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LAW ON OBLIGATIONS AND CONTRACTS

 Payment is equal to performance.
EXTINGUISHMENT OF
OBLIGATIONS WHO MAKES THE PAYMENT?
ARTICLE 1236. The creditor is not bound to
(ART 1231 – 1304) accept payment or performance by a third person
who has NO INTEREST1 in the fulfillment of
ARTICLE 1231. Obligations are extinguished the obligation, unless there is a stipulation to the
by: contrary. Whoever pays for another may demand
(1) payment or performance; from the debtor what he has paid, except that if
(2) the loss of the thing due; he paid WITHOUT THE KNOWLEDGE2 or
(3) the condonation or remission of the debt; AGAINST THE WILL3 of the debtor, he can
(4) the confusion or merger of the rights of recover only insofar as the payment has been
creditor and debtor; beneficial to the debtor. (1158a)
(5) compensation;
(6) novation. ARTICLE 1237. Whoever pays on behalf of the
debtor without the knowledge or against the will
Other extinguishment of obligations, such as of the latter, CANNOT COMPEL THE
annulment, rescission, fulfillment of a CREDITOR TO SUBROGATE4 him in his
resolutory condition, and prescription, are rights, such as those arising from a mortgage,
governed elsewhere in this Code. guaranty, or penalty.
How are obligations extinguished?
1. Payment or performance ARTICLE 1238. Payment made by a third
2. loss of the thing due person who does not intend to be reimbursed by
3. condonation or remission the debtor is deemed to be a DONATION5,
4. confusion which requires the debtor’s consent. But the
5. compensation payment is in any case valid as to the creditor
6. novation who has accepted it.
7. annulment
8. rescission ARTICLE 1239. In obligations to give,
9. fulfillment of a resolutory condition payment made by one who does not have the
10. prescription FREE DISPOSAL6 of the thing due and
11. death CAPACITY TO ALIENATE7 it shall not be
12. compromise valid, without prejudice to the provisions of
13. impossibility of fulfillment Article 1427 under the Title on “Natural
14. fortuitous event Obligations.”

**//Footnotes
PAYMENT (1) specifies that a creditor is not obliged to accept payment
(1231 – 1255) from a third party without interest in the obligation.
ARTICLE 1232. Payment means not only the (2) and (3) If someone pays on behalf of another, they can
delivery of money but also the performance, demand reimbursement, but recovery is limited if the
payment was made without the debtor's knowledge or
in any other manner, of an obligation. (n) against their will.
(4) notes that a payer cannot force the creditor to substitute
 Hence, payment is the delivery of money them in certain rights.
and; (5) payment made by a third party intending it as a donation
requires the debtor's consent but is valid if the creditor
 Performance is giving of a thing, doing of an accepts it.
act, or not doing of an act. (6) if the person making the payment does not have the
legal authority to freely manage the property and transfer
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LAW ON OBLIGATIONS AND CONTRACTS
its ownership, the payment is not considered valid in the
specific circumstances outlined in the article.
WHO SHOULD MAKE PAYMENTS?
 General Rule: DEBTOR
 Also acceptable: If any person with interest TO WHOM IS PAYMENT MADE?
in the obligation (e.g. guarantor) ARTICLE 1240. Payment shall be MADE TO
 Special cases: A third person who has no THE PERSON IN WHOSE FAVOR THE
interest in the obligation OBLIGATION HAS BEEN CONSTITUTED1,
a. with knowledge of the debtor or his SUCCESSOR2 in interest, or any person
b. w/o the knowledge of the AUTHORIZED3 or receive it.
debtor
c. against the will of the debtor ARTICLE 1241. Payment to a person who is
 With knowledge of the debtor – paying incapacitated to administer his property shall be
third person can seek reimbursement valid if he has KEPT the thing deliver or insofar
and subrogation as the payment has been BENEFICIAL to him.
 Without the knowledge of the debtor –
paying third person can seek Payment made to a third person shall also be
reimbursement to extent of benefit of valid insofar as it has redounded to the benefit of
debtor. the creditor. Such benefit to the creditor need not
 Against the will of the debtor – paying be provide in the following cases:
third person can seek reimbursement to (1) if after the payment, the third person acquires
extent of benefit of debtor and the creditor’s rights;
CANNOT DEMAND SUBROGATION. (2) if the creditor ratifies the payment to the
third person;
(3) if the creditor’s conduct, the debtor has been
 When is payment considered a donation? led to believe that the third person had authority
 If the paying third person does not to receive the payment.
intend to be reimbursed (1238)
 Donation requires consent of Debtor. ARTICLE 1242. Payment made in good faith to
any person in possession of the credit shall
 What if the debtor does not consent? release the debtor.
 Payment made by the third party remains
valid as to the creditor. ARTICLE 1243. Payment made to the creditor
by the debtor after the latter has been judicially
 Note that the third person can do after the ordered to retain the debt shall not be valid.
debtor.
 Can the debtor pay a person with incapacity
 Can a minor pay? No, payment by a minor is (minor, insane)? YES, but the payment is
not valid or “voidable.” valid only to the extent of the benefit of the
creditor.
 Can an insane person pay? No, payment by
**//footnotes
an insane person is not valid or “voidable.” (1) General rule: CREDITOR
(2) Creditor’s successor-in-interest (heir, assignee)
(3) Any authorized person to receive the payment
(guardian, executor, administrator)
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LAW ON OBLIGATIONS AND CONTRACTS
RECEIVE A DIFFERENT ONE, although the
latter may be of the SAME VALUE as, or
MORE VALUABLE than that which is due. In
 Can the debtor pay a person without interest obligations to do or not to do, an act or
in the obligation? YES, but the payment is forbearance cannot be substituted by another act
valid only to extent or benefit of the creditor. or forbearance against the obligee’s will.

PRESUMPTION OF BENEFIT: When is the ARTICLE 1246. When the obligation consists
benefit to creditor not needed to be proven? in the delivery of an indeterminate or GENERIC
(1) Paying the third person acquires rights of things, whose quality and circumstances have
creditor after payment (subrogation) not been stated, the creditor cannot demand a
(2) Creditor ratifies payment to third person THING OF SUPERIOR QUALITY. NEITHER
(ratification) CAN THE DEBTOR DELIVER A THING OF
(3) Creditor’s conduct led the debtor to believe INFERIOR QUALITY. The purpose of the
that the third person was authorized to receive obligation and other circumstances shall be
the payment (estoppel) taken into consideration.

 Is payment to third person in possession of ARTICLE 1245. DATION IN PAYMENT1,

credit valid? YES, if made in good faith. whereby property is ALIENATED2 to the
 Is payment by the debtor to creditor valid if creditor in satisfaction of a debt in money, shall
it is made after court judicially ordered be governed by the law of sales.
debtor to retain the debt? NO, one should
follow the court order. Implication: (1) When a debtor provides
property instead of money to settle a debt, the
rules and regulations that typically (2) apply to
HOW IS PAYMENT MADE? the sale of goods or property will be used to
ARTICLE 1233. A debt shall not be understood determine the legality and validity of the
to have been paid unless the thing or service in transaction
which the obligation consists has been
COMPLETELY DELIVERED OR ARTICLE 1248. Unless there is an express
RENDERED, as the case may be. stipulation to that effect, the CREDITOR
CANNOT BE COMPELLED PARTIALLY TO
ARTICLE 1234. If the obligation has been RECEIVE THE PRESTATION in which the
SUBSTANTIALLY PERFORMED IN GOOD obligation consists. NEITHER MAY THE
FAITH, the obligor may recover as though there DEBTOR BE REQUIRED TO MAKE
had been a strict and complete fulfillment, less PARTIAL PAYMENTS.
damages suffered by the obligee.
However, when debt is in part liquidated and in
ARTICLE 1235. When the oblige ACCEPTS part unliquidated, the creditor may demand and
THE PERFORMANCE, KNOWING ITS the debtor may effect the payment of the former
INCOMPLETENESS OR IRREGULARITY, without waiting for the liquidation of the latter.
AND WITHOUT EXPRESSING ANY
PROTEST OR OBJECTION, the obligation is ARTICLE 1249. The payment of debts in
deemed fully complied with. money shall be made in THE CURRENCY
STIPULATED, and if it is not possible to deliver
ARTICLE 1244. The debtor of a thing such currency, then in the currency which is
CANNOT COMPEL THE CREDITOR TO LEGAL TENDER in the Philippines.
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 If quality is not stated, can the debtor can
The delivery of promissory notes payable to deliver a generic thing of inferior quality?
order, or bills of exchange or other mercantile NO.
documents shall produce the effect of payment  If quality is not stated, can the creditor
only when they have been CASHED, or when demand a generic thing of superior quality?
through the fault of the creditor they have been NO.
IMPAIRED.  Legal tender – the currency the debtor can
compel the creditor to accept as payment for
In the meantime, the action derived from the debt (determined by BSP)
original obligation shall be held in the abeyance.  Are promissory notes payable to order, or
(1170) other mercantile documents legal tender?
NO.
ARTICLE 1250. In case an extraordinary  How about personal check, manager’s
inflation or deflation of the currency stipulated check, traveler’s check? NO.
should supervene, the VALUE OF THE  Effect of payment = only upon encashment
CURRENCY AT THE TIME OF THE
ESTABLISHMENT OF THE OBLIGATION
SHALL BE THE BASIS OF THE PAYMENT, WHERE IS PAYMENT MADE?
unless there is an agreement to the contrary. ARTICLE 1251. Payment shall be made in the
PLACE DESIGNATED IN THE
HOW IS PAYMENT MADE? (a generic OBLIGATION.
overview)
There being no express stipulation and if the
1. INTEGRITY of Prestation undertaking is to deliver a determinate thing, the
 General Rule: Complete delivery or payment shall be MADE WHEREVER THE
performance (1233) THING MIGHT BE AT THE MOMENT THE
 Also acceptable: substantial performance in OBLIGATION WAS CONSTITUTED.
good faith, less damages suffered by the
creditor In any other case the place of payment shall be
 Also acceptable: waiver by creditor or the DOMICILE OF THE DEBTOR. (residence)
incompleteness or irregularity; Creditor
knew of incompleteness or irregularity and If the debtor changes his domicile in bad faith or
did NOT protest or object. after he has incurred in delay, the additional
 Are partial payments are allowed? NO, expenses shall be borne by him.
unless (a) parties agree or (b) debt is
partially unliquidated (1248). These provisions are without prejudice to venue
 Payment must be made in stipulated under the Rules of Court. (1171a)
currency or in legal tender.
COST OF PAYMENT
2. IDENTITY of Prestation ARTICLE 1247. Unless it is otherwise
 General Rule: The very prestation due must stipulated, the extrajudicial expenses required by
be delivered or performed (1244) the payment shall be for the ACCOUNT OF
 Also acceptable: Payment in kind or dacion THE DEBTOR. With regard to judicial costs,
en pago or dation in payment (1245) the Rules of Court shall govern.
 What if debtor delivers same value or more
valuable? It is NOT ACCEPTABLE.
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LAW ON OBLIGATIONS AND CONTRACTS
Implications: Article 1254 outlines how to
handle situations where it's unclear which debt a
payment should go towards. If specific rules or
circumstances don't provide guidance, the
APPLICATION OF PAYMENTS payment is applied to the debt that is most
ARTICLE 1252. He who has various debts of burdensome for the debtor. If the debts are
the same kind in favor of one and the same equally burdensome, the payment is divided
creditor, may declare at the time of making the proportionately among them.
payment, to which of them the same must be
applied. Unless the parties so stipulate, or when What is the meaning of MOST ONEROUS?
the application of payment is made by the party 1. Interest-bearing vs no-interest loan
for whose benefit the term has been constituted, 2. if both loans bear interest, the one with the
application shall not be made as to debts which higher rate
are not yet due. 3. secured loan (mortgage, pledge) vs unsecured
If the debtor accepts from the creditor a loan (collateral)
receipt in which an application of the payment is 4. obligation with a penalty clause vs one
made, the former cannot complain of the same, without
unless there is a cause for invalidating the
contract. MOST ONEROUS – the most burdensome
obligation from the view of debtor.
Implications: This allows a debtor to choose
which specific debt they want to pay when PAYMENT BY CESSION
owing money for various things to the same Article 1255. The debtor may cede or assign his
creditor. This choice must be made at the time of property to his creditors in payment of his debts.
payment. If the creditor specifies the payment This cession, unless there is stipulation to the
allocation in a receipt, and the debtor accepts it contrary, shall only release the debtor from
without issue, they generally cannot later responsibility for the net proceeds of the thing
complain unless there's a valid reason to cancel assigned. The agreements which, on the effect of
the agreement. the cession, are made between the debtor and his
creditors shall be governed by special laws.
PROCEDURE FOR THE APPLICATION
OF PAYMENTS Implications: Article 1255 establishes the
ARTICLE 1253. If the debt produces interest, conditions under which a debtor can use the
payment of the PRINCIPAL shall not be deemed transfer of property to satisfy debts, clarifying
to have been made until the INTERESTS have that the debtor is relieved only of the
been covered. (1173) responsibility for THE NET PROCEEDS OF
THE ASSIGNED PROPERTY. The details of
ARTICLE 1254. When the payment cannot be these arrangements are to be governed by special
applied in accordance with the preceding rules, laws, emphasizing the need for legal adherence
or if application can not be inferred from other and specificity in agreements.
circumstances, the debt which is most onerous to
the debtor, among those due, shall be deemed to
have been satisfied. If the debts due are of the
same nature and burden, the payment shall be
applied to all of them proportionately. (1174a)
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LAW ON OBLIGATIONS AND CONTRACTS
(4) Debtor sends prior notice of consignation to
persons interested in the fulfillment of the
obligation*
(5) Debtor consigns the thing or amount due
with the court
(6) Debtor sends subsequent notice of
consignation to persons interested in the
PAYMENT/TENDER AND fulfillment of the obligation*
CONSIGNATION
(1231-1255) WHEN IS A TENDER OF PAYMENT NOT
REQUIRED?
Tender of payment: Act of debtor of (1) When the creditor is absent or unknown, or
OFFERING THE THING OR AMOUNT DUE does not appear at the place of payment;
to the creditor (2) When he is incapacitated to receive the
Consignation: Act of depositing the thing or payment at the time it is due;
amount due with the COURT (3) When, without cause, he refuses to give a
receipt;
WHEN IS A CONSIGNATION MADE? (4) When two or more persons claim the same
ARTICLE 1256. If the creditor to whom tender right to collect;
of payment has been made REFUSES (5) When the title of the obligation has been lost
WITHOUT JUST CAUSE TO ACCEPT IT, the
debtor shall be released from responsibility by  Why is tender of payment not required?
consignation of the thing or sum due. Because tender of payment can’t be made or
can’t be properly made/
HOW IS A CONSIGNATION MADE?  What should the debtor do? Proceed to
ARTICLE 1257. In order that the consignation consignation.
of the thing due may release the obligor, it must
FIRST BE ANNOUNCED to the persons WHO PAYS FOR THE EXPENSES OF
interested in the fulfillment of the obligation. CONSIGNATION?
The consignation shall be ineffectual if it is not ARTICLE 1259. The expenses of consignation,
made strictly in consonance with the provisions when properly made, shall be charged against
which regulate payment. the CREDITOR.

ARTICLE 1258. Consignation shall be made by WITHDRAWAL OF CONSIGNATION

DEPOSITING the things due at the disposal of ARTICLE 1260. Once the consignation has
JUDICIAL AUTHORITY, before whom the been duly made, the debtor may ask the judge to
tender of payment shall be proved, in a proper order the CANCELLATION OF THE
case, and the announcement of the consignation OBLIGATION.
in other cases.
The consignation having been made, the Before the creditor has accepted the
interested parties shall also be NOTIFIED consignation, or before a judicial declaration that
thereof. the consignation has been properly made, the
Requisites of a valid consignation: debtor may WITHDRAW the thing or the sum
(1) There is a debt that is due. deposited, allowing the obligation to remain in
(2) Debtor made a tender of payment force.
(3) Creditor refused without justifiable reason to
accept the tender of payment
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ARTICLE 1261. If, the consignation having implies the RENUNCIATION of the action
been made, the creditor should authorize the which the former had against the latter.
debtor to withdraw the same, he shall lose every
preference which he may have over the thing. ARTICLE 1272. Whenever the private
The co-debtors, guarantors and sureties shall be document in which the debt appears is found in
released. the POSSESSION of the debtor, it shall be
presumed the creditor delivered it voluntarily,
EFFECT OF TENDER OF PAYMENT AND unless the contrary is approved.
CONSIGNATION
(1) extinguishment of the obligation CONFUSION OR MERGER
(2) Can the debtor withdraw the thing deposited ARTICLE 1275. The obligation is
before the creditor accepts or before the court EXTINGUISHED from the time the characters
approves consignation? YES, but the obligation of creditor and debtor are merged in the same
will remain in force. person.
(2) After consignation is made, can the creditor
authorize the debtor to withdraw the things COMPENSATION: WHEN DOES IT
deposited? YES, but the creditor will lose HAPPEN?
preference over the thing as the guarantors, co- ARTICLE 1278. Compensation shall take place
debtors, and sureties are released from liability. when two persons, in their own right, are
creditors and debtors of each other.

CONDONATION vs CONFUSION vs ARTICLE 1279

COMPENSATION 1. Both parties must owe each other
(1270 – 1288) directly.
2. The debts involved must be similar
CONDONATION: WHAT IS ITS NATURE? (money for money, or similar goods).
RULES? AND FORMS? 3. Both debts must be due and payable.
Condonation or remission is essentially 4. The amounts owed must be clear and
gratuitous and requires the acceptancy by the agreed upon.
obligor. It is made expressly or impliedly. 5. There shouldn't be any ongoing disputes
One and the other kind shall be subject to the or issues involving the debts raised by
rules which governs inofficious donations. others.
Express condonation shall, furthermore, comply
with the forms of donation.

CONDONATION: WHO MAKES IT?

REQUIREMENTS?
1. Gratuitous
2. Accepted by debtor
3. Not inofficious or excess to what is
allowed to be given by will
4. Follow forms of donation

IMPLIED CONDONATION
ARTICLE 1271. The delivery of a private
document evidencing a credit, made
VOLUNTARILY by the creditor to the debtor,
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LAW ON OBLIGATIONS AND CONTRACTS
not against a creditor with a claim for support,
except as per Article 301.

ARTICLE 1280: Guarantor's Right to **Article 1288: Compensation and Penal

Compensation Offenses**
A guarantor can use compensation against what - Compensation isn't allowed for debts arising
the creditor owes the main debtor. from civil liability due to a penal offense.

ARTICLE 1281: Total or Partial Compensation **Article 1289: Order of Compensation**

- Compensation can be either total or partial. - When multiple compensable debts exist, the
Total if both debts are the same. rules for the application of payments determine
the order.
ARTICLE 1282: Compensation for Future
Debts **Article 1290: Automatic Compensation**
- Parties can agree to compensate debts not yet - Compensation happens automatically by law,
due. extinguishing both debts, even if the parties are
unaware of it, when all the conditions in Article
ARTICLE 1283: Compensation in Legal 1279 are met.
Claims
- In a legal case over an obligation, if one party NOVATION
has a claim for damages against the other, they (1290 – 1304)
can set it off.
NATURE OF OBLIGATION
ARTICLE 1284: Compensation for - Novation extinguished the old contract and
Rescissible or Voidable Debts creates new contract.
- Rescissible or voidable debts can be
compensated before being legally canceled. ARTICLE 1291. Obligations may be modified
by:
ARTICLE 1285: Compensation in Assigned (1) Changing their OBJECT or principal
Debts conditions;
- If a debtor agrees to the assignment of their (2) Substituting the person of the DEBTOR;
debt, they can't set off compensation unless they (3) Subrogating a third person in the rights of the
reserved this right. If the assignment is without CREDITOR.
the debtor's knowledge, they can set off debts
before and after learning about it. WHEN IS THERE A NOVATION?
ARTICLE 1292. In order that an obligation
**Article 1286: Compensation by Operation may be extinguished by another which substitute
of Law** the same, it is imperative that it be so declared in
- Compensation happens automatically, even if unequivocal terms, or that the old and the new
debts are payable at different places, with an obligations be on every point incompatible with
indemnity for expenses. each other.

**Article 1287: Exceptions to IMPLICATIONS: Novation occurs when both

Compensation** parties clearly agree to replace the original
- Compensation isn't allowed for debts from obligation with a new one, and these two
deposit or certain gratuitous obligations. Also, obligations are entirely incompatible with each
other.
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LAW ON OBLIGATIONS AND CONTRACTS
NOTE: The consent of the CREDITOR is
always required for novation.

The OLD DEBTOR may NOT give consent and

NOVATION #1: CHANGE OF OBJECT, WITHOUT his knowledge; this is called
CONDITIONS, REQUISITES expromision.

Requisites of a novation: When the OLD DEBTOR proposed a NEW

(1) A previous valid obligation DEBTOR and CREDITOR accepted DEBTOR,
(2) Capacity and intention of parties to modify the insolvency of the NEW DEBTOR will not
or extinguish the obligation make the OLD DEBTOR liable, EXCEPT if
(3) Modification or extinguishment of obligation insolvency is already publicly known to the
(4) Creation of a new obligation OLD DEBTOR.

 Can the old and new obligations stand CONTRACTS

together or co-exist? If there is a novation, (1305-1317)
they cannot. If otherwise, obligations can
independently exist in spite of another. CONTRACTS
ARTICLE 1305. A contract is the meeting of
NOVATION #2: SUBSTITUTION OF minds between two persons whereby one binds
DEBTOR himself, with respect to the other, to give
ARTICLE 1293. Novation which consists in something or to render some service.
substituting a new debtor in the place of the
original one, may be made even without the PRINCIPLIES OF CONTRACTS
knowledge or against the will of the latter, but 1. Freedom of Stipulation
NOT WITHOUT THE CONSENT OF THE 2. Relativity
CREDITOR. Payment by the new debtor gives 3. Obligatory Force
him the rights mentioned in articles 1236 and 4. Mutuality
1237. (1205a) 5. Consensuality

ARTICLE 1294. If the substitution is without PRINCIPLE #1: FREEDOM OF

the knowledge or AGAINST the will of the STIPULATION
debtor, the new debtor's insolvency or ARTICLE 1306. The contracting parties may
NONFULFILLMENT of the obligations shall establish such stipulations, clauses, terms and
NOT GIVE RISE TO ANY LIABILITY on the conditions as they may deem convenient,
part of the original debtor. (n) provided they are not contrary to law, morals,
good, customs, public order, or public policy.
ARTICLE 5. Acts executed against the
ARTICLE 1295. The insolvency of the new provisions of mandatory or prohibitory laws
debtor, who has been proposed by the original shall be VOID, except when the law itself
debtor and accepted by the creditor, shall NOT authorizes their validity.
REVIVE THE ACTION OF THE LATTER
AGAINST THE ORIGINAL OBLIGOR, except (REFERENCE, VOID CONTRACTS)
when said insolvency was already existing and ARTICLE 1409. The following are inexistent
of public knowledge, or known to the debtor, and void from the beginning:
when the delegated his debt. (1206a)
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LAW ON OBLIGATIONS AND CONTRACTS
(1) Those whose cause, object or purpose is  If a contract includes a stipulation for a
contrary to law, morals, good customs, public third person, that person can demand
order or public policy; fulfillment if they communicated
(2) Those which are absolutely simulated or acceptance before revocation. Mere
fictitious; incidental benefit is insufficient; the
(3) Those whose cause or object did not exist at parties must have intentionally conferred
the time of the transaction; a favor upon the third person.
(4) Those whose object is outside the commerce
of men; GENERAL RULE: The law of RELATIVITY
(5) Those which contemplate an impossible states that contracts only take effect between the
service; PARTIES, their ASSIGNS, and HEIRS, with
(6) Those where the intention of the parties exceptions in nature, by stipulation and the
relative to the principal object of the contract provisions of the law.
cannot be ascertained;
(7) Those expressly prohibited or declared void STIPULATION POUR ATRI
by law 1211 par 2: If a contract should contain some
stipulation in FAVOR OF A THIRD PERSON,
he may demand its fulfillment provided he
PRINCIPLE #2: MUTUALITY communicated his acceptance to the obligor
Article 1308: Mutual Binding Requirement before its revocation. A mere incidental benefit
 Contracts must BIND BOTH PARTIES; or interest of a person is NOT sufficient. The
validity or compliance cannot be solely contracting parties MUST have clearly and
at the will of one party. deliberately conferred a favor upon a third
Article 1309: Determination by a Third person.
Person
 The determination of performance may PRINCIPLE #4: CONSENSUALLITY
be entrusted to a third person, but their ARTICLE 1315: Contracts are perfected by
decision is NOT BINDING UNTIL MERE CONSENT, and from that moment the
COMMUNICATED to both parties. parties are bound NOT ONLY to the
Article 1310: Equitable Determination FULFILLMENT of what has been expressly
 The determination is NOT stipulated but also to all the consequences
OBLIGATORY if it's evidently which, according to their nature, may be in
inequitable. In such cases, courts decide keeping with good faith, usage and law.
what is equitable under the
circumstances. ARTICLE 1316. Real contracts, such as
deposit, pledge, and commondatum, are NOT
PRINCIPLE #3: RELATIVITY perfected until the delivery of the object of the
Article 1311: Scope of Contractual Effect obligation.
 Contracts are binding only between the
parties, their assigns, and heirs. INOMINATE CONTRACTS
Exceptions exist when the rights and These also known as mixed or innominate
obligations are not inherently obligations, are contractual agreements that do
transferable or when specified by not fall into specific categories or types
stipulation or law. The heir's liability is recognized by law.
limited to the value of the inherited
property. PRINCIPLE #5: OBLIGATORY FORCE
Third-Party Stipulation:
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Article 1315. Contracts are perfected by mere
consent, and from that moment the parties are
bound not only to the fulfillment of what has
been expressly stipulated but also to ALL THE
CONSEQUENCES WHICH, ACCORDING TO
THEIR NATURE, MAY BE IN KEEPING
WITH GOOD FAITH, USAGE AND LAW.
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REQUISITES OF A CONTRACT
(1) consent
(2) object
(3) cause

REQUISITE #1: CONSENT = OFFER +

ACCEPTANCE
Article 1319: Manifestation of Consent in
Contracts
 Consent is expressed through the meeting of
offer and acceptance regarding the subject
matter and consideration of the contract.
 The offer must be definite, and the
acceptance must be unconditional.
 A qualified acceptance acts as a counter-
offer.

TYPES OF DEFECTIVE CONTRACTS

(1) Rescissible – valid but causes economic
injury; hence, can be rescinded
(2) Voidable – valid until annulled, can be cured
by ratification, defect is in consent
(3) Unenforceable – valid but cannot be
enforced unless ratified
(4) Void – absolutely null and void, no effect at
all, cannot be ratified