OBLIGATIONS AND CONTRACTS KINDS OF QUASI-CONTRACTS:

PART I – OBLIGATION 1. Negotiorum gestio (unauthorized management)

a. Gestor must voluntarily assume the agency of
 An obligation is a juridical necessity to give, to do or property
not to do. (Art. 1156) b. Property must be either abandoned/neglected
 It is a juridical relation whereby a person (creditor) c. Management must not be authorized by owner
may demand from another (debtor) the either expressedly/impliedly
observance of a determinative conduct (giving, d. Assumption of management must be made in
doing, or not doing), and in case of breach, may good faith
demand satisfaction from the assets of the latter. 2. Solutio indebiti (undue payment)
(Arias Ramos) a. He who paid was NOT under obligation to do so
ELEMENTS OF AN OBLIGATION (APOE): b. The payment was made by reason of an
essential mistake of fact
1. Active subject – a.k.a. obligee/creditor; one in
whose favor the obligation is constituted PART II – NATURE & EFFECTS OF
2. Passive subject – a.k.a. obligor/debtor; one who OBLIGATIONS
has the duty of giving, doing or not doing  Normal standard of diligence – diligence of a good
3. Object – prestation; conduct w/c has to be father of a family (Art. 1163)
observed by the debtor/obligor  What constitutes diligence of a good father – nature
4. Efficient cause – a.k.a. vinculum/juridical tie; reason
of the obligation & corresponds w/ the
why the obligation exists
circumstances of the persons, of the time, & of the
SOURCES OF OBLIGATIONS (LCQAQ [1157]): place (Art. 1173)
 When negligence shows bad faith, Arts. 1171 &
1. Law 2201 (2) shall apply. (Art. 1173)
2. Contracts
3. Quasi-contracts EFFECTS OF OBLIGATION
4. Acts or omissions punished by law
1. Obligation to give – oblig. To deliver the thing
5. Quasi-delicts
agreed upon
NOTE: Exclusive 2. Oblig. To do/not to do – do/not do the service
agreed upon
CLASSIFICATIONS OF OBLIGATIONS:
SPECIFIC VS. GENERIC THING (Art. 1165)
1. From viewpoint of sanction:
a. Civil obligation (Art. 1156) Specific/determinate – it is capable of particular
b. Natural obligation – duty not to recover what has designation
been voluntarily paid although payment was no
Generic/indeterminate – refers only to a
longer required (Sanction: law)
class/genus & can’t be pointed out w/ particularity
c. Moral obligation – duty of Catholic to attend
mass (sanction: conscience/morality) Obligations of the debtor:
2. From viewpoint of subject matter:
a. Real oblig. – oblig. To give SPECIFIC GENERIC
b. Personal oblig. – oblig. To do or not to do Deliver the thing Deliver the thing w/c is
agreed upon (Art. neither of superior nor
3. From affirmativeness & negativeness of oblig.
1165) inferior quality
a. Positive/affirmative – to give or to do
Specific performance
b. Negative – not to do Take care of the thing i.e. delivery of another
4. From viewpoint of persons obliged: w/ proper diligence of a thing within the same
a. Unilateral – only one of the parties is bound good father unless the genus as the thing
b. Bilateral – both parties are bound law or parties stipulates promised if such thing
i. Reciprocal another standard of is damaged due to lack
ii. Non-reciprocal care (Art. 1163) of care or a general
breach is committed
Quasi-contract Deliver all accessions, If the object is generic,
 Juridical relation resulting from a lawful, voluntary, accessories and fruits but the source is
of the thing (Art. 1166, specified or delimited,
and unilateral act, which has for its purpose the
NCC) the obligation is to
payment of indemnity to the end that no one shall preserve the source
be unjustly enriched to benefited at the expense Pay damages in case Pay damages in case
of another of breach of obligation of breach of obligation
by reason of delay, by reason of delay,
fraud, negligence, fraud, negligence,
contravention of the contravention of the
 tenor thereof (Art. DEFAULT or MORA (Art. 1169)
tenor thereof
1170)
Obligation is not  Those obliged to deliver or to do something incur in
Fortuitous event delay from the time the obligee judicially or
extinguished (genus
extinguishes the extrajudicially demands from them the fulfillment
nunquamperuit –
obligation
genus never perishes) of their obligation
 In reciprocal obligations, neither party incurs in
delay if the other does not comply in a proper
In failing to deliver, remedies of the creditor:
manner with what is incumbent upon him. From
SPECIFIC GENERIC the moment one of the parties fulfills his
Specific performance obligations, delay by the other begins. (Art. 1169,
(delivery of any thing NCC)
Specific performance
belonging to the same
species) Note: In reciprocal obligations, the moment one
Rescission (action to party is ready to comply with his obligation, delay
Ask that the obligation by the other begins. There is no need for demand
rescind under Art.
be complied with at the from either party.
1380, NCC)
debtor’s expense
DELAY
Resolution or specific
Resolution (action for
performance, with Kinds of Delay
cancellation under Art.
damages in either case
1191, NCC)
(Art. 1191, NCC) 1. Mora solvendi – default on the part of the
Damages, in both cases (Art. 1170, NCC) debtor/obligor
a. Ex re – default in real obligations (to give)
Note: May be exclusive or in addition to the b. Ex personae – default in personal obligations (to
above‐mentioned remedies do)
2. Mora accipiendi – default on the part of the
Note: In obligation to deliver a specific thing, the creditor/oblige
creditor has the right to demand preservation of the 3. Compensation morae – default on the part of both
thing, its accessions, accessories, and the fruits. in reciprocal
The creditor is entitled to the fruits and interests Mora Solvendi
from the time the obligation to deliver the thing
arise. Requisites:

Personal Right vs. Real Right 1. Obligation pertains to debtor

2. Oblig. Is determinate, due, demandable and
PERSONAL (jus ad liquidated
REAL (jus in re)
rem) 3. Oblig. Hasn’t been performed on its maturity date
Enforceable only 4. There is judicial or extra-judicial demand by the
against a definite Enforceable against creditor
person/group of the whole world
5. Failure of the debtor to comply w/ such demand
persons
Right to demand from Effects:
Right over a specific
another, as a definite
thing, without a definite 1. Debtor may be liable for damages or interests
passive subject, the
passive subject against
fulfillment of the 2. When it has for its object a determinate thing,
whom the right may be
prestation to give, to do debtor may bear the risk of loss of the thing even
personally enforced
or not to do if the loss is due to fortuitous event (Art. 1165)
Has a definite passive No definitive passive
subject subject Mora Accipiendi
Requisites:
BREACH OF OBLIGATION
1. Offer of performance by a capacitated debtor
 Catch – all provision: Art. 1170 – those who are 2. Offer must be to comply prestation as it should be
guilty of fraud/negligence/delay & contravene in performed
tenor thereof are liable for damages 3. Refusal of the creditor w/o just cause
1. Voluntary – debtor is liable for damages if he is
guilty of: Effects:
a. Default/delay (mora)
1. Responsibility of debtor (DR) is limited to fraud &
b. Fraud (dolo)
gross negligence
c. Negligence (culpa)
2. DR is exempted from risk of loss of thing; creditor
d. Breach through contravention of tenor thereof
(CR) bears risk of loss
2. Involuntary – debtor is unable to perform oblig. Due
to fortuitous events thus not liable for damages
3. Expenses by DR for preservation of thing after Remedies of defrauded party:
delay is chargeable to CR
1. Specific performance (Art. 1233)
4. If oblig. Bears interest, DR doesn’t have to pay from
2. Resolution of the contract (Art. 1191)
time of delay
3. Damages, in either case
5. CR liable for damages
6. DR may relieve himself of oblig. By consigning the NEGLIGENCE (Art. 1172):
thing
Fraud Negligence
Rules on Default: There is no deliberate
There is deliberate intention to cause
Unilateral obligs.:
intention to cause damage or injury even
General Rule (GR): Default or delay begins from damage if the act was done
extrajudicial or judicial demand – mere expiration of voluntarily
the period fixed is not enough in order that DR may Liability cannot be Liability may be
incur delay (Art. 1169) mitigated mitigated
GR: Waiver for future
EXCEPTION (XPN): Art. 1169 negligence may be
allowed in certain
1. Oblig. Or law expressly so dictates cases
Waiver for future fraud
2. Time is of the essence XPN: Nature of the
is void
3. Demand would be useless, as DR has rendered it obligation or public
beyond his power to perform policy requires
extraordinary diligence
Reciprocal obligs: (e.g. common carrier)
GR: Fulfillment by both parties should be
Note: When negligence is so gross that it amounts
simultaneous to wanton attitude on the part of the debtor, the
XPN: when different dates for the performance of laws in case of fraud shall apply.
oblig is fixed by the parties Where negligence shows bad faith (i.e., deliberately
committed) it is considered equivalent to fraud. Any
FRAUD (Art. 1171) waiver of an action for future negligence of this kind
is therefore void. (De Leon, Obligations and
 An intentional evasion of the faithful performance of
Contract, 2003 ed., p. 57)
the oblig.
 Type of fraud that must be present in order that Kinds of Culpa According to Source of Oblig:
obligor be held liable for damages – must be
1. Culpa contractual – results in a breach of a contract
incidental fraud or that which is present during the
2. Culpa aquiliana – civil negligence/tort/quasi-delict
performance of the obligation, and not causal
3. Culpa criminal – results in the commission of a
fraud, or fraud employed in the execution of a
crime/delict
contract, which vitiates consent
Culpa Culpa Culpa
Kinds of Fraud:
Contractual Aquiliana Criminal
Fraud during the Fraud during the Negligence is Negligence is Negligence is
perfection of the performance of the merely direct direct,
contract (causal oblig (incidental incidental substantive, &
fraud/dolo causante fraud/dolo incidente independent
[Art. 1338]) [Art. 1344]) There is a pre- No pre-existing No pre-
When Employed existing obligation existing
During the obligation (except the (except the
Before or during the (contract, duty to be duty never to
performance of a pre-
perfection of a contract express or careful) harm others)
existing obligation
Purpose of execution implied)
To secure the consent Proof needed Proof needed Proof needed
To evade the normal – – – proof of guilt
of another to enter into
fulfillment of the oblig. preponderance preponderance beyond
the contract
Resultant effect of evidence of evidence reasonable
Vitiation of consent Breach of an obligation doubt
Status of contract Respondeat Defense of This is not a
Voidable Valid superior or good father is proper
Right or remedy of aggrieved party command a proper & defense. Ee’s
responsibility complete guilt is
Right of innocent party Right of innocent
or defense automatically
to annul the contract w/ party/creditor to claim
master/servant (insofar as Er’s civil guilt
damages for damages
rule employers or if former is
 guardians are insolvent b. Accion pauliana
concerned) c. Accion directa
Presumed DR Victim has to Accused is
is at fault & it’s prove the presumed RESCISSION (Art. 1191)
his duty to negligence of innocent until
 Refers to the cancellation of the contract or
prove that the defendant the contrary is
reciprocal obligation in case of breach on the part
there was no proved
negligence of one, w/c breach is violative of the reciprocity
between the parties
What is the degree of diligence required?  Properly called resolution
 Rescission under Art. 1380 is rescission based on
1. That agreed upon lesion or fraud upon creditors
2. In the absence of such, that w/c is required by law  Available to reciprocal obligations, since resolution
3. In the absence of the foregoing, diligence of good is implied therein
father that reasonable diligence which an ordinary  Injured party may demand resolution
prudent person would have done under the same
circumstances (XPN: Common carriers requiring May the injured party demand resolution after he
extraordinary diligence [Arts. 1998-2002]) elects specific performance?

FORTUITOUS EVENT (Art. 1174) GR: No. His right is not conjunctive, thus, he may
not choose both remedies of resolution and specific
 an event w/c can’t be foreseen, or w/c though performance
foreseen, is inevitable
 instances where it doesn’t exempt: if the obligor XPN: Yes, if specific performance should become
delays; if obligor is guilty of bad faith impossible

Fortuitous event vs. Force Majeure When does liability for damages arise?

Fortuitous event Force majeure  Those liable under Art. 1170 shall pay damages
General term that is Term that is applicable only if aside from the breach of contract, prejudice
applicable regardless only to those fortuitous or damage was caused.
of whether the event is events w/c are
independent of or dependent upon Kinds of Damages (MENTAL):
dependent upon human intervention
 Moral – for mental & physical anguish
human intervention (wars, strikes, riots,
etc.)  Exemplary – corrective or to set an example
Event w/c usually Event w/c doesn’t  Nominal – to vindicate a right – when no other kind
happens or w/c could usually happen & w/c of damages may be recovered
have been reasonably couldn’t have been  Temperate – when the exact amount of damages
foreseen reasonably foreseen can’t be determined
 Actual – actual losses as well as unrealized profit
 Liquidated – predetermined beforehand by
Rule on Fortuitous Event:
agreement
General Rule – no liability for fortuitous event
Exception – PART III – KINDS OF OBLIGATIONS

1. when expressly declared by law (bad faith, subj. Primary Classification of civil obligations:
matter is generic, DR is in delay)
1. Pure, conditional, and with a term or period
2. when expressly declared by stipulation/contract
when nature of oblig. Requires assumption of risk 2. Alternative and facultative
3. Joint and solidary
Effects of Fortuitous Event: 4. Divisible and indivisible
1. on determinate oblig. – oblig. Is extinguished 5. With and without a penal clause
2. on generic oblig. – oblig. Is not extinguished
PURE AND CONDITIONAL OBLIGATIONS (Arts.
REMEDIES 1179-1192):
Pure obligation – one without a condition or term;
1. Specific performance or substituted performance by demandable at once, provided there will be no
a 3rd person in case of an oblig. To deliver a absurdity; created from moment of agreement
generic thing, & in obligs. to do, unless it is purely between the parties (Art. 1179)
a personal act
2. Rescission (or resolution in reciprocal obligations) Conditional obligation – subject to a condition & the
3. Damages, in any case effectivity of w/c is subordinated to the fulfillment or
4. Subsidiary remedies of creditors: non-fulfillment of a future & uncertain event, or
a. Accion subrogatoria upon a past event unknown to the parties.
 Condition – uncertain event w/c wields an influence 3. Oblig. Is subject to a suspensive condition
on a legal relationship 4. The condition is fulfilled
5. There is loss, deterioration or improvement of the
Term or period – that which necessarily must come
thing during the pendency of the happening of the
whether the parties know when it will happen or not
condition
Period vs. Condition
Note: the same conditions apply in case of an
PERIOD CONDITION obligor in obligations with a resolutory condition. In
As to time such cases, the third requisite must read, “subject
May refer to past event to a resolutory condition.”
Refers to the future
unknown to the parties
Effects of fulfillment of suspensive condition:
As to requisites
Futurity & certainty Futurity & UNcertainty 1. Real oblig.
As to fulfillment a. GR: effects retroact to the day of constitution of
It will happen at an oblig.
exact date or at an May or may not b. XPN: no retroactivity as to: fruits & interests
indefinite time, but is happen c. XPN to the XPN: there may be retroactivity as to
sure to arrive
the fruits & interests in unilateral obligations if
As to its Influence on the Obligation to be
such intention appears
Fulfilled or Performed
No effect or influence May give rise to an 2. Personal oblig. – court determines the retroactive
upon the existence of obligation (suspensive) effect of the condition fulfilled
the obligation but only or the cessation of one RESOLUTORY CONDITION
in its demandability or already existing
performance (resolutory )  A condition where the rights already acquired are
As to retroactivity of effects lost upon the fulfillment of the condition
Does not have
retroactive effects Effects of fulfillment of resolutory condition:
unless there is an Has retroactive effect
agreement to the 1. Real obligations
contrary a. Parties shall return to each other what they have
As to effect of will of debtor received
When duration is left When condition is left b. Oblig. Is extinguished
exclusively to the will of exclusively, the very c. In case of the loss, deterioration or improvement
the debtor, oblig. Is still validity of the obligation of the thing, Art. 1189, w/ respect to the DR,
valid is affected shall be applied to the party who is bound to
return
2. Personal obligations – courts shall determine, in
SUSPENSIVE CONDITION
each case, the retroactive effect of the condition
 Condition the fulfillment of w/c will give rise to the that has been complied w/
acquisition of a right SUSPENSIVE VS. RESOLUTORY (Art. 1181)
What are the effects of loss, deterioration, &
SUSPENSIVE RESOLUTORY
improvements in real obligs.? Effect of fulfillment
W/ DR’S FAULT W/O DR’S FAULT Obligation is
Obligation arises or
Loss extinguished
becomes effective
DR pays damages Obligation extinguished
Deterioration Effect of non-fulfillment
CR‐choose b/w If not fulfilled, no
If not fulfilled, juridical
rescission of obligation Impairment borne by juridical relation is
relation is consolidated
or fulfillment (with CR created
indemnity for damages When rights are acquired
in either case) Rights are not yet
Rights are already
Improvement acquired, but there is
acquired, but subject to
1. By the thing’s nature or by time – inure to the hope or expectancy
the threat or danger of
benefit of the CR that they will soon be
extinction
2. At the debtor’s expense – DR shall have no acquired
right other than that granted to a usufructuary
OBLIGATIONS WITH A PERIOD (Art. 1193-1198)

What are the requisites for Art. 1189 to apply?  An oblig. Whose demandability or extinguishment is
subject to the expiration of a period or term (Art.
1. Must be a real oblig. 1193)
2. Object is a specific/determinate thing
 Period – certain length of time which determines ALTERNATIVE OBLIGATIONS (Arts. 1199-1206):
the effectivity or extinguishment of oblig.
Alternative obligation – one where out of the two or
 Day certain – that w/c must necessarily come,
more prestations which may be given, only one is
although it may not be known when
due
Requisites for a valid period or term:  The right of choice belongs to debtor unless
1. Future expressly granted to creditor (Art. 1200)
2. Certain
3. Possible, legally & physically Limitation on the Debtor’s Choice (Art. 1200 [2])

For whose benefit is the period constituted: a. Impossible

b. Unlawful
GR: When a period has been agreed upon for the c. Which could not have been the object of the
performance or fulfillment of an obligation, it is obligation
presumed to have been established for the benefit
of both the creditor and the debtor. Communication of choice (Art. 1201)
XPN: When it appears from the tenor of the period
or other circumstances that it was established for Means of notification – orally or in writing, expressly
the benefit of one of the parties. or impliedly
Effect of notice – once made, the obligation
What is the effect of the term being for the benefit
becomes a simple obligation
of either the CR or the DR?
Reason for notification – to inform the creditor that
1. When it is for the benefit of the creditor – CR may oblig. Is now a simple one & if already due, for the
demand the performance of the oblig. At any time creditor to receive the object being delivered
but the DR can’t compel him to accept payment
before the expiration of the period (e.g. “on Requisites for the Making of the Choice
demand)
2. When it is for the benefit of the debtor – DR may a. Made properly so that the creditor or his agent will
oppose any premature demand on the part of the actually know
CR for performance of the oblig., or if he so b. Made w/ full knowledge that a selection is indeed
desires, he may renounce the benefit of the being made
period by performing his oblig. In advance c. Made voluntarily & freely
d. Made in due time, before or upon maturity
Effect of fortuitous event in an oblig. w/ a period: e. Made to all the proper persons
f. Made w/o conditions unless agreed to by the
 Only relieves the contracting parties from the creditor
fulfillment of their respective obligation during the g. May be waived, expressly or impliedly
term or period.
 Debtor loses right when only one prestation is
When may the court fix the period? (Art. 1197) practicable (Art. 1202)
1. If oblig. Doesn’t fix a period, but from its nature &  If thru creditor’s fault debtor can’t make a choice,
circumstances it can be inferred that a period was latter may rescind the contract + damages (Art.
intended by the parties (Art. 1197) 1203)
2. If the duration of the period depends upon the will
of the DR. (Art. 1182) Loss and right of choice (Arts. 1204-1205):
3. In case of reciprocal obligs., when there is just LOSS
cause for fixing the period Right
Due to
4. If the DR binds himself when his means permit him of Some of All
All fortuito
to do so (Art. 1180, in relation to 1193 and 1197) choic the excep
objects us
e objects t one
event
When may debtor lose his right to make use of the
Subj. to
period (Art. 1198)
He has breach of
1. Insolvency of DR, unless security is provided Perfor
right of contract,
2. Did not deliver security promised m Oblig. Is
Debto choice & creditor
3. Impaired security through his own acts or thru what extingui
r oblig is has right
fortuitous event, unless he gives new security remai shed
still to
equally satisfactory (if impairment is w/o fault of ns
performed indemnif
DR, he shall retain the right)
y
4. Violates undertaking in consideration of extension
Credit May claim Can If 1 of
of period
or any of the demand the
5. DR attempts to abscond
(Art. remaining ANY of thing,
1205) thing w/ the price debtor
PART IV – KINDS OF OBLIGATIONS damages of thing + shall still
or price of damages perform
 If all expressly stipulated by
things, the parties or when law
the thing +
oblig is or nature of oblig.
damages
extingui Requires solidarity (Art.
shed 1207)
Each debtor is liable Each debtor is obliged
only for a proportionate to pay the entire
Note: applicable BEFORE debtor part of the entire debt obligation
makes/communicates choice to creditor Each creditor, if there Each creditor has the
are several, is entitled right to demand from
 If all objects lost thru debtor’s fault (debtor’s right of
only to a proportionate any of the debtors the
choice), the basis of indemnity shall be fixed by part of the entire debt payment or fulfillment
the value of the last thing which disappeared or of the entire obligation
the last service which has become impossible.
(Art. 1204)
 Art. 1205 (rules if right of choice is given to creditor) General rule: joint – two or more debtors or two or
DOES NOT APPLY when the contract does not more creditors (Art. 1207)
state who has the right of choice Exceptions: (a) there is a stipulation lthat obligation
FACULTATIVE OBLIGATION (Art. 1206) is solidary (Art. 1207); (b) when nature of oblig.
requires liability to be solidary (Art. 1208); (c) when
 One where only one prestation has been agreed law declares the oblig. To be solidary (Art. 1207)
upon but there can be a substitution
 Instances where law imposes solidary liability:
Alternative vs. Facultative o Obligs from torts & quasi-contracts
Alternative Facultative o Legal provisions regarding the obligations of
# of Several Only one devisees and legatees
prestation prestations are prestation is due o Liability of principals, accomplices and
s due but but substitution accessories of a felony
compliance w/ may take place o Bailees in commodatum
one is sufficient  When there are two or more debtors or two or more
Right of The choice may Belongs only to creditors, the obligation is presumed joint and as a
choice be given to the the debtor consequence – debt shall be divided into as many
creditor/third
shares as there are creditors or debtors &
person
credits/debts will be distinct from one another,
Loss thru Loss of one/more Loss of the thing
fortuitous doesn’t extinguish due extinguishes BUT regarding the bringing of action in court, the
event the obligation the obligation Rules of Court governing multiplicity of suits is
Loss thru • Loss of • Loss of followed (Art. 1208)
fault of alternative thru the thing due  Vitiated consent on the part of one debtor doesn’t
debtor fault of debtor to his fault affect the others
doesn’t render makes him  Insolvency of one doesn’t make others responsible
him liable liable for his share
• Where
choice belongs Indivisible Joint Obligation (Art. 1209)
to creditor,
loss of one Indivisible – referring to the object; joint – referring
makes him to the tie between the parties
liable Exception: unless solidarity has been stipulated by
Nullity of • Nullity • Nullity the parties or the law, in w/c case it is called a
prestation doesn’t invalidates the
solidary indivisible obligation
invalidate the obligation
others • Debtor is Effect of breach – if one of joint debtor fails to
• Debtor/cre not bound to comply, the oblig. Can no longer be fulfilled;
ditor shall choose the innocent joint DR shall not contribute to the
choose from substitute. indemnity beyond their corresponding
remainder

JOINT AND SOLIDARY OBLIGATIONS (Arts. Characteristics:

1207-1222):
 Obligation is joint but since the object is indivisible,
Joint vs. Solidary the creditor must process against ALL the joint
debtors (Art. 1209), for compliance is possible
Joint Solidary
only if all the joint debtors would act together
Presumed by law Not presumed, must be
 Demand must be made on ALL the joint debtors Upon the obligation – if total, entire oblig is
 If any one of the debtors be insolvent, others shall extinguished; if partial, oblig is extinguished in that
not be liable for his share part to w/c the remission refers (1215)
 If there be joint creditors, delivery must be made to Upon solidary creditor – the creditor responsible for
all & not merely to one unless authorized remission shall be liable to the other solidary
 Each joint creditor is allowed to renounce his creditors for the shares in oblig corresponding to
proportionate credit then
 Fulfillment requires the consent of all the debtors,
although each for his part Upon solidary debtors:

Indivisibility vs. Solidarity (Art. 1210) 1. If covers entire oblig, oblig is totally
extinguished & entire juridical
Indivisibility Solidarity relation among debtors is terminated
Refers to the Refers to the vinculum altogether; true whether for benefit
prestation/object of the existing between the of one or all
contract parties
2. If for benefit of one debtor & covers
Doesn’t require Requires the plurality
entire share, he is completely
plurality of of parties/subjects
released from creditor but not to co-
subjects/parties
In case of breach, it’s In case of breach, the debtors; if one pays and seeks
converted to one of liability of the solidary reimbursement but 1 is insolvent, the
indemnity for damages debtors for damages debtor who benefits remission shall
& the indivisibility of the remains solidary still have to share in the portion w/c
obligation is terminated corresponds to insolvent
Kinds of solidarity:
Rules in a solidary obligation:
First classification:
 Anyone of the solidary creditors may collect or
 Active solidarity – on the part of the creditors or
demand payment of whole obligation; there is
obligees
mutual agency among solidary debtors (Arts.
1214, 1215)  passive solidarity – on the part of the debtors or
obligors
 Any of the solidary debtor may be required to pay
the whole obligation; there is mutual guaranty  mixed solidarity – on the part of the obligors and
among solidary debtors (Arts. 1216, 1217, 1222) obligees
 Each one of solidary creditors may do whatever Second classification:
maybe useful to the others, but not anything
prejudicial to them (Art. 1212); however, any  conventional solidarity – agreed upon by the parties
novation, compensation, confusion or remission of  legal solidarity – that imposed by law
debt executed by any solidary creditor shall
Rule on solidarity despite different terms or
extinguish the obligation without prejudice to his conditions (Art. 1211)
liability for the shares of the other solidary
creditors. The whole solidary obligation can be recovered
 Payment by one shall not entitle him to from ANY of the solidary debtors MINUS the share
reimbursement from co-debtors if he paid after the of those with unmatured conditions or terms
obligation prescribed or became illegal (Art. 1218)
 Remission by the creditor which affects one debtor Effects of assignment of rights in a solidary
does not release said debtor from responsibility obligation:
towards co-debtors (Art. 1219); remission of entire GR: Solidary creditor cannot assign his right
obligation does not entitle him to reimbursement because it is predicated upon mutual confidence,
from co-debtors (Art. 1220) meaning personal qualification of each creditor had
 LOSS (Art. 1221): If without fault of the solidary been taken into consideration when the obligation
debtors, oblig. Is extinguished (no liability). If with was constituted. (Art. 1213, NCC)
fault by any one of them, through fortuitous event,
or one debtor has incurred delay, all shall be XPN: allowed if all the others consent
responsible to the creditor for the price & payment
of damages and interests, without prejudice to To Whom Debtor must pat in a solidary obligation
their action against the guilty debtor GR: to any of the solidary creditors
Effects if remission XPN: If demand, judicial or extra-judicial has
been made by one of them, payment should be
made to him (Art.1214, NCC)
Passive Solidarity and Suretyship  Intellectual or moral (one that exists merely in the
Passive solidarity Suretyship mind and not in physical reality) – thing can only
Both solidary debtor and the surety guarantee for be separated into ideal or undivided parts as in
another person the case of co-ownership
Both can demand reimbursement
Indebted for his own Indebted only for the True test of determining divisibility – whether or not
share only share of the principal the prestation is susceptible of partial performance
debtor in the sense of the possibility realizing the purpose
Can be reimbursed Can be reimbursed for which the obligation seeks to obtain;
what he has paid everything he paid
MINUS his own share Rules on Divisible and Indivisible obligations:
If one receives an If principal debtor  An obligation to deliver a divisible thing may be
extension of the receives an extension considered indivisible when the law so provides or
payment period, the w/o surety’s consent, by stipulation of the parties (Art. 1225)
others are still liable for the surety is released  Effect of partial performance in an indivisible
the whole obligation obligation – tantamount to non-performance
now, minus the share  When the obligation has for its object the execution
of the debtor who has of a certain number of days of work,
received the extension accomplishment by metrical units or analogous
things, it shall be divisible (Art. 1225)
Kinds of Defenses (Art. 1222)  Obligations not to do – divisibility or indivisibility
shall be determined by the character of the
1. Those derived from the nature of the obligation prestation in each particular case
(complete defense)  Non-compliance of joint indivisible obligation will
a. Lack of consideration of cause result into a conversion into a monetary one for
b. Absolute simulation (contract was fictitious) indemnity (Art. 1224)
c. Illegal consideration  In case of a divisible contract, if the illegal terms
d. Extinguishment of obligation can be separated from the legal ones, the latter
e. Non-fulfillment of suspensive condition may be enforced
f. When ALL debtors were incapacitated to give
consent OBLIGATIONS WITH A PENAL CLAUSE (Arts.
g. When there are vice of consent on the part of 1226-1230)
ALL debtors
2. Those personal to the debtor sued (complete Penal clause – a coercive means to obtain from the
debtor compliances from the debtor; an accessory
defense generally but if it is about condition or
undertaking to assume greater liability in case of
term, then it is partial defense)
breach
a. Vitiated consent
b. Incapacity of the give consent Kinds of penal clauses
3. Those personal to the others (partial defense
regarding the share of others involved) First classification:
 Legal – imposed by law
DIVISIBLE AND INDIVISIBLE OBLIGATIONS
 Conventional – that w/c has been agreed upon by
(Arts. 1223-1225)
the parties
Divisible obligation – one capable of partial
performance Second classification:
 Subsidiary – when only the penalty may be asked
Indivisible obligation – one not capable of partial  Joint – when both the principal contract and the
performance penal clause can be enforced
Kinds of indivisibility: Penal clause vs. condition

 Conventional (by common agreement) Penal clause Condition

 Natural or absolute (because of the nature of the Constitutes an <- does not
object of undertaking) obligation although
 Legal accessory
May become Never demandable
Kinds of Division demandable in default
of the unperformed
 Quantitative -vthing can be materially divided into principal obligation &
parts and such parts are homogenous to each sometimes jointly with
other it
 Qualitative (irrespective of quantity) – thing xan be
materially divided but parts are not
homogenousbto each other
 Principal purpose – insure the performance of an Note: other causes of extinguishment (annulment,
obligation and also to substitute for damages and rescission, fulfillment of a resolutory condition and
the payment of interest in case of non-compliance prescription) are governed elsewhere in NCC
 GR: Debtor cannot substitute penalty for the
principal obligation and creditor cannot demand PAYMENT OR PERFORMANCE (Arts. 1232-1261)
both fulfillment and penalty at the same time (Art.
1227) payment – mode of extinguishing obligations which
 XPN: Debtor can substitute penalty only if the right consists of: (a) the delivery of money or (b) the
has been EXPRESSLY reserved and the creditor performance in any other manner of an obligation
can demand both when such right has been
CLEARLY granted to him (Art. 1227) tender of payment – the definitive act of offering the
 Proof of actual damages suffered by the creditor is creditor what is due him or her, together with the
NOT necessary in order that the penalty may be demand that the creditor accept the same.
demanded. (Art. 1228)
 Penalty may not be demandable, only enforced Requisites of a valid payment (CCPtpmADfafp):
when it is demandable in accordance with the 1. Capacity of the payor
provisions of the NCC, one of w/c states that the 2. Capacity of the payee
penalty may be reduced if it is iniquitous or 3. Propriety of the time, place, manner of payment
unconscionable (Art. 1229) 4. Acceptance by the creditor
 Judge shall equitably reduce penalty when the 5. Delivery of the full amount of the full performance of
principal obligation has been partly/irregularly the prestation
complied with. (Art. 1229)
 Creditor has burden of showing that a valid debt
Effect of incorporating a penal clause in an exists and debtor has burden of proving he has
obligation: paid the same
 Means of proving payment – presentation of receipt
GR: The penalty shall substitute the indemnity for  If obligation has been substantially performed in
damages & payment of interest in case of non- good faith, obligor/debtor may recover less
compliance, if there is no stipulation to the contrary damages suffered by oblige (Art. 1234)
(Art. 1226)  When obligee/creditor accepts performance,
XPN: knowing incompleteness & w/o expressing
 When there is express stipulation to the effect that protest, the obligation is deemed fully complied
damages or interest may still be recovered, with (Art. 1235) [qualified acceptance]
despite the present of the penalty clause  3 person cannot compel creditor to
rd

 When the debtor refuses to pay the penalty subrogate him in his rights (Art. 1237)
imposed in the obligation
 When the debtor is guilty of fraud or dolo in the Payment by third person
fulfillment of the obligation. Reason – there can be
no renunciation of an action to enforce liability for GR: the creditor is not bound to accept
future fraud because this is against public policy payment/performance by a 3rd person (Art. 1236)
and against express provisions of the law
XPN: contrary stipulation or when made by a 3 rd
Note: the nullity of the penal clause does not carry person who has interest in the fulfillment of the
with it that of the principal obligation; the nullity of obligation
the principal obligation carries with it that of the
penal clause. (Art. 1230, NCC) Rights of a 3rd person who paid the debt:

Penalty may be reduced by the courts when (PIU): w/ knowledge & consent of the debtor -
can recover entire amount paid (absolute
 Partial performance of the obligation reimbursement); can be subrogated to all
 Irregular performance of the obligation rights of the creditor
 Penalty is unconscionable even if there has been Without knowledge or against the will
no performance of the debtor – can recover only insofar
as payment has been beneficial to the
PART V – EXTINGUISHMENT OF OBLIGATIONS
debtor (right of conditional
Modes of extinguishment of obligations (Art. 1231): reimbursement)
 Payment or performance
 Loss of the thing due NOTE: Payment made by a third person
 Condonation or remission of the debt who does not intend to be reimbursed by
the debtor is deemed to be a donation,
 Confusion or merger of the rights of creditor and
which requires the debtor's consent. But
debtor
the payment is in any case valid as to the
 Compensation creditor who has accepted it. (Art. 1238,
 Novation NCC)
 Payment by an incapacitated person (Art.  If oblig to deliver a specific thing,
1239) payment is to be made in the place
where the thing might was constituted.
GR: if the person paying has no capacity If any other thing, delivery must be
to gve: made at debtor’s domicile (Art. 1251)
 Payment is not valid – if accepted Special forms of payment:
 Creditor cannot even be compelled to
accept it Dation in payment (Art. 1245)
 The remedy of consignation would not be
 Debtor alienates in favor of the creditor,
proper
property for the satisfaction of monetary
XPN: minor (Art. 1427) debt
 The object to be given has to be the
 Payment shall be made to the person in same value as the money that was
whose favor the obligation has been supposed to be originally given
constituted, or his successor in interest, or  The undertaking partakes of the nature of
any person authorized to receive it. (Art. sale, that is, the creditor is really buying
1240) the thing or property of the debtor,
payment for which is to be charged
Is payment to an unauthorized person a against the debtor’s debt
valid payment? Art. 1241 Conditions where Dation in Payment
GR: Payment to an unauthorized person would be valid:
is not a valid payment.  If the creditor consents
XPNs:  If the dation will not prejudice the other
creditors
Payment to an incapacitated person if: he kept  If the debtor is not judicially declared
the thing delivered, or it has been beneficial to insolvent
him
Application of payments:
Payment to a third person insofar as it
redounded to the benefit of the CR  the designation of the debt to which the
payment must be applied when the
Payment in good faith to the possessor debtor has several obligations of the
of credit same kind in favor of the same creditor
 debtor is given the right to select which of
the debts he is paying (Art. 1252)
Payment made to a 3rd person shall also
 in case debtor fails to ascertain, the
be valid insofar as it has redounded to
choice may be transferred to the
the benefit of the creditor. Such benefit
creditor as when the debtor makes
need not be proved when:
payment and does not make application
1. If aftrr the payment, 3rd person
and debtor accepts a receipt in which
acquires creditor’s rights
the application is made
2. If creditor ratifies the payment to the
3rd person Requisites:
3. If by creditor’s conduct, the debtor has 1. one debtor & one creditor
been led to believe that the 3rd 2. two or more debts of the same kind
person had authority to recrive 3. amount paid by the debtor must not be sufficient to
payment cover all debts
4. debts are all due
 Effect in general of payment to 3rd party – 5. parties have not agreed previously on the
payment is valid BUT only to the extent application
of benefit to the creditor
 Payment must be proved & is not Rules if both debtor & creditor fail to apply
presumed except in 3 instances: Art. payments
1241
o If after the payment the 3rd person  legal application of payments govern
acquires the creditor’s rights  The liquidated debt is more burdensome than
(subrogation) the unliquidated one. An obligation in which the
o If creditor ratifies (assents) the debtor is in default is more onerous than one in
payment to the 3rd person which he is not.
o If by creditor’s conduct, the debtor has  payment should be applied to the more onerous
been led to make the payment debts:
 Payment made in good faith shall release  When a person is bound as principal
the debtor (Art. 1242) in one obligation and as surety in
another, the former is more onerous.
  When there are various debts, the
oldest ones are more burdensome.
Tender of payment and consignation
 Where one bears interest and the Tender of payment – act of offering the creditor what
other does not, even if the latter is the is due to him together with a demand that the
older obligation, the former is creditor accept the same
considered more onerous.
 Where there is an encumbrance, the Consignation – act of depositing the thing due with
debt with a guaranty is more onerous the court or judicial authorities whenever the creditor
than that without security. cannot accept or refuses to accept payment

 With respect to indemnity for TENDER OF

damages, the debt which is subject to PAYMENT CONSIGNATION
the general rules on damages is less Nature
burdensome than that in which there
is a penal clause. Antecedent of Principal or

Payment by cession consignation or consummating act for

preliminary act to the extinguishment of
 Debtor abandons all of his property for
the benefit of his creditors in order that consignation the obligation
from the proceeds thereof, the latter
may obtain payment of credits Effect
 Creditors do not become the owners; It does not by itself It extinguishes the
they are merely assignees with
authority to sell extinguish the obligation when declared
 Debtor is released up to the amount of
the net proceeds of sale (Art. 1255) obligation valid
Character

Dation in payment vs. cession Judicial for it requires the

filing of a complaint in
PAYMENT IN
court
DATION IN PAYMENT CESSION Extrajudicial
Maybe one creditor Plurality of creditors
Not necessarily in state Debtor must be partially
of financial difficulty or relatively insolvent consignation alone shall produce the same effect in
Thing delivered is Universality or property the ff. cases (Art. 1256): no need tender of payment
 Creditor is absent or unknown, or does not appear
considered as equivalent of debtor is what is at the place of payment
 He is incapacitated to receive the payment at the
of performance ceded
time it is due
Payment extinguishes  Without just cause, he refuses to give a receipt
 When two or more persons claim the same right to
obligation to the extent Merely releases debtor
collect
of the value of the thing for net proceeds of  When the title of the obligation has been lost
delivered as agreed things ceded or Requisites of consignation (VdPtPnASn):
upon, proved or implied assigned, unless there is  Existence of a valid debt
 Valid prior tender, unless tender is excused
from the conduct of the contrary intention  Prior notice of consignation (before deposit)
creditor  Actual consignation (deposit)
 Subsequent notice of consignation
Ownership is transferred Ownership is not
to CR upon delivery transferred
 Creditor is justified in refusing to accept the tender
An act of novation Not an act of novation of payment if the tender of payment is not valid
Does not presuppose (Requisites:
Presupposes insolvency o Must be made in legal tender (lawful currency)
insolvency o Must include whatever interest is due
o Generally, it must be unconditional
 o The obligation must already be due GR: obligation is not extinguished because genus
 How consignation is made – things due must be never perishes (Art. 1263)
deposited w/ the proper judicial authorities (Art. XPN: in case of generic obligations whose object is
1258) a particular class or group with specific or
o There must be proof that: tender had previously determinate qualities (limited generic obligation)
been made (gen. rule) or creditor had previously
notified the debtor that consignation will be Instances When Law requires Liability even in
made (in case tender is not required) fortuitous event:
 Once the consignation has been duly made, debtor  Debtor is in default
may ask the judge to order the cancellation of the  Debtor promised to deliver the same thing to 2 or
obligation (Art. 1260) more persons who do not have the same interest
 If consignation is judicially approved or all  Where oblig arises from a crime
requisites are present or creditor has signified  Borrower of an object has lent the thing to another
acceptance, the creditor bears the loss; otherwise, who is NOT a member of his own household
debtor bears the burden  When the thing loaned has been delivered w/
appraisal of the value
Effects of Improper Consignation
 If consignation was improperly made, the obligation CONDONATION OR REMISSION OF THE DEBT
remains because the consignation is note (Arts. 1270 - 1274)
effective
 If at time of consignation the debt was already due,  Gratuitous abandonment by the creditor of his right
& the requisites are absent, the debtor is in  Requires acceptance by the obligor
DEFAULT  If remission not accepted – then there is no
remission, however, if creditor does not really
LOSS OF THE THING DUE (Arts. 1262 - 1269) collect, the debt may be said to have been
extinguished by PRESCRIPTION
When is there a loss (DOPE):  Implied remission – private document (instrument
 When the object perishes (physically destroyed) of credit) (Art. 1271)
 When it goes out of commerce  Presumption of voluntary delivery (Art. 1272)
 When it disappears in such a way that o If given to a joint debtor, presumed that only
o Its existence is unknown his/her debt has been remitted
o It cannot be recovered (Art. 1189) o If given to one of the solidary debtors, it is
presumed that the whole obligation is remitted
Effect of loss on an obligation to deliver a specific  Renunciation of the principal shall extinguish the
thing accessory but not vice versa (Art. 1273)

GR: obligation is distinguished Requisites of Express Condonation (GAdIDcEdd):

XPNs: LAS-CD-PCG 1. Must be gratuitous
 Law provides otherwise 2. Acceptance by the debtor
 Nature of the obligation requires the Assumption of 3. Must not be inofficious
risk 4. Formalities provided by law on Donations must be
 Stipulation to the contrary complied with if condonation is express
 Debtor Contributed to the loss 5. An existing demandable debt
 Loss the of the thing occurs after the debtor
incurred in Delay CONFUSION OR MERGER OF RIGHTS (Arts.
 When debtor Promised to deliver the same 1275 – 1277)
thing to two or more persons who do not
have the same interest Merger or confusion – meeting in one person of the
 When the debt of a certain and determinate thing qualities of creditor and debtor with respect to the
proceeds from a Criminal offense same obligation
 When the obligation is Generic Basis – if a debtor is his own creditor, enforcement
of the obligation becomes absurd since one cannot
 When debtor is made liable for a fortuitous event
claim against himself (Art. 1275)
because:
o Of a provision of law
Requisites of a valid merger
o Of a contractual stipulation 1. It should take place between the principal debtor &
o The nature of the obligation requires the creditor
assumption of risk on the part of the debtor 2. Merger must be clear and definite
3. The very obligation involved must be the same or
Note: in the above cases, the oblig to deliver a identical
specific thing itself is extinguished BUT said oblig is
converted into a monetary obligation for damages

Effect of loss on an obligation to deliver a generic

thing: COMPENSATION (Arts. 1278 – 1290)
 obligations
compensation – balancing between two obligations;
involves a figurative operation of weighing two Counterclaim or set-
Compensation
obligations simultaneously in order to extinguish off
them to the extent in which the amount of one is Takes place by mere Must be pleaded to be
covered by the other; extinguishment in the operation of law effectual
concurrent amount of the obligations of those Extinguishes Works as a sort of
persons who are reciprocally debtor and creditors reciprocally the two judicial compensation,
of each other debts as soon as they provided that the
exist simultaneously, to requirements are
COMPENSATION PAYMENT the amount of their observed
A mode of extinguishing Payment means not respective sums
to the concurrent only
amount, the obligations delivery of money Requisites of legal compensation (Art. 1279)
of those persons who in but [McdCsmcskqDLdRcc3pNp]:
their own right are also performance of 1. Both parties must be mutually creditors and debtors
reciprocally debtors and an in their own right and as principals
creditors of each other obligation 2. Both debts must consist in sum of money or if
consumable, of the same kind or quality
3. Both debts are due
4. Both debts are liquidated and demandable
5. Neither debt must be retained in a controversy
commenced by third person and communicated
with debtor (neither debt is garnished)
6. Compensation must not be prohibited by law

Note: When all the requisites mentioned in Art.

Capacity of parties not Debtor must have 1279 of the Civil Code are present, compensation
necessary capacity to dispose takes effect by operation of law, even without the
of consent or knowledge of the creditors and debtors.
the thing paid; Note: 1,2,3,4 are affirmative requisites.
Reason: Compensation creditor must have Note: Does not apply to voluntary compensation
operates by law, not by capacity to receive (Art. 1282).
the act of the parties payment
There can be partial The performance
must
be complete unless Prohibited compensations:
extinguishment of the
 Debts arising from a depositum (Art. 1287/1980)
obligation waived by the
creditor  Debts arising from the obligations of a bailee in
Legal compensation commodatum (Art. 1287)
takes place by operation Involves delivery or  Debts arising from a claim for future support due by
of law without action gratuitous title (Art. 1287)
simultaneous delivery  Debts consisting in civil liability arising from a penal
Parties must be mutually It is not necessary offense (Art. 1288)
that  Damages suffered by a partnership through the
the parties be fault of the a partner cannot be compensated with
mutually profits and benefits which he may have earned for
debtors and creditors of the partnership by his industry (Art. 1794)
debtors and creditors
of Jursidiction of courts regarding the value of
each other demand (Art. 1283, PH jurisprudence)
GR: Jurisdiction of the court depends upon the
each other totality of the demand in all the causes of action,
irrespective of whether the plural cases arose out of
the same or different transactions
XPNs: (a) the claim joined under the same
COMPENSATIO CONFUSION complaint are separately due to different parties, in
N which case each separate claim furnishes the
jurisdictional test; (b) not all causes of action joined
(Arts. 1278‐1279) (Arts. 1275‐1277) are demands or claims for money
Two persons who One person where
are Assignment of debts (Art. 1285):
mutual debtors and qualities of debtor
and GR: if AFTER the compensation has taken place
creditors of each creditor are merged one of the extinguished debts is ASSIGNED to a
other stranger, ordinarily this would be a useless act
At least two One obligation
 since there is nothing more to assign (defense of 3. The capacity and consent of all the parties (except
compensation could be set up) in the case of expromision, where the old debtor
XPN: when the assignment (after the does not participate)
compensation) was made WITH THE CONSENT of
the debtor; such consent operates as a waiver of  Novation is never presumed. Must be proven as a
the rights to compensation fact either by explicit declaration or material
XPN to XPN: when at the time he gave his consent, incompatibility (old and new obligs be
he RESERVED his right to the compensation incompatible w/ each other) (Art. 1292)
 Implied novation is done by making substantial
Cases of assignment + effects: changes (a) in the object; (b) in the cause or
First case – assignment made w/ consent of consideration of the contract; (c) in the principal
debtor terms or conditions
Effect: compensation cannot be set up (because
there has been consent, and therefore a waiver) Expromision (Art. 1293)
XPN: if the right to the compensation (has already  Initiative comes from a 3rd person
taken place) is reserved  It is essential that the old debtor be released from
his obligation
Second case – assignment made w/ knowledge Requisites: I3NmcOero
but w/o consent/against debtor’s will 1. Initiative must come from 3rd person
Effect: compensation can be set up regarding debts 2. New debtor and creditor must consent
previous to the cession or assignment (refers to 3. Old debtor must be excused/released from his
debts maturing before the assignment; legal obligation
compensation has already taken place
Note: cession refers the assignment of the right to Delegacion
correct  Proposed by old debtor himself with consent from
creditor & new debtor
Third case – assignment made w/o debtor’s  Old debtor must be released from the obligation
knowledge
Effect: debtor can set up compensation as a Requisites: IoApc
defense for all debts maturing PRIOR to his 1. Initiative comes from old debtor
knowledge of the assignment (whether debts 2. All parties concerned must consent or agree
matured before or after the assignment) a. May be given in any form
Note: crucial time is the time of knowledge of b. May be express or implied
assignment not the time of assignment itself c. May be before or after new debtor has given his
consent
 The creditor cannot be forced to have a debtor that d. May be conditional but condition has to be
is someone else however a debtor can be forced fulfilled
to change creditors
 Automatic compensation if all requisites are present Insolvency of new debtor in expromision (Art. 1294)
& extinguishes both debts to the concurrent  If substitution was made w/o old debtor’s
amount even though the creditors and debtors are knowledge or against his will, new debtor’s
not aware of the compensation (Art. 1290) insolvency SHALL NOT give rise to any liability on
o To the concurrent amount – if one debt is larger the part of the original debtor
than the other, the balance subsists as debt o The expromision was brought about without his
initiative
NOVATION (Arts. 1291-1304)
Novation – the substitution of change of an Insolvency of new debtor in delegacion (Art. 1295)
obligation by another, which extinguishes or  New debtor’s insolvency shall not revive the action
modifies the first, either changing its object or of creditor against old debtor
principal condition, or substituting another in place o Except when said insolvency was already
of the debtor or subrogating a 3rd person in the right
existing & of public knowledge or known to the
of the creditor
debtor when he delegated his debt
 If insolvency happened AFTER the delegation, old
Obligations may be modified by (Art. 1291):
debtor is not liable
1. Changing their object or principal conditions
2. Substituting the person of the debtor
Requisites to hold old debtor liable (either must be
3. Subrogating a 3rd person in the right of the creditor
present):
1. The insolvency was already existing and of public
Requisites for novation (in general): VooIemCcp
knowledge at time of delegation
1. The existence of a valid old obligation
2. Insolvency was already existing and known to the
2. The intent to extinguish or to modify the old
debtor at time of delegation
obligation by a substantial difference (the
extinguishment/modification itself is a RESULT of
Subrogation (Art. 1300)
novation)
 Transfer to a 3rd person of all the rights appertaining that are different from those which the parties
to the creditor, including the right to proceed intended to agree (Art. 1372)
against guarantors, or possessors of mortgages - General rule: No one may contract in the name of
 Conventional subrogation of 3rd person requires another without being authorized by the latter (Art.
consent of original parties & 3rd person (Art. 1301) 1317, par. 1)
o Exception: duly authorized or he has by law a
Assignment of credit vs. conventional subrogation right to represent him (Art. 1317, par. 1)
- General rule: A contract entered into by one who
ASSIGNMENT OF CONVENTIONAL
has no authority shall be unenforceable (Art.
CREDIT SUBROGATION
There is mere transfer Extinguishes the 1317, par. 2)
of the SAME right or obligation and creates o Exception: unless it is ratified by the person on
credit (transfer did not a new one whose behalf it has been executed before it is
extinguish the credit) revoked by the other party (Art. 1317, par. 2)
Does not require the Requires debtor’s - General rule (Art. 1311, par. 1): Contracts take
debtor’s consent (mere consent effect only between the parties, assigns and heirs;
notification is sufficient) heir is not liable beyond the value of the property
Defect in the he received from decedent
credit/right simply by o Exception: in cases where the rights &
assigning the same obligations arising from the contract are not
(debtor generally still transmissible by their nature or stipulation or law
has the right to present
(Art. 1311, par. 1)
against the new
creditor any defense Elements of a contract:
available as against old
creditor) 1. Essential – those w/o w/c there can be no contract;
subdivided into:
Presumption of legal subrogation (Art. 1302) a. Common – present in all contracts (consent,
1. When creditor pays another creditor who is object certain, cause)
preferred, even w/o debtor’s knowledge b. Special – present only in certain contracts
2. When a 3rd person, not interested in the obligation, (delivery = real; form = solemn)
pays with the express or tacit approval of the c. Extraordinary or peculiar – those w/c are
debtor
peculiar to a specific contract (price in a contract
3. When, even without the knowledge of the debtor, a
of sale)
person interested in the fulfillment of the
obligation pays, without prejudice to the effects of 2. Natural – those w/c are derived from the nature of
confusion as to the latter’s share the contract and ordinarily accompany the same;
presumed by law although they can be excluded
by the parties if they want
TITLE II – CONTRACTS 3. Accidental – those w/c exist only when the parties
Contract – a meeting of minds between two expressly provide for them for the purpose pf
persons whereby one binds himself, with respect to limiting/modifying the normal effects of the
the other, to give something or to render some contract
service (Art. 1305)
- Parties may establish such stipulations, terms, Stipulation pour autrui – stipulation in favor of a 3rd
conditions, etc. provided not contrary to limitations person conferring a clear & deliberate favor upon him,
[see below] (Art. 1306) – principle of freedom and which stipulation is merely part of a contract
- Catch-all: Innominate contracts – contracts that entered by the parties, neither of whom acted as
have no name (Art. 1307) agent of the 3rd person (Art. 1311, par. 2)
- Mutuality of contracts – contract must bind both
contracting parties; validity/compliance can’t be Requisites of Stipulation pour autrui:
left to one of them (Art. 1308) 1. There must be a stipulation in favor of a 3rd person
- Determination of performance may be left to 3rd 2. Con. Parties must have clearly and deliberately
persons provided his decision is binding when it conferred a favor upon a 3rd person
be known to both contracting parties (Art. 1309) 3. A mere incidental benefit of a person is NOT
- Determination is not obligatory if it is inequitable sufficient
(Art. 1310) 4. The stipulation must be PART of the contract
- In order to judge intention of parties, their 5. The 3rd person communicated his acceptance to the
contemporaneous (during same period) and obligor before its revocation
subsequent (after) acts shall be principally 6. There must be no relation of agency between either
considered. (Art. 1371) = implied of the parties and the 3rd person
- However general the contracts’ terms, they shall be
understood to comprehend distinct things & cases
 Four kinds of innominate contracts: SECTION 1 – CONSENT
1. Do ut des – I give that you may give
Consent – meeting of the minds between the
2. Do ut facias – I give that you may do
parties on the subject matter and the cause of the
3. Facio ut des – I do that you may give
contract, even if neither one has been delivered
4. Facio ut facias – I do that you may do
- the offer must be certain and the acceptance
Stages of a contract
absolute; a qualified acceptance constitutes a
1. Preparation – parties are progressing with counter-offer (Art. 1319, par. 1)
negotiations; not yet arrived at any definite - acceptance made by letter does not bind the offeror
agreement except from the time it came to his knowledge
2. Perfection – parties have at long last came to a (Art. 1319, par. 2)
definite agreement, elements of definite subject - acceptance may be express of implied (Art. 1320)
matter & valid cause have been accepted by - person making the offer may fix the time, place,
mutual consent and manner of acceptance all of which must be
3. Consummation – terms of the contract are complied with (Art. 1321)
performed, & contract is said to have been fully o any act contrary to the prescribed terms really
executed constitutes a counter-offer or counter-proposal
- an offer made through an agent is accepted from
Limitations on the nature of the stipulations (Art.
the time acceptance is communicated to him (Art.
1306):
1322)
1. The law - offer becomes ineffective upon death, civil
2. Morals interdiction, insanity or insolvency of either party
3. Good customs before acceptance is conveyed (Art. 1323)
4. Public order - Contracts entered during a lucid interval are
5. Public policy VALID. Those agreed in a state of drunkenness
or hypnotic spell are VOIDABLE (Art. 1328)
Characteristics of a contract (ROMA) - Consent given through mistake, violence,
1. Relativity (Art. 1311) – takes effect only between intimidation, undue influence, or fraud is
parties, heirs and assigns VOIDABLE (Art. 1330) = vices of consent
2. Obligatoriness and consensuality (Art. 1315) – - Fraud = when through insidious words one of the
once perfected, shall be of obligatory force upon contracting parties, the other is induced to enter
both parties into a contract which he would not have agreed
3. Mutuality (Art. 1308) – contract must bind both of to. (Art. 1338)
them; validity or compliance cannot be left to the - Misrepresentation in good faith is not fraud but may
will of one of them constitute error (Art. 1343)
4. Autonomy (Art. 1306) – free to enter into a contract - To be voidable, fraud should be serious & should
not have been employed by both parties;
Exceptions for relativity incidental fraud obliges person to pay damages
(Art. 1344)
1. Contract contains beneficial stipulation in favor of a
- General rule: when offerer has allowed certain
3rd person, provided such 3rd person has
period to accept, the offer may be withdrawn at
communicated acceptance (Art. 1311, par. 2)
rd any time before acceptance by communicating it
2. 3 person comes into the possession of the object,
(Art. 1324)
creating a real right (Art. 1312)
o Exception: when the option is founded upon a
3. Contract is entered into in order to defraud a 3rd
person (Art. 1313) consideration, as something paid or promised
4. 3rd person induces a contracting party to violate his (Art. 1324)
contract (Art. 1314) Option – a contract granting a person the privilege
Requisites for a person to contract in the name of to buy or not to buy certain objects at any time
another: within the agreed period at a fixed price

1. Must be duly authorized (expressly or impliedly) or Elements of consent:

2. Must have by law a right to represent him or 1. Legal capacity of the contracting parties
3. The contract must be subsequently ratified 2. Manifestation of the conformity of the contracting
Essential Requisites of a consensual contract parties
[COC] (Art. 1318): 3. Parties’ conformity to the object, cause, terms,
conditions must be intelligent, spontaneous, and
1. Consent of the contracting parties free from all vices of consent
2. object certain which is the subject matter 4. Conformity must be real
3. cause of the obligation which is established
5. form Requisites of consent:
1. Must be two or more parties 3. the purpose is to deceive third persons
2. Must be capable or capacitated
3. No vitiation of consent
4. No conflict between what was expressly declared SECTION 2 – OBJECT OF CONTRACTS
and what was really intended
Object – the thing, right or service which is the
Elements of a valid offer and acceptance: subject matter of the obligation which is created
1. Definite – unequivocal Requisites of an object (Art. 1347)
2. Intentional
3. Complete – unconditional 1. the thing or service must be within the commerce of
man
Who cannot give consent to a contract (Art. 1327): 2. must be transmissible
3. must not be contrary to law, morals, good customs,
1. Unemancipated minors
public order, or public policy
2. Insane or demented persons and
4. must not be impossible (Art. 1348)
3. deaf-mutes who do not know how to write
5. must be determinate as to its kind of determinable
Note: subject to the modifications determined by without the need of a new contract or agreement
law & is understood to be w/o prejudice to special (Art. 1349)
disqualifications (Art. 1329)
Exceptions to rule that contracts entered by
SECTION 3 – CAUSE OF CONTRACTS
emancipated minors w/o parents consent is
voidable: Cause – the essential & impelling reason why a
party assumes an obligation
1. minor misrepresents his age
2. contract involves sale & delivery of necessaries to  cause is presumed to exist and is lawful unless
the minor debtor proves the contrary (Art. 1354)
3. involves a natural oblig & such oblig. Is voluntarily
fulfilled by the minor, provided he is 18-21 Requisites of a cause:

Incidental fraud – those w/c are not serious in 1. be present

character and w/o w/c the other party would still 2. be true
have entered into the contract 3. be lawful

Requisites of Dolo Causante (Art. 1338) Classification of contracts as to cause (Art. 1350):

1. fraud must be material and serious – it really 1. onerous – cause is (for each party) the
induced the consent (Art. 1344) prestation/promise of a service by the other
2. fraud must have been employed by only one of the 2. remuneratory – past service or benefit which by
contracting parties, because if both committed, itself is a recoverable debt
the contract would remain valid (Art. 1344) 3. gratuitous – cause is the mere liability of the
3. there must be a deliberate intent to deceive/induce benefactor
(Art. 1343) Cause vs. Motive (Art. 1351)
4. the other party must have relied on the untrue
statement & must himself not be guilty of Cause Motive
negligence Direct & most Indirect and remote
proximate reason of a reasons
Simulation of a contract – process of intentionally contract
deceiving others by producing the appearance of a Legality/illegality Legality/illegality does
contract that really does not exist (absolute) or w/c affects the not affect existence of
is different from the true agreement [relative] (Art. existence/validity of the the contract
1345) contract
Always the same for Differs for each party
- absolutely simulated contract – void; relatively each party
simulated contract – not prejudice 3rd person & not Always known May be unknown to the
intended for any purpose contrary to law, morals, other
etc. – binds parties to their real agreement (Art.
1346)
Cause vs. object
Requisites for simulation
Kind of Cause Object
1. an outward declaration of will different from the will contract
of the parties Remunerator Service or Thing which is
2. the false appearance must have been intended by y benefit which is given in
mutual agreement remunerated remuneration
 Gratuitous Liberality of the Thing that is a. For validity (true in formal contracts)
benefactor donated b. For enforceability
Onerous For each party Thing or c. For convenience (true for contracted enumerated in
– prestation or service itself Art. 1385)
promise of a
thing/service by Ff. must appear in a public document (Art. 1358)
the other
1. Acts & contracts w/c have for their object the
Contract of Vendor – The thing that
sale acquisition of is sold creation, transmission, modification or
the purchase because it is extinguishment of real rights over immovable
price the starting property; sales of real property or of an interest
point of the therein are governed by Arts. 1403 (2) and 1405
Vendee – agreement 2. The cession, repudiation or renunciation of
acquisition of hereditary rights or of those of the CPG
the thing sold 3. The power to administer property or any other
power which has for its object an act appearing or
which should appear in a public document or
Effect of the error of cause
should prejudice a third person
- absence of cause – confers no right and produces 4. The cession of actions or rights proceeding from an
no legal effect act appearing in a public document
- failure of cause – does not render the contract void
Note: All other contracts where the amount
- illegality of cause – contract is null and void
involved exceeds 500php must appear in writing,
- falsity of cause (cause is stated but is not true) –
even a private one. But sales of goods, chattels or
contract is void, unless parties show that there is
other (Art. 1358)
another cause w/c is true & lawful (Art. 1353)
- lesion or inadequacy of cause (Art. 1355) – does Note: Art. 1358 is only for convenience and
not invalidate the contract unless: registration of the instrument only adversely affects
o there is fraud, mistake or undue influence third parties
o when the parties intended a donation or some
Must be in writing:
other contract
o in cases specified by law 1. Donations of personal property whose value
exceeds P5K
lesion – inadequacy of cause, like an insufficient
2. Sale of a piece of and by an agent
price for a thing sold
3. Contracts of antichresis – the amount of the
- Art. 1470 (correlate w/ 1355) – gross inadequacy of principal and of the interest shall be specified in
price does not affect contract of sale except as it writing otherwise void
may indicate a defect in the consent, or parties 4. Agreements regarding payment of interest in
really intended a donation or some other act contracts

FORM OF CONTRACTS Must appear in a public document:

GR: Contracts shall be obligatory, provided all the 1. Donations of immovable property
essential requisites for their validity are present 2. Partnerships where immovable property or real
(Art. 1356) rights are contributed to the common fund

XPN: However, when the law requires that a Must be registered:

contract be in some form (in order it may be valid or
1. Chattel mortgages
enforceable) or that it be proved in a certain way,
2. Sales or transfers of large cattle
that requirement is absolute and indispensable (Art.
1356) REFORMATION OF INSTRUMENTS
Note: In such cases ^, the rights of the parties Reformation – remedy by means of which a written
stated in the ff. article cannot be exercised (Art. instrument is made so as to express or conform to
1356) the real intention of the parties when some error
has been committed; clarify intention of the parties
Consensual contracts – perfected by mere consent
(Art. 1359)
(only the general rule)
Requisites for reformation
Real contracts – perfected by delivery
1. There must be a meeting of the minds
Formal contracts – require a special form for
2. True intention is not expressed in the instrument by
perfection
reason of (MARFI)
When is Form important: a. Mistake
b. Accident
 c. Relative simulation 1. Rescissible – valid until rescinded; sort of extrinsic
d. Fraud defect consisting of an economic damage or
e. Inequitable conduct lesion
3. There must be clear and convincing proof thereof 2. Voidable – valid until annulled; cannot be annulled
4. Must be brought within the proper prescriptive if there has been a ratification
period 3. Unenforceable – cannot be sued upon or enforced
5. Document must not refer to a simple unconditional unless it is ratified; has no effect now but it may
donation inter vivos or to wills or to a contract be effective upon ratification
where the real agreement is void 4. Void – one that has no effect at all
Note: when there is NO meeting of the minds, the Rescissible contract – a contract which is valid
proper remedy is ANNULMENT (Art. 1359) because it contains all of the essential requisites
but which is defective because of injury to damage
- Prescription period in reformation: 10 years from
to either of the parties or to third persons; it may be
the date of the execution of the instrument
rescinded by means of a proper action for
- In case of conflict between NCC and principles of
rescission
gen. law of reformation, former prevails; latter will
have only suppletory effect Rescission – a relief to protect one of the parties or
- When through ignorance, negligence, or bad faith a third person from all injury and damages which
on the part of the person drafting the instrument, the contract may cause, to protect some
the instrument does not express the true intention preferential right (PH case)
of the parties, the courts may order that the
Requisites for Rescission
instrument be reformed (Art. 1364)
1. There must be at the beginning either a valid or a
Cases where reformation is not allowed (Art. 1366):
voidable contract
1. Simple, unconditional donations inter vivos 2. But there is an economic or financial prejudice to
2. Wills someone
3. When the agreement is void 3. Requires mutual restitution
4. When an action to enforce the instrument is filed - Rescissible contracts cannot be attacked
(estoppel) (Art. 1367) collaterally; must be a direct action
- Rescission abrogates the contract from its inception
Who may ask reformation (Art. 1368):
and restores the parties to their original positions
Ordered at the instance of: as if no contract has been made
- Remedy of rescission is subsidiary in nature for it
- If mistake is mutual – either party or his successors cannot be instituted except when the party
in interest suffering damage has no other legal means to
- Otherwise, upon petition of the injured party or his obtain reparation for the same (Art. 1383)
heirs or assigns - Shall be only to the extent necessary to cover the
INTERPRETATION OF CONTRACTS damages caused (Art. 1384); inly the creditor who
has asked for rescission, not the other creditors,
- In order to judge intention of parties, their benefits from the rescission
contemporaneous (during same period) and
subsequent (after) acts shall be principally Examples of rescissible contracts (Art. 1381)
considered. (Art. 1371) = implied EgwslRaslFccccTulwkSdl when if when if
- However general the contracts’ terms, they shall be 1. Entered into by the guardians whenever the wards
understood to comprehend distinct things & cases suffer lesion by more than one-fourth of the value
that are different from those which the parties of the things
intended to agree (Art. 1372) 2. Agreed upon in representation of absentees, if the
- Special intent prevails over a general intent (PH latter suffer the lesion stated in the preceding
case) number
- If the stipulation has several meanings, it shall be 3. Undertaken in fraud of creditors when the latter
understood as bearing that import w/c is most is cannot in any other manner collect the claims due
most adequate to render it effectual (Art. 1373) them
- If there is controversy as to what the parties really 4. Refer to things under litigation if they have been
intended, the way the parties performed their entered into by the defendant without the
respective obligations shall prevail over the name knowledge and approval of the litigants or of
given to the contract (PH case) competent judicial authority
CHAPTER 6 – RESCISSIBLE CONTRACTS 5. All other contracts specially declared by law to be
subject to rescission
Four kinds of Defective Contracts:
- Rescission created the obligation to return the CHAPTER 7 – VOIDABLE CONTRACTS
things which were the object, together with fruits,
Voidable contracts – those in which all of the
price with its interest
essential elements for validity are present but the
o Can be carried out only when he who demands
element of consent is vitiated
it can return whatever he may be obliged to
restore Characteristics:
o Neither shall rescission take place when the
things are legally in the possession of third 1. Effective until set aside
persons who did not act in bad faith 2. May be assailed or attacked only in an action for
o In this case, indemnity for damages may be that purpose
3. Can be confirmed
demanded from the person causing the loss
4. Can be assailed only by the party whose consent
Requisites before the action for rescission can be was defective or his heirs or assigns
brought
Examples of voidable contracts even though there
1. The plaintiff must be able to return what has been may have been no damage to the contracting
received by virtue of the rescissible contract parties (Art. 1390)
(exception: prejudiced creditors)
1. Where one of the parties is incapable of giving
2. The thing or object of the contract is not in the legal
consent to a contract (related to Art. 1327)
possession of third persons in good faith
2. Where the consent is vitiated by mistake, violence,
3. There must be no other legal remedy
intimidation, undue influence or fraud (relate to
4. The action must be brought within the proper
Art. 1330)
prescriptive period
Note: these contracts are binding unless they are
Presumption of Fraud (Art. 1387)
annulled by a proper action in court. They are
1. Gratuitous alienations susceptible of ratification (Art. 1390)

Presumed fraudulent – when the debtor did not Who cannot give consent to a contract (Art. 1327):
reserve sufficient property to pay all debts
4. Unemancipated minors
contracted before the donation
5. Insane or demented persons and
2. Onerous alienations 6. deaf-mutes who do not know how to write

Presumed fraudulent – when made by persons: Note: subject to the modifications determined by
law & is understood to be w/o prejudice to special
1. Against whom some judgment has been disqualifications (Art. 1329)
rendered in any instance (thus, even if not yet a
final judgment) Exceptions to rule that contracts entered by
2. Or against whom some writ of attachment has emancipated minors w/o parents’ consent is
been issued voidable:

Badges of fraud – circumstances indicating that a 4. minor misrepresents his age

certain alienation has been made in fraud of 5. contract involves sale & delivery of necessaries to
creditors the minor

Bad faith – state of mind affirmatively operating with Note: involves a natural oblig & such oblig. Is
furtive design or with some motive or self-interest or voluntarily fulfilled by the minor, provided he is 18-
ill-will and implies a conscious and intentional 21
design to do a wrongful act for a dishonest purpose
Causes of vitiated consent (Art. 1330): MIVUiF
or moral obliquity
1. Mistake
- Action to claim rescission must be commenced
2. Intimidation
within 4 years (Art. 1389)
3. Violence
o For persons under guardianship and absentees,
4. Undue influence
the period shall begin upon the termination of
5. Fraud
the former’s incapacity or until the domicile of
the latter is known (Art. 1389) Rescissible vs. Voidable contracts:
Who can bring the action: Rescission Annulment
Basis is lesion Basis is vitiated
1. The injured party consent or incapacity
2. His heir or successor-in-interest Defect is external or Defect is intrinsic
3. Creditors of (a) and (b) by virtue of Art. 1177 of intrinsic
NCC Action is subsidiary Action is principal
A remedy A sanction
 Private interest Public interest governs - Contracting parties shall restore to each other the
governs things which have been the subject matter with
Equity predominates Law predominates their fruits and price with interest (Art. 1398) –
Plaintiff may be a party Plaintiff must be a party mutual restitution
or a 3rd person to the contract o In obligations to render service – the value shall
There must be damage Damage to plaintiff is be the basis for damages
to the plaintiff immaterial o XPN: in cases provided by law (Art. 1398)
If plaintiff is Indemnity is no bar to
- GR: when the defect consists in the incapacity of
indemnified, rescission the prosecution of the
cannot prosper action one of the parties, the incapacitated person is not
Compatible w/ perfect A defect is obliged to make any restitution (Art. 1399)
validity of the contract presupposed o XPN: insofar as he has been benefitted by the
To prevent rescission, To prevent annulment, thing or price received by him (Art. 1399)
ratification is not ratification is required o Applies only is the defect is incapacity
required - Whenever the person cannot return the thing
because it has been lost through his fault, he shall
return the fruits received and the value of the
Causes of Extinction of Action to Annul:
thing at the time of the loss with interest from the
- Action for annulment is within four years (Art. 1391) same date (Art. 1400)
o Intimidation, violence or undue influence – time - The action shall be extinguished when the thing is
the defect of consent ceases lost through the fraud or fault of the person who
o Mistake or fraud – time of discovery of the same has a right to institute the proceedings (Art. 1401,
o Action refers to contracts entered into by minors par. 1)
or other incapacitated persons – time the o If the right of action is based upon the incapacity
guardianship ceases of any party, the loss of the thing shall not be an
- Ratification does not require the conformity of the obstacle to the success of the action (Art. 1401,
contracting party who has no right to bring the par. 2)
action for annulment (Art. 1395)  Unless said loss took place through the fraud
- Effect of ratification – action to annul is or fault of the plaintiff (Art. 1401, par. 2)
extinguished (Art. 1392) and the contract is - As long as one of the parties does not restore what
cleansed of its defect from the beginning (Art. he is bound to return, the other cannot be
1396) compelled to comply with what is incumbent upon
him (Art. 1402)
Requisites of ratification:
CHAPTER 8 – UNENFORCEABLE CONTRACTS
1. Contract must be a voidable one
2. Person ratifying must know the reason for the Unenforceable contracts – those which cannot be
contract being voidable (Cause must be known) enforced by a proper action in court, unless they are
3. Cause must not exist or continue to exist anymore ratified, because either they are entered into without
at the time of ratification or in excess of authority or they do not comply with
4. The ratification must have been made expressly or the Statute of Frauds or both of the contracting
by an act implying a waiver of the action to annul parties do not possess the required legal capacity
5. The person ratifying must be the injured party - Unenforceable contracts cannot be sued upon or
enforced unless ratified
- When both parties are incapable of giving consent,
- GR (Art. 1397): The action for annulment may be express or implied ratification by the parent or
instituted by all who are thereby obliged principally guardian of one shall give the contract the same
or subsidiarily effect as if only one were incapacitated (Art. 1407,
o XPN (Art. 1397): However, persons who are par. 1)
capable cannot allege the incapacity of those o If ratification is made by parents of both parties,
with whom they contracted; nor can those who the contract shall be validated from the inception
exerted intimidation, violence, or undue (Art. 1407, par. 2)
influence or employed fraud or caused mistake - Unenforceable contracts cannot be assailed by
base their action upon these flaws of the third persons (Art. 1408)
contract
Unauthorized contracts – entered into in the name
Effects of annulment: of another person by one who has been given no
If contract is not yet consummated – parties shall authority or legal representation or has acted
be released from the obligations arising therefrom beyond his powers

If contract has already been consummated – rules Kinds of unenforceable contracts:

in Arts. 1398-1402 will govern: 1. Unauthorized contracts
2. Those that fail to comply with the Statute of Frauds f. A representation as to the credit of a third
3. Those where both parties person
3. Those where both parties are incapable of giving
Unenforceable vs. Rescissible
consent to a contract
Unenforceable Rescissible Statute of Frauds
Cannot be enforced by Valid and enforceable
a proper action in court unless they are - Art. 1403, par. 2
rescinded - Defense raised by person who is being charged
Susceptible of Not susceptible of - Requires certain contracts enumerated therein (^)
ratification ratification to be evidenced by some note or memorandum in
Cannot be assailed by May be assailed by order to be enforceable
third persons third persons who are - The Statute merely regulates the formalities of the
prejudiced
contract necessary to render it enforceable
- Applies only to executory contracts
Unenforceable vs. Voidable - Not applicable when the action is neither for
damages because of the violation of an
Unenforceable Voidable agreement nor the specific performance of said
Cannot be sued upon Binding unless agreement
or enforced unless they annulled by proper - Purpose – prevent fraud and perjury in the
are ratified action in court
enforcement of obligations depending for their
Occupies the Farther away from
evidence on the unassisted memory of witness by
intermediate ground absolute nullity
between voidable and requiring certain enumerated contracts and
void transactions to be evidenced by a writing signed
by the party to be charged
- Aims of the Statute – to aid human memory, to
The ff. contracts are unenforceable unless ratified prevent the commission of injustices due to faulty
(Art. 1403): memory, to discourage intentional
1. Those entered into in the name of another person misrepresentation
- Exclusive; applies only to the agreement or
by one who has been given no authority or legal
representation or has acted beyond his powers contracts enumerated therein
2. Those that do not comply with the Statute of Frauds - May be waived
as set forth in this number. In the ff. cases, an o Ways to waive: (a) timely failure to object to the
agreement hereafter made shall be unenforceable presentation of oral evidence to prove the oral
by action unless the same, or note or agreement; (b) acceptance of benefits under
memorandum, be in writing, and subscribed to them (as when contract is totally or partially
the party charges or by his agent; evidence of performed) (Art. 1405)
the agreement cannot be received without the - Does not determine credibility of evidence; merely
writing, or a secondary evidence of its contents: concerns itself with the admissibility thereof
a. An agreement that by its terms is not to be - Does not apply if it is claimed that the contract does
performed within a year from the making thereof; not express the true agreement of the parties
b. A special promise to answer for the debt, default - An oral promise to put in writing an agreement that
or miscarriage of another is covered by the Statute it itself unenforceable
c. An agreement made in consideration of CHAPTER 9 – VOID OR INEXISTENT
marriage, other than a mutual promise to marry CONTRACTS
d. An agreement for the sale of goods, chattels, or
things in action, at a price of not less than Voidable vs. void:
500php unless the buyer accept and receive
Voidable Void
part of such goods, or evidence or some of them
May be ratified Cannot be ratified
of , of such things in action, or pay at the time
Produces effects untilGenerally, effects are
some part of the purchase money; but when a annulled not produced at all
sale is made by auction and entry is made by Defect is due to The defect here is that
the auctioneer in his sales book, at the time of incapacity or vitiatedordinarily, public policy
sale, of the amount and kind of property sold, consent is militated against
terms of sale, prices, names of purchases, and Valid until annulled Void from the very
person on whose account the sale is made, it is beginning; no action is
a sufficient memorandum required to set it aside
e. An agreement for the leasing for a longer period unless the contract has
than one year, or for the sale of real property or already been
of an interest therein performed
May be cured by Cannot be cured by
prescription prescription
 Defense may be Defense may be 6. Those where the intention of the parties relative to
invoked only by the availed of by anybody, the principal object of the contract cannot be
parties or their whether he is a party or ascertained
successors in interest not as long as his 7. Those expressly prohibited or declared void by law
and privies interest is directly
affected (Art. 1421) Note: these contracts cannot be ratified. Neither
Referred to as relative Referred to as absolute can the right to set up defense of illegality be
or conditional nullity nullity waived. (Art. 1409, par. 2)
- The action or defense for the declaration of the
Unenforceable vs. Void: inexistence of a contract does not prescribe (Art.
1410)
Unenforceable Void
- When the nullity proceeds from the illegality of the
May be ratified Cannot be ratified
cause or object and act becomes a crime with
There is a contract but No contract at all
both parties being in pari delicto, they shall have
it cannot be enforced
by a court action no action against each other and both shall be
Cannot be assailed by Can be assailed by prosecuted. The RPC shall be applicable to the
third parties anybody directly things or the price of the contract (Art. 1411, par.
affected 1)
o This rule shall be applicable when only one of
the parties is guilty but the innocent one may
Inexistent vs. void claim what he has given and shall not be bound
Inexistent Void to comply with his promise (Art. 1411, par. 2)
Those where one or Those where all the - Where one of the parties to an illegal contract is
some of the requisites requisites of a contract incapable of giving consent, the courts may allow
which are essential for are present but the recovery of money or property delivered by such
validity are absolutely cause, object or person (Art. 1415)
lacking purpose is contrary to - When the agreement is not illegal per se but is
law, good customs, merely prohibited, and the prohibition is designed
morals, public order, for the protection of the plaintiff, he may recover
public policy or the what he has paid or delivered (Art. 1416)
contract itself is - In case of a divisible contract, if the illegal terms
prohibited or declared
can be separated from the legal ones, the latter
prohibited
may be enforced (Art. 1420)
Principle of in pari Principle of in pari
delicto is not applicable delicto is applicable - The defense of illegality of contracts is not available
to third persons whose interests are not directly
affected (Art. 1421)
Void and inexistent contracts – those which lack - A contract which is the direct result of a previous
absolutely either in fact or in law one or some or all illegal contract is also void and inexistent (Art.
of those elements which are essential for its validity 1422)
Void contracts – contracts where all of the Rules to observe if the act in which the unlawful
requisites are present but the cause, object or cause consists does not constitute a criminal
purpose is contrary to law, morals, good customs, offense (Art. 1412):
public order or public policy, or they are prohibited
by law, or they are declared by law to be void 1. When the fault is on the part of both parties, either
may recover what he has given by virtue of the
Inexistent contracts – contracts which lack contract or demand performance
absolutely one or some or all of those requisites 2. When only one of the parties is at fault, he cannot
which are essential for validity recover what he has given or ask for the
fulfillment. The other (not at fault), may demand
The ff. contracts are inexistent and void from the
the return of what he has given without any
beginning (Art. 1409):
obligation to comply with his promise.
1. Those who cause, object, or purpose is contrary to
Illegal per se contracts – forbidden because of
law, morals, good customs, public order, or public
public interest
policy
2. Those which are absolutely simulated or fictitious Merely prohibited contracts – forbidden because of
3. Those whose cause or object did not exist at the private interest; recovery is permitted provided that:
time of the transaction the contract is not illegal per se, the prohibition is
4. Those whose object is outside the commerce of designed for the protection of the plaintiff and public
man policy would be enhanced by allowing recovery
5. Those which contemplate an impossible service
TITLE III – NATURAL OBLIGATIONS
 Civil vs. Natural obligations (Art. 1423) other any right or title in derogation of the deed or
from denying the truth of any material fact asserted
Civil obligations – give a right of action to compel
in it; there must be a written instrument
their performance
- Estoppel is effective only as between the parties or
Natural obligations – do not grant a right of action
their successors (Art. 1439)
but after voluntary fulfillment by the obligor, they
- Estoppel cannot validate a void contract
authorize the retention of what has been delivered
or rendered by reason thereof. TITLE V – TRUSTS
Voluntary fulfillment – the debtor complied with the Trust – the right to the beneficial enjoyment of
same even if he knew that he could not have been property, the legal title to which is vested in
legally forced to do so another; a fiduciary relationship concerning
property which obliges the person holding it to deal
Undue payment vs. natural obligation
with the property for the benefit of another
If I pay a debt that has prescribed –
Characteristics of a Trust
(a) Not knowing – I can recover on the ground of
1. It is a fiduciary relationship (PH case)
undue payment
2. Created by law or by agreement (Art. 1441)
(b) Knowing – I cannot recover for this would be
3. Where the legal title is held by one, and the
considered as a natural obligation
equitable title is held by the another
- Keyword – voluntarily
Trust vs. Stipulation pour autrui
TITLE IV – ESTOPPEL
Trust Stipulation pour
Estoppel - precludes a person from asserting autrui
something contrary to what is implied by a previous May exist because of a Can arise only in the
action or statement of that person or by a previous legal provision or case of contracts
pertinent judicial determination because of an
agreement
Concept of estoppel – a bar which precluded a
Refers to specific Refers to specific
person from denying or asserting anything contrary
property property or to other
to that which has been established as the truth things
either by acts of judicial or legislative officers or by
his own deed or representation either express or
implied Parties to a trust:

Origin of estoppel – equity and is based on moral 1. Trustor or settler – he establishes the trust
rights and natural justice 2. Trustee – holds the property in trust for the benefit
of another
Kinds of estoppel (Art. 1433): 3. Beneficiary or cestui que trust – the person for
1. Estoppel in pais (equitable estoppel) whose benefit the trust has been created
a. By conduct or by acceptance of benefits Elements of a trust
b. By representation or concealment
c. By silence 1. Parties to the trust
d. By omission 2. The trust property or the trust estate or the subject
e. By laches (unreasonable delay in suing) matter of the trust
2. Estoppel by deed - Trusts are either express or implied (Art. 1441)
a. Estoppel by deed proper
CHAPTER 2 – EXPRESS TRUSTS
b. Estoppel by judgment as a court record
- No express trusts concerning an immovable or any
Estoppel in pais – when one, by his acts,
interest therein may be proved by parol evidence
representations or admissions, or by his silence,
(Art. 1443)
intentionally or through culpable negligence,
- No particular words are required for the creation of
induces another to believe certain facts to exist and
an express trust, it being sufficient that a trust is
such other rightfully relies and acts on such belief
clearly intended (Art. 1444)
Estoppel by laches – unreasonable delay in
How an Express Trust is Created:
bringing a court action, even if the period of
prescription has not yet lapsed; bars ac action to - By conveyance to the trustee by an act inter vivos
create a vested right but does not bar an action to or mortis causa
protect a vested right - By admission of the trustee that he holds the
property only as trustee
Estoppel by deed – bar which precludes a party to
a deed and his privies from asserting as against the How Express Trusts are Ended:
- Mutual agreement by all the parties
- Expiration of the term
- Fulfillment of the resolutory condition
- Rescission or annulment
- Loss of subject matter of the trust
- Order of the court
- Merger
- Accomplishment of the purpose of the trust
CHAPTER 3 – IMPLIED TRUSTS
Instances of Implied Trusts (Arts. 1448-1453):
- When property is sold & the legal estate is granted
to one party but the price is paid by another for
the purpose of having the beneficial interest of the
property (Former = trustee; latter = beneficiary)
[Art. 1448]
o However, if the person to whom the title is
conveyed is a child of the one paying the price of
the sale, no trust is implied by law, it being
disputably presumed that there is a gift in favor
of the child (Art. 1448)
- When a donation is made to a person but it
appears that although the legal estate is
transmitted to the done, he nevertheless is either
to have no beneficial interest or only a part thereof
(Art. 1449)
- If the price of a sale of property is loaned/paid by
one for the benefit of another and the conveyance
is made to the lender to secure the payment of
the debt, a trust arises by operation of law (Art.
1450)
- When land passes by succession to any person
and he causes the legal title to be put in the name
of another, a trust is established by implication of
law (Art. 1451)