specific form is only for the
convenience of parties and does not affect its
validity and enforceability as between them.

RA 8792 (E- COMMERCE ACT) provides that the

formal requirements to make contracts effective
as against third persons and to establish the
existence of a contract are deemed complied
with provided that the electronic document is
unaltered and can be authenticated as to be
usable for future reference.

REFORMATION OF INSTRUMENTS
 Requisites:
a. meeting of the minds to the contract
b. true intention is not expressed in the
instrument by reason of mistake, accident,

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VOID RESCISSIBLE

1. Defect is Defect is caused by Defect is caused by lack of form, authority, or

caused by lack injury/ damage either to capacity of both parties not cured by prescription
of essential one of the parties of to a
elements or 3rd person
illegality

2. Do not, as a Valid and enforceable Cannot be enforced by a proper action in court

general rule until they are rescinded
produce any by a competent court
legal effect
3. Action for the Action for rescission may Corresponding action for recovery, if there was total
declaration or prescribe or partial performance of the unenforceable contract
nullity or under No. 1 or 3 of Article 1403 may prescribe
inexistence or
defense of nullity
or inexistence
does not
prescribe
4. Not cured by Cured by prescription
prescription Not cured by prescription

5.Cannot be Need not be ratified

ratified Can be ratified
6. Assailed not Assailed not only by a
only by a contracting party but Assailed only by a contracting party
contracting party even by a third person
but even by a who is prejudiced or
third person damaged by the contract
whose interest is
directly affected
7.Assailed
directly or Assailed directly only Assailed directly or collaterally
collaterally

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BADGES OF FRAUD:
RESCISSIBLE CONTRACTS 1. Consideration of the conveyance is
 Contracts validly agreed upon but, by reason inadequate or fictitious;
of lesion or economic prejudice may be 2. Transfer was made by a debtor after a suit
rescinded in cases established by law. has been begun and while it is pending
against him;
What contracts are rescissible 3. Sale upon credit by an insolvent debtor;
1. those entered into by guardians where the 4. Evidence of indebtedness or complete
ward suffers lesion of more than ¼ of the insolvency
value of the things which are objects thereof; 5. Transfer of all his property by a debtor
2. those agreed upon in representation of when he is financially embarrassed or
absentees, if the latter suffer lesion by more insolvent;
than ¼ of the value of the things which are 6. Transfer made between father & son,
subject thereof; where there is present any of the above
3. those undertaken in fraud of creditors when circumstances
the latter cannot in any manner claim what 7. Failure of the vendee to take exclusive
are due them; possession of all the property

4. those which refer to things under litigation if

they have been entered into by the
defendant without the knowledge and
approval of the litigants and the court;
5. all other contracts especially declared by law Rescission in Rescission
to be subject to rescission; and Article 1191 Proper in Article
6. payments made in a state of insolvency on 1381
account of obligations not yet enforceable 1. It is a principal 1. It is a
action retaliatory subsidiary
 Requisites: in character. remedy.
a. the contract must be rescissible 2. The only 2. There are 5
b. the party asking for rescission must have ground is non- grounds to
no other legal means performance of rescind. Non-
c. to obtain reparation for the damages one’s performance by
suffered by him obligation/s or the other party is
d. the person demanding rescission must be what is not important.
able to return whatever he may be incumbent upon
obliged to restore if rescission is granted him.
e. the things w/c are the object of the 3. It applies only 3. It applies to
contract must not have passed legally to to reciprocal both unilateral
the possession of a 3rd person acting in obligation and reciprocal
good faith obligations.
f. the action for rescission must be brought 4. Only a party 4. Even a 3rd
w/in the prescriptive period of 4 years to the contract person who is
may demand prejudiced by
fulfillment or the contract may
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seek the demand the register of deeds. Registration constitutes

rescission of the rescission of the constructive notice to the whole world.
contract. contract. (Carantes vs. CA, 76 SCRA 514)
5. Court may fix 5. Court cannot
a period or grant grant extension 2. RATIFICATION
extension of time of time for  Requisites:
for the fulfillment fulfillment of the a. there must be knowledge of the
of the obligation. obligation. reason which renders the contract
voidable
6. Its purpose is 6. Its purpose is b. such reason must have ceased and
to cancel the to seek c. the injured party must have executed
contract. reparation for an act which expressly or impliedly
the damage or conveys an intention to waive his right
injury caused, 3. By loss of the thing which is the object of the
thus allowing contract through fraud or fault of the person
partial rescission who is entitled to annul the contract.
of the contract.
NOTE: If the object is lost through fortuitous
VOIDABLE CONTRACTS event, the contract can still be annulled, but the
 Those in which all of the essential elements person obliged to return the same can be held
for validity are present, although the element liable only for the value of the thing at the time
of consent is vitiated either by lack of of the loss, but without interest thereon.
capacity of one of the contracting parties or
by VIMFU. UNENFORCEABLE CONTRACTS
 Those which cannot be enforced by proper
What contracts are voidable action in court unless they are ratified
1. Those where one of the parties is incapable
of giving consent to a contract What contracts are unenforceable
2. Those where the consent is vitiated by 1. those entered into in the name of another by
mistake, violence, intimidation, undue one without or acting in excess of authority;
influence or fraud 2. those where both parties are incapable of
giving consent; and
Causes of extinction of action to annul: 3. those which do not comply with the Statute
1. PRESCRIPTION of Frauds
 the action must be commenced within 4
years from: Agreements within the scope of the Statute of
a. the time the incapacity ends; Frauds (EXCLUSIVE LIST):
b. the time the violence, intimidation or 1. Agreements not to be performed within one
undue influence ends; or year from the making thereof;
c. the time the mistake or fraud is 2. Special promise to answer for the debt,
discovered. default or miscarriage of another;
NOTE: Discovery of fraud must be reckoned NOTE: This does not refer to the original or
to have taken place from the time the independent promise of the debtor to his
document was registered in the office of the own creditor. It refers rather to a collateral
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NOTES ON OBLIGATIONS AND CONTRACTS
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promise. service;
3. Agreement in consideration of marriage other 4. Those where the intention of the parties
than a mutual promise to marry; relative to the principal object of the contract
4. Agreement for the sale of goods, etc. at a cannot be ascertained; and
price not less than P500.00; 5. Those expressly prohibited or declared void
5. Contracts of lease for a period longer than by law.
one year;
6. Agreements for the sale of real property or
interest therein; and
7. Representation as to the credit of a third INEXISTENT CONTRACTS
person.  Those where one or some or all of the
requisites essential for the validity of a
NOTES: contract are absolutely lacking.
 The contracts/agreements under the Statute What contracts are inexistent
of Frauds require that the same be evidenced
1. Those which are absolutely simulated or
by some note, memorandum or writing,
fictitious; and
subscribed by the party charged or by his
2. Those whose cause or object did not exist at
agent, otherwise, the said contracts shall be
the time of the transaction.
unenforceable.
 The statute of frauds applies only to
NOTE: The principle of In Pari Delicto is
executory contracts, not to those that are
applicable only to void contracts and not as to
partially or completely fulfilled.
inexistent contracts.
Principle of In Pari Delicto
Ratification of contracts in violation of the
Statute of Frauds
GENERAL RULE: When the defect of a void
contract consists in the illegality of the cause or
1. Failure to object to the presentation of oral
object of the contract and both of the parties are
evidence to prove such contracts
at fault or in pari delicto, the law refuses them
2. Acceptance of benefits under these contracts
every remedy and leaves them where they are.
EXCEPTIONS:
VOID CONTRACTS
1. Payment of usurious interest
 Those where all of the requisites of a contract
2. Payment of money or delivery of property
are present but the cause, object or purpose
for an illegal purpose, where the party
is contrary to law, morals, good customs,
who paid or delivered repudiates the
public order or public policy, or contract itself
contract before the purpose has been
is prohibited or declared void by law.
accomplished, or before any damage has
What contracts are void been caused to a 3rd person.
3. Payment of money or delivery of property
1. Those whose cause, object or purpose is
made by an incapacitated person
contrary to law, morals good customs, public
4. Agreement or contract which is not illegal
order or public policy;
per se & the prohibition is designed for
2. Those whose object is outside the commerce
the protection of the plaintiff
of men;
5. Payment of any amount in excess of the
3. Those which contemplate an impossible
maximum price of any article or
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commodity fixed by law or regulation by 1. Performance after the civil obligation has
competent authority. prescribed;
6. Contract whereby a laborer undertakes to 2. Reimbursement of a third person for a debt
work longer than the maximum # of that has prescribed;
hours fixed by law. 3. Restitution by minor after annulment of
7. Contract whereby a laborer accepts a contract;
wage lower than the minimum wage fixed 4. Delivery by minor of money or fungible thing
by law. in fulfillment of obligation;
8. One who lost in gambling because of 5. Performance after action to enforce civil
fraudulent schemes practiced on him is obligation has failed;
allowed to recover his losses [(Art. 315, 3 6. Payment by heir of debt exceeding value of
(b), RPC] even if gambling is a prohibited property inherited; and
one. 7. Payment of legacy after will have been
declared void.
Rules when only one of the parties is at fault:
1. Executed Contracts:
a. Guilty party is barred from recovering
what he has given to the other party is
barred from recovering what he has given
to the other party by reason of the
contract. ESTOPPEL
b. Innocent party may demand for the  A condition or state by virtue of which an
return for the return of what he has admission or representation is rendered
given. conclusive upon the person making it and
2. Executory Contracts - Neither of the cannot be denied or disproved as against the
contracting parties can demand for the person relying thereon.
fulfillment of any obligation from the  Kinds:
contract nor may be compelled to comply 1. Estoppel in Pais (by conduct)
with such obligation a. Estoppel by silence
b. Estoppel by acceptance of benefits
2. Technical Estoppel
NATURAL OBLIGATIONS a. Estoppel by deed
 They are real obligations to which the law b. Estoppel by record
denies an action, but which the debtor may c. Estoppel by judgment
perform voluntarily. d. Estoppel by laches
 It is patrimonial, and presupposes a
prestation. LACHES or “STALE DEMANDS”
 The binding tie of these obligations is in the  Failure or neglect, for an unreasonable and
conscience of man, for under the law, they do unexplained length of time, to do that which,
not have the necessary efficacy to give rise to by exercising due diligence, could or should
an action. have been done earlier; it is negligence or
omission to assert a right within reasonable
Examples of natural obligations enumerated time, warranting a presumption that the party
under the Civil Code: entitled to assert it either has abandoned it
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NOTES ON OBLIGATIONS AND CONTRACTS
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or declined to assert it.

 Elements:
a. Conduct on part of the defendant, or of
one under whom he claims, giving rise to
the situation of which complaint is made
and for which the complaint seeks a
remedy
b. Delay in asserting the complainant’s
rights, the complainant having knowledge
or notice, of the defendant’s conduct and
having been afforded the opportunity to
institute a suit
c. Lack of knowledge or notice on the part
of the defendant that the complainant
would assert the right on which he bases
his suit
d. Injury to the defendant in the event relief
is accorded tot the complainant, or the
suit in not held to be barred

LACHES PRESCRIPTION

1. concerned 1. concerned
with effect of with fact of
delay delay

2. question of 2. question or
inequity of matter of time
permitting the
claim to be
enforced

3. not statutory 3. statutory

4. applies in 4. applies at law

equity

5. not based on 5. based on a

a fixed time fixed time

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