LAW ON OBLIGATIONS AND CONTRACTS • The creditor renounces the right to demand

payment.
ART. 1231 – 1269 D. Merger (Art. 1267)
I. Introduction to Obligations and Contracts • When the principal obligation and its accessory
A. Definition of Obligation (Art. 1231) obligations are absorbed.
• An obligation is a juridical necessity to give, to E. Compensation (Art. 1278-1290)
do, or not to do. • A mode of extinguishing obligations when two
• Parties involved: obligor (debtor) and obligee persons, in their right as creditors and debtors,
(creditor). are reciprocally such for each other.
B. Sources of Obligations (Art. 1157)
• Law, contracts, quasi-contracts, delicts (torts), V. Contracts
and quasi-delicts. A. Definition and Essential Requisites (Art. 1305)
• A meeting of the minds between two persons,
II. Essential Elements of Obligations giving rise to legal obligations.
A. Subject Matter (Art. 1233) B. Kinds of Contracts (Art. 1305-1317)
• The subject must be determinate or at least • Consensual, formal, unilateral, bilateral,
determinable. commutative, and aleatory contracts.
B. Prestation (Art. 1233) C. Void and Voidable Contracts (Art. 1409-1422)
• The act or forbearance to perform the Void: No legal effect from the beginning.
obligation. Voidable: Valid until annulled by a party with
C. Legal Tie (Art. 1158) the right to do so.
• The binding force between the parties to fulfill
the obligation. VI. Contractual Stipulations
A. Interpretation of Contracts (Art. 1370-1379)
III. Kinds of Obligations • Courts interpret contracts according to the
A. Pure and Conditional Obligations (Art. parties' intention.
1179-1184) B. Rescissible Contracts (Art. 1380-1389)
• Contracts that, while not voidable, may be set
Pure obligation: Immediate fulfillment. aside at the instance of a party who is
Conditional obligation: Depends on a future prejudiced by them.
uncertain event. C. Unenforceable Contracts (Art. 1403)
• Valid, but cannot be enforced without violating
B. Several and Joint Obligations (Art. 1200- the Statute of Frauds.
1202)
VII. Contract Performance and Breach
Several: Each debtor is liable for the entire A. Obligations of the Seller (Art. 1495)
obligation. ➢ Seller's warranties and obligations in a contract
Joint: Each debtor is liable only for his share. of sale.
C. Divisible and Indivisible Obligations (Art. 1203- B. Remedies for Breach of Contract (Art. 1191)
1212) • Specific performance, rescission, and damages.
Divisible: Can be performed in parts.
Indivisible: Must be performed in its entirety. VIII. Special Contracts
A. Sale (Art. 1458-1482)
IV. Extinguishment of Obligations ➢ Transfer of ownership for a price.
A. Payment or Performance (Art. 1232) B. Lease (Art. 1643-1650)
• Modes of payment: legal tender, application of ➢ Granting of temporary use of property for a
payment, and consignation. stipulated rent.
B. Loss of the Thing Due (Art. 1262) C. Agency (Art. 1868-1910)
• Debtor is not responsible if the thing is lost ➢ A person binds himself to render some service
without his fault. or to do something in representation or on
C. Condonation or Remission (Art. 1270-1271) behalf of another.
 • Compensation may take place in obligations of
IX. Quasi-Contracts different kinds provided they are liquidated.
A. Definition and Requisites (Art. 2142) IV. Novation (Art. 1291-1292)
• Juridical relations resembling those created by A. Definition of Novation (Art. 1291)
contracts. • Novation is the extinguishment of an obligation
B. Negotiorum Gestio (Art. 2144-2146) by the creation of a new one.
• The voluntary management of the property or B. Kinds of Novation (Art. 1292)
affairs of another without the owner's authority. • Substitution of the debtor, substitution of the
creditor, change in the object, and change in the
ART. 1270 – 1304 principal conditions.
I. Condonation or Remission (Art. 1270-1271) V. Annulment (Art. 1330-1333)
A. Condonation Defined (Art. 1270) A. Grounds for Annulment (Art. 1330)
• Condonation is the gratuitous abandonment of a • Contracts entered into by parties lacking
right by the creditor, resulting in the extinction capacity, with vitiated consent, or those against
of the obligation. the law, morals, good customs, public order, or
B. Form of Condonation (Art. 1271) public policy are subject to annulment.
• Condonation must be made expressly or B. Effects of Annulment (Art. 1332)
impliedly and must be accepted by the debtor • The contract is voidable and can be annulled
unless there is a stipulation to the contrary. only at the instance of the party with the right
II. Confusion or Merger (Art. 1272-1274) to annul.
A. Definition of Confusion (Art. 1272) VI. Rescission (Art. 1380-1389)
• Confusion extinguishes the obligation when the A. Grounds for Rescission (Art. 1381)
character of creditor and debtor are merged in • Contracts may be rescinded for lesions or injury,
the same person. fraud, mistake, undue influence, or intimidation.
B. Effects of Confusion (Art. 1273) B. Effects of Rescission (Art. 1383)
• The obligation is extinguished, but the merger • Rescission creates an obligation to return the
must be total, as partial confusion does not have things which were the object of the contract.
the same effect. VII. Prescription of Actions (Art. 1139-1155)
C. Loss of Subrogation (Art. 1274) A. Prescriptive Periods (Art. 1139)
• The person who has a right to be subrogated to • Actions prescribe after a certain period
the rights of the creditor loses that right upon depending on the nature of the action.
the confusion of rights. B. Suspension and Interruption of Prescription
III. Compensation (Art. 1278-1290) (Art. 1154-1155)
A. Definition and Requisites of Compensation • Prescription may be suspended or interrupted,
(Art. 1279) extending or restarting the prescriptive period.
• Compensation is a mode of extinguishing
obligations whereby two persons, in their right ART. 1305 – 1317
as creditors and debtors, are reciprocally such I. Definition and Essential Requisites of Contracts
for each other. (Art. 1305-1306)
B. Legal Compensation (Art. 1280-1281) A. Definition of a Contract (Art. 1305)
• Compensation takes place by operation of law • A contract is a meeting of the minds between
when all the requisites are present. two persons, creating a legal obligation.
C. Effects of Compensation (Art. 1282-1284) B. Essential Requisites of a Contract (Art. 1306)
• Obligations are extinguished up to the amount 1. Consent of the contracting parties.
of the smaller debt. 2. Object certain which is the subject matter of the
D. Compensation with Several Creditors or contract.
Debtors (Art. 1285) 3. Cause of the obligation which is established.
• Compensation may take place even when one of
the parties is not aware of the compensation. II. Form of Contracts (Art. 1316-1317)
E. Compensation in Various Kinds of Obligations A. Consensual Contracts (Art. 1315)
(Art. 1286-1290)
 • Contracts are perfected by mere consent, B. Mutuality of Contracts (Art. 1308)
regardless of form, except as otherwise provided • Contracts are binding upon both parties; its
by law. validity or compliance cannot be left to the will
B. Formal Contracts (Art. 1356-1369) of one of them.
• Contracts that require a specific form for their
validity and enforceability, such as donations of VI. Interpretation of Contracts (Art. 1370-1374)
real property and sales of real property. A. Principles of Interpretation (Art. 1370)
• Contracts must be interpreted according to the
III. Kinds of Contracts (Art. 1307-1317) intent of the parties.
A. Consensual Contracts (Art. 1307-1310) B. Ambiguities in Contracts (Art. 1371)
1. Sale (consent is perfected upon agreement on • If the terms of a contract are clear and leave no
the thing and the price). doubt as to the intention of the contracting
2. Lease (consent is perfected upon agreement on parties, the literal meaning of its stipulations
the price and the thing). shall control.
3. Loan (consent is perfected upon the delivery of C. Intention of the Parties (Art. 1373)
the object of the contract). • The intention of the parties is to be pursued,
B. Real Contracts (Art. 1311-1312) and if this cannot be inferred, the literal
• Contracts where the delivery of the object is meaning of the terms shall prevail.
essential for the perfection of the contract, e.g.,
pledge, deposit, and commodatum. ART. 1318 – 1355
C. Formal Contracts (Art. 1313) I. Capacity to Contract (Art. 1318-1320)
• Contracts that must comply with specific A. Legal Capacity (Art. 1318)
formalities prescribed by law to be valid, e.g., • Those who have legal capacity to enter into
donation of real property, antichresis. contracts are individuals with the ability to
D. Nominate and Innominate Contracts (Art. comprehend the nature and consequences of
1308-1310) their acts.
• Nominate contracts have specific names and are B. Incapacity (Art. 1327-1329)
regulated by special laws (e.g., sale, lease). • Persons considered incapable include those
Innominate contracts have no special suffering from mental infirmity, those declared
designation but are governed by the general by law as incompetent, and minors.
principles of contracts.
E. Unilateral and Bilateral Contracts (Art. 1311) II. Object of Contracts (Art. 1347-1349)
• Unilateral contracts involve an obligation on the A. Lawful Object (Art. 1347)
part of only one party until the other performs • The object of a contract must be within the
(e.g., reward). Bilateral contracts create commerce of men, possible, lawful, determined,
obligations for both parties simultaneously (e.g., and not contrary to public policy.
sale). B. Forbidden Objects (Art. 1348)
IV. Stipulations Pour Autrui (Art. 1311-1312) • Contracts with illegal objects or those against
A. Third-Party Beneficiaries (Art. 1311) public policy are void.
• Stipulations in favor of a third person may be C. Impossible Objects (Art. 1349)
enforced if the third person communicates his • Contracts with impossible objects are also void.
acceptance to the obligor before it is revoked.
B. Acceptance by the Third Party (Art. 1312) III. Cause of Contracts (Art. 1350-1351)
• The third party's acceptance creates a juridical A. Necessity of a Lawful Cause (Art. 1350)
tie between him and the obligor. • Every contract must have a lawful cause.
B. Unlawful Cause (Art. 1351)
V. Effect of Contracts (Art. 1315-1316) • Contracts with unlawful causes produce no
A. Obligatory Force of Contracts (Art. 1315) effect whatsoever.
• Contracts have the force of law between the
contracting parties and must be complied with in IV. Form of Contracts (Art. 1356-1369)
good faith. A. Formal Contracts (Art. 1356)
 • Contracts that must comply with specific
formalities prescribed by law to be valid and ART. 1356 – 1379
enforceable. I. Formal Contracts (Art. 1356-1358)
B. Parol Evidence Rule (Art. 1356) A. Definition of Formal Contracts (Art. 1356)
• When the terms of an agreement have been • Formal contracts are those contracts that
reduced into writing, the parties cannot must comply with specific formalities
introduce evidence to vary, contradict, or add to prescribed by law to be valid and
the terms of the written agreement. enforceable.
C. Examples of Formal Contracts (Art. 1357-1369) B. Parol Evidence Rule (Art. 1356)
1. Donation of real property (Art. 749). • When the terms of an agreement have
2. Sale of real property (Art. 1403). been reduced to writing, the parties
3. Antichresis (Art. 2132). cannot introduce evidence to vary,
4. Chattel Mortgage (Art. 2140). contradict, or add to the terms of the
V. Interpretation of Contracts (Art. 1370-1374) written agreement.
A. Rules on Interpretation (Art. 1370) C. Examples of Formal Contracts (Art. 1357-1358)
• Contracts must be interpreted according to the 1. Donation of real property (Art. 749).
intention of the parties. 2. Sale of real property (Art. 1403).
B. Ambiguities in Contracts (Art. 1371) 3. Antichresis (Art. 2132).
• If the terms of a contract are clear and leave no 4. Chattel Mortgage (Art. 2140).
doubt, the literal meaning controls.
C. Intention of the Parties (Art. 1373) II. Donations (Art. 725-733, 748-763, 1359-
• The intention of the parties is to be pursued, 1369)
and if this cannot be inferred, the literal A. Definition and Nature of Donation (Art. 725)
meaning prevails. • Donation is an act of liberality whereby a
person disposes gratuitously of a thing or
VI. Defective Contracts (Art. 1330-1333) right in favor of another, who accepts it.
A. Grounds for Annulment (Art. 1330) B. Essential Requisites of Donation (Art. 748)
• Contracts entered into by parties lacking • Capacity, consent, object, and cause are
capacity, with vitiated consent, or those against essential requisites for the validity of a
the law, morals, good customs, public order, or donation.
public policy are subject to annulment. C. Formalities of Donation (Art. 748-749)
B. Effects of Annulment (Art. 1332) • Donations of real property must be in a
• The contract is voidable and can be annulled public document, and those involving
only at the instance of the party with the right personal property exceeding PHP 5,000
to annul. must also be in writing.

VII. Unenforceable Contracts (Art. 1403) III. Sale (Art. 1458-1482)

A. Contracts Covered (Art. 1403) A. Definition of Sale (Art. 1458)
• Contracts that cannot be enforced unless they • Sale is a contract whereby one person, the
are ratified, such as contracts not in writing and seller, obliges himself to transfer the
without the required formalities. ownership of and to deliver a determinate
thing, and the buyer to pay a price certain
VIII. Void or Inexistent Contracts (Art. 1409- in money or its equivalent.
1422) B. Essential Elements of Sale (Art. 1458)
A. Definition of Void Contracts (Art. 1409) • Consent, object, and price are essential
• Contracts with no legal force and effect from the elements for the validity of a sale.
beginning. C. Form of Sale (Art. 1357)
B. Examples of Void Contracts (Art. 1409-1422) • The sale of real property or any interest
1. Those without or in excess of authority. therein must be in writing.
2. Those expressly prohibited by law. IV. Lease (Art. 1643-1650)
3. Those against public policy. A. Definition of Lease (Art. 1643)
 • Lease is a contract where one party grants D. Interpretation of Obscure Stipulations (Art.
the temporary use and enjoyment of 1374)
property to another, who undertakes to • Obscure stipulations in a contract shall not
pay rent. favor the party who caused the obscurity.
B. Essential Elements of Lease (Art. 1643) E. Interpretation of Contracts of Adhesion (Art.
• Consent, object, and price (rent) are 1379)
essential elements for the validity of a • In case of doubt, the interpretation of
lease. obscure words or stipulations in a contract
C. Form of Lease (Art. 1648) of adhesion shall be construed against the
• If the duration of the lease is more than party who drafted the contract.
one year, it must be in writing.
V. Agency (Art. 1868-1910) ART. 1380 – 1422
A. Definition of Agency (Art. 1868) I. Rescissible Contracts (Art. 1380-1389)
• Agency is a contract whereby a person, A. Grounds for Rescission (Art. 1381)
the principal, appoints another, the agent, • Contracts may be rescinded for lesions or
to act on his behalf. injury, fraud, mistake, undue influence, or
B. Essential Elements of Agency (Art. 1868) intimidation.
• Consent, object, and capacity are essential B. Effects of Rescission (Art. 1383)
elements for the validity of an agency. • Rescission creates an obligation to return
C. Form of Agency (Art. 1874) the things which were the object of the
• If the authority is given for a particular contract.
transaction, it must be in writing. C. Period for Rescission (Art. 1389)
• Rescission must be filed within four years
VI. Credit Transactions (Art. 1933-1937) from the time of the meeting of the minds.
A. Definition of Credit Transactions (Art. 1933)
• Credit transactions include loans, II. Voidable Contracts (Art. 1390-1402)
mutuum, commodatum, and simple loan A. Grounds for Annulment (Art. 1390)
or mutuum. • Contracts may be annulled due to vitiated
B. Essential Elements of Credit Transactions (Art. consent, mistake, violence, undue
1933) influence, or fraud.
• Consent, object, and cause are essential B. Ratification of Voidable Contracts (Art. 1390)
elements for the validity of credit • Ratification of the voidable contract
transactions. extinguishes the cause for annulment.
C. Form of Credit Transactions (Art. 1935) C. Prescription for Annulment (Art. 1391)
• If the loan or credit transaction involves a • Actions for annulment must be brought
sum of money exceeding PHP 5,000, it within four years.
must be in writing.
III. Unenforceable Contracts (Art. 1403-1408)
VII. Interpretation of Contracts (Art. 1370-1379) A. Contracts Covered (Art. 1403)
A. Principles of Interpretation (Art. 1370) • Contracts not reduced to writing and
• Contracts must be interpreted according those without the required formalities
to the intention of the parties. cannot be enforced unless ratified.
B. Ambiguities in Contracts (Art. 1371) B. Examples of Unenforceable Contracts (Art.
• If the terms of a contract are clear and 1403)
leave no doubt, the literal meaning 1. An agreement that violates the Statute of
controls. Frauds.
C. Intention of the Parties (Art. 1373) 2. Contracts that are voidable or annulled.
• The intention of the parties is to be
pursued, and if this cannot be inferred, the IV. Void or Inexistent Contracts (Art. 1409-1422)
literal meaning prevails. A. Definition of Void Contracts (Art. 1409)
 • Contracts with no legal force and effect • Prescription extinguishes the right as well as the
from the beginning. action.
B. Examples of Void Contracts (Art. 1409-1422) C. Prescriptive Period for Personal Actions (Art.
1. Those without or in excess of authority. 1429)
2. Those expressly prohibited by law. • Personal actions must be brought within ten
3. Those against public policy. years from the time the right of action accrues.
C. Restitution in Void or Inexistent Contracts (Art. D. Prescriptive Period for Real Actions (Art. 1429)
1410) • Real actions must be brought within thirty years.
• The person who has no right to demand
the restitution of what he has given
cannot recover it.
D. Effects of an Inexistent Contract (Art. 1412)
• The action or defense for the declaration
of the inexistence of a contract does not
prescribe.

V. Payment by Mistake (Art. 1416-1422)

A. Requisites of Payment by Mistake (Art. 1416)
• There must be an undue payment by
reason of a mistake.
B. Grounds for Recovery (Art. 1416)
• Recovery may be had if the payment was
made through a mistake of fact.
C. Prescription for Recovery (Art. 1422)
• The action for recovery must be brought
within six years.

ART. 1423 – 1430

I. Accion Pauliana (Art. 1423-1430)
A. Definition of Accion Pauliana (Art. 1423)
• Accion Pauliana is a remedy available to
creditors to rescind or impugn acts which
prejudice their rights.
B. Requisites for Accion Pauliana (Art. 1424)
1. There must be a credit existing prior to the
fraudulent alienation.
2. The debtor has made a subsequent contract
conveying property.
3. The conveyance has defrauded the creditor.
4. There is no other legal remedy available.
C. Period for Filing Accion Pauliana (Art. 1424)
• Accion Pauliana must be filed within four years
from the time the right of action accrues.

II. Extinguishment of Actions (Art. 1429-1430)

A. Modes of Extinguishing Actions (Art. 1429)
• Actions are extinguished by payment or
performance, loss of the thing due, remission,
confusion, or compensation.
B. Effect of Prescription (Art. 1429)