OBLIGATIONS AND

CONTRACTS

Delict

Obligation
[1156] a juridical necessity to give, to do or
not to do
Elements
1. Passive subject (Obligor/Debtor)

Criminal or malicious
intent or criminal
negligence
For punishment
Public interest
Criminal and civil
liability

- person bound to fulfill obligation

2. Active subject (Obligee/Creditor)

- person who can demand fulfillment

3. Object (Prestation)

Pure not subject to a condition or period

Conditional depends on a future event

Real obligations to give

Personal obligations performance
Positive to do
Negative not to do

4.

With a period
demandability
obligation

Multiple many prestations

Conjunctive all are due and
demandable
Distributive one or some must be
performed
Alternative only one of the several
Facultative prestation due may be
Juridical tie (Vinculum
Juris) by another
substituted

Civil
obligations
Natural
obligations

obligation but the party shouldering the

entire obligation may demand
reimbursement from the others

Divisible may be partially performed

Indivisible cannot be partially performed

Equity and
natural
justice

Sources
1. Law [1158]
2. Contracts [1159]
- stipulation of the parties

3. Quasi-contracts [2142]
which
shall
another

With a penal clause

an accessory undertaking (dependent

Basis
Positive law

- lawful, voluntary and unilateral acts

are enforceable to the end that no one
be unjustly enriched at the expense of

some space or time suspends

or produces extinction of the

Joint obligation prorated among the parties

Solidary each party is entitled to the entire

Kinds
Enforceabili
ty
Court
action
Conscience
of debtor

For indemnification
Private interest
Civil liability only

Classifications

- conduct to be observed by parties

Simple one prestation

Quasi-delict
Negligence only

upon

some other obligation to exist) to assume

greater liability in case of breach

Determinate individualized or specified

Generic referred by the class, kind or genus
Unilateral one debtor and one creditor
Bilateral reciprocal obligations
1. both obligation arise from same source
2. each prestation is equivalent to the other
3. performance of one is conditioned to
performance of the other

Individual unipersonal
Collective plurapersonal
1. Joint
2. Solidary

Negotiorum gestio [2144]

voluntary management of the
property of another without the
knowledge or consent of the latter
Solutio Indebiti [2154]
something is received when there
is no right to demand it and it was
duly delivered through mistake

4. Acts or Omissions punished by law

- civil liability arising from criminal offense
1. Restitution
2. Reparation for damages
3. Indemnification for consequential
damages

5. Quasi-delicts [2176]

- damage arising from fault or negligence

1. there is an act or omission
2. there is fault or negligence
3. there is damaged caused
4. there is a direct relation of cause and
effect between the act or omission and
the damage
5. there is no contractual relation

Accessory existence depends on another

Principal can stand alone
Nature and Effects of Obligations
(Prestations, Breach, Remedies, Subsidiary Remedies,
Fortuitous Event, Usurious Transactions, Fulfillment,
Transmissibility of Rights)

Kinds of Prestations
1. To give purpose to transfer title or real rights
Determinate thing
1. to deliver the thing itself [1244]
2. to preserve the thing diligence of a
good father of a family (ordinary care)
[1163]
3. to deliver the accessions and accessories
4. deliver the fruits [1166, 1164]
Generic thing creditor cannot demand thing of
superior quality; debtor cannot
deliver thing of inferior quality
[1246]
Act or forbearance cannot be
substituted by another act or
forbearance against the obligees will
[1244]

2. To do
3. Not to do
Breach of Obligation
1. Pre-existing obligation
2. Conduct of the party in violation of the
contract
3. Accountability of the conduct
4. Absence of justification
5. Injury to the other party
Substantial breach can cause the annulment or
rescission of the contract
Casual/Slight breach breach is too small that it
cannot cause the rescission of
the contract

due

3. Delay (Mora) [1169]

- failure to perform obligation in
time because of dolo or culpa
- delay incurred from the time
obligee makes judicial or
extrajudicial demand
- demand not necessary when:
1. obligation or law expressly so
declares
2. from the nature of the
circumstances of the obligation it
appears that the time was a
controlling motive
3. demand would be useless as the
obligor has rendered it beyond his
power to perform

Modes of Breach
1. Fraud (Dolo) [1171]
- voluntary execution of wrongful
act

- waiver of action for future fraud is

- in reciprocal obligations, delay

by the other begins from the
moment one fulfills his obligation

void
Dolo Incidente
- committed while in the performance of
the contract; consent was not based on
the fraud

Mora Solvendi failure of debtor to

perform
1. obligation requires positive act
2. demandable, due and liquidated
3. delay due to fraud or negligence
4. creditor demands performance

Dolo Causante
- fraud is the root of the obligation; injured
party would not have entered the contract
had he known about the fraud

Mora Accipiendi failure of creditor to

accept
1. obligation requires cooperation of
creditor for its fulfillment
2. debtor has done ALL that is
incumbent upon him
3. creditor refuses to accept

2. Negligence (Culpa) [1173]

- omission of the diligence which
is required by the nature of the
obligation and corresponds with
the circumstances of the persons,
time and place
- if diligence not specified good
father of a family applies
Culpa Contractual
- breach of contract as a result of
negligence
Culpa Aquiliana
- failure to observe the care required by
law with respect to other persons who
were not bound by the contract

Culpa
Contractual

Culpa
Aquiliana

Damages may only

be claimed by heirs
and privies of the
contracting party

Damages may be
claimed by strangers or
third parties

Law presumes
negligence as the
cause of the damage

Negligence must be
proved as the cause of
the damage

Moral damages
cannot be recovered

Moral damages can be

recovered

Interest is due

Interest depends on the

contract

The employee is
never liable; it is
always the employer

The employer and the

employee are both
liable if diligence is
absent

No need for diligence

of a good father of a
family

May prove that he

exercised the diligence
of a good father of a
family

4.

Compensatio Morae delay of the obligor

in a reciprocal obligation
- neither party incurs delay if the
other does not comply or is not ready
to comply in a proper manner with
what is incumbent upon him [1169
Contravention
of the tenor [1170]
par3]

- any act of defective

performance which impairs strict
and faithful fulfillment
- liable for damages

Remedies of Creditor in Case of Breach

1. Action for performance [1165]
Specific performance - SPECIFIC thing
- in addition to the rights in 1170, may
compel debtor to make delivery [par1]
Substituted performance GENERIC thing
- obligation may be complied with at the
expense of the debtor [par2]
Substituted performance undoing poor
work
- what is poorly done be undone [1167]
Undoing in obligation not to do
- undone at his expense [1168]

2. Action for damages [1170]

- fraud, negligence, delay or
contravention of tenor
3. Action for rescission [1191, 1192]

- implied in reciprocal ones in

case one of the obligors should
not comply
- injured party may choose
between fulfillment and
rescission with payment of
damages
- court decree is necessary,
unless there is just cause
authorizing the fixing of a period
- no prejudice to rights of third
persons
- liability of first infractor shall be
equitably tempered by the courts
if both parties committed breach
- if it cannot be determined,
liability is extinguished and each
shall bear his own damages
Subsidiary Remedies of Creditor
1. Accion Subrogatoria (Subrogation)
- after exhausting the property of
the debtor, may exercise all the
rights and bring all the actions of
the debtor for the same purpose
[1177]
- except those inherent in his
person (legal separation, nullity
of marriage, patria potestas, etc)
- the debtor of my debtor is also
my debtor

2.

1. Interest of the creditor to bring the

action
2. Inaction of the debtor whether wilful or
not.
3. Existence of the credit even if not
liquidated.
4. Credit must be due and demandable.
Exhaustion(Rescission)
of assets in the hand of the
Accion5.Pauliana
debtor.
- action to rescind where the

creditor may impugn the acts

which the debtor may have done
to defraud them

1. Prior existence of the credit

2. The credit must be due and
demandable
3. Exhaustion of the assets of the debtor
4. Fraudulent intention if the transaction is
onerous
5. Bad faith of the debtors transferee
6. Prejudice to the creditor

Accion
Subrogatoria

Accion
Pauliana

Action can be
brought as long as
debtor is solvent

The credit must exist

before the fraudulent
act

No need for
fraudulent intent

There must be a
fraudulent intent

No prescription
period

Rescissory action
shall be brought
within 4 years from
the discovery of the
fraud

3. Sublesee liable to the lessor for any

rent due from lessee, but not beyond
the amount of rent due from him
[1652]
4. Laborers have an action against the
owner up to the amount the owner
owes the contractor. [1729]
5. Vendor may bring action to third
persons who derived possession of
things from the vendee. [1608]
6. Principal has action against a
substitute for obligations which the
latter contracted under the
substitution [1893]
Extinguishment of Liability in Case of
Breach Due to a Fortuitous Event
- no person shall be responsible for
those events which could not be
foreseen or which, though foreseen,
were inevitable. [1174]
Act of God independent of will of obligor
Act of Man unavoidable accidents caused by
man
1. Must be independent of the human will
2. Must be impossible to foresee or if it can be
foreseen, it must be impossible to avoid
3. Must render it impossible for the debtor to
fulfill the obligation in a normal manner
4. Debtor must be free of participation in the
aggravation of the injury to the creditor

- there is no liability except:

- in cases expressly specified by law or
declared by stipulation, or the nature of the
obligation requires the assumption of risk
[1174]
- obligor delays or has promised to deliver
the same thing to two or more persons who
do not have the same interest [1165]
- when possessor acted with fraudulent
intent or negligence [552]
- bailee is liable for the loss of the thing
(different purpose from which is loaned)
[1942]
- depositary is liable for the loss of the thing
(no permission of the owner) [1979]
- act of a thief or robber without use of arms
or irresistible force [2001]
-officious manager is liable for the loss of
the thing if there is bad faith [2147]

Usurious Transactions
- governed by special laws [1175]
- interest paid in excess of the interest
allowed by the usury laws may be
recovered by the debtor [1413]
Fulfillment of Obligations
- receipt of the principal by the creditor
give rise to the presumption that the
interest has been paid
- receipt of later instalment of a debt
give rise to presumption that the prior
instalment have been paid [1176]
Transmissibility of Rights

- all rights acquired in virtue of an

obligation are transmissible if there is no
stipulation to the contrary [1178]

Kinds of Obligations
(Pure and Conditional, Reciprocal, With a Period, Alternative,
Joint and Solidary, Divisible and Indivisible, With a Penal
Clause

Pure and Conditional Obligations

Pure Obligations [1179]
- does not depend upon a future or
uncertain event, or upon a part event
unknown to the parties
- demandable at once
Conditional Obligations [1181]
- acquisition of rights, as well as
extinguishment or loss of those
already acquired depends upon the
happening of a future or uncertain
event
- different from an obligation with a
period; latter depends on a future
event but not an uncertain one
- a thing is lost if it perishes, goes out
of commerce or disappears [1189]
As to EFFECT
Suspensive Condition
- condition precedent
- retroact to the day of the
constitution of the obligation
[1187]
Resolutory Condition
- condition subsequent
- condition imposed after
fulfillment
As to CAUSE [1182]
Potestative
- depends solely on the will of
one party VOID!
Casual
- depends upon chance or will of
a stranger
Mixed
- depends partly upon the will of
one party and partly on chance
As to POSSIBILITY
Possible
- can be performed according to
law
Impossible
- contrary to good customs or
public policy and those prohibited
by law
- annuls the obligation [1183]
As to MODE
Positive
- happening of an event [1184]
Negative
- non-happening of an event
[1185]

[1189]

Suspensive
With fault of the
Without fault of
debtor
the debtor

Loss
Deteriorati
on
Improveme
nt

Obliged to pay
damages
Creditor may choose:
Rescission with
damages OR
fulfillment with
damages
By nature or time:
Benefits goes to the
creditor

Obligation
extinguished
Impairment is to be
borne by the creditor

At the expense of the

debtor:
Usufructuary rights

- same rules apply to resolutory

conditions with respect to the party
bound to return
- condition is deemed fulfilled when
the obligor voluntarily prevents its
fulfillment [1186]
e.g. Katz will sell her laptop to Yen upon
the condition that Yen will loan money
from Cuayo. Katz told Cuayo not to lend
Yen money. The condition is deemed
fulfilled since Katz prevented its
fulfillment.

Reciprocal Obligations [1191]

- obligations arising from the same
cause and the performance of one is
designed to be equivalent and the
condition for the performance of the
other
- power to rescind is implied
- remedies: fulfillment or rescission
- alternative remedy: rescission after
injured party chose fulfillment and it
failed
- requisites and effect of rescission
1. substantive breach must be by fault or
fraud
2. judicial decree or notarial demand
3. obligation is extinguished
4. the juridical tie is invalidated
5. both parties is required to surrender
what they have received
6. parties may waive rescission in
reciprocal obligations

- rescission without judicial

intervention UP vs de los Angeles
Obligation with a Period
- a period is a certain event upon the
arrival of which the obligation subject to
it either arises or is extinguished
- period is a certain event which must
happen sooner or later while a condition
is an uncertain event
- period refers only to the future while
condition may also refer to a past event
- period merely fixes the time for the
efficaciousness of the obligation while
condition causes an obligation to arise
or to cease
- 1189 applies in case of loss,
deterioration or improvement before the
arrival of the day certain
- court can fixed a period if it can be
inferred that a period was intended
or if it depends upon the will of the
debtor

(take note: if it would have been a

condition dependent solely upon the will
of the debtor, it would have been void!)
As to EFFECT
Suspensive Period (ex die)
- obligation demandable only when the
fixed day comes
Resolutory Period (in diem)
- obligation takes effect at one but
terminate upon arrival of the day certain

As to EXPRESSION
Express
- period is specified
Implied
- from the nature and circumstances of
the obligation it can be inferred that a
period was intended
As to DEFINITENESS
Definite
- period is fixed
Indefinite
- duration is not fixed in an obligation to
pay when ones means permit
As to SOURCE
Voluntary
- fixed by the parties
Legal
- fixed by law
Judicial
- fixed by the court

- anything paid in advance, the obligor

being unaware of the period, may be
recovered with the fruits and interests
[1195]
- once the period is fixed by the court,
the period cannot be changed by the
parties [1197]
- period is presumed to be for the
benefit of both the creditor and debtor
[1196]
- creditor cannot compel the debtor to
pay in advance of the date fixed [1198]
- the debtor cannot compel the creditor
to receive payment in advance
- debtor shall lose every right to make
use of the period [1198]:
- he becomes insolvent
- does not furnish the guaranties or securities
- he impaired the guaranties or securities
- violates any undertaking in which the

between
ceases from
and becomes
for
event,

Facultative Obligations [1206]

- only one prestation has been
agreed
upon but the obligor may
render
another in substitution
- before substitution, the debtor
is not
liable for the loss of the
substitute
- after the substitution, the
debtor is
liable for loss of the
substitute
Joint and Solidary Obligations
Joint Obligations
- existing between several
persons
among whom the benefit
or the
burden of the obligation is
divided
1. plurality of subjects
2. determination of shares

- other terms: mancomunada,

mancomunadamente,
prorate,
proportionately,
individually,
separately, we
promise to pay
signed by two
persons
- if one of the debtors is
insolvent, the
others are not liable for
his share
- there exists a presumption
against
solidarity
Solidary Obligations
- each one of the debtors is
bound to
render, and/or each one of
the
creditors has a right to
demand entire
compliance
1. plurality of subjects
2. intention to establish solidary liability must
appear
3. express provision of solidarity

creditor based his consent to the period

- he attempts to abscond

Alternative Obligations
- debtor is required to perform
completely only
one of the several
obligations provided [1199]
- right of choice belongs to the debtor
unless it
has been expressly granted to
the creditor [1200]
- the choice must be communicated to
the
creditor [1201]
- in case of loss or improvement:

- if only one is lost, debtor shall chose

the remaining ones
- if only one remains, the obligation
being an alternative obligation
simple
- if all alternatives are lost by fault of the
debtor, the creditor must be indemnified
damages
- if all alternatives are lost by fortuitous
the creditor bears the loss

in
two

- other terms: joint and several,

solidum, I promise to pay with
or more persons, individually and
collectively
As to SOURCE
Legal
- derived by law
Conventional
- stipulation of the parties
Real
- nature of the obligation

- from the nature of the obligation

that destroy the legal tie
(prescription, illegality, nullity ab
initio, suspensive condition)
- personal defenses (incapacity,
consent)
- pertaining to his own share
- personally belonging to other codebtors but he may avail himself
thereof only as regards that part of
the debt for which the co-debtors are
responsible

As to PARTIES BOUND
Active
- creditors
Passive
- debtors
Mixed
- creditors and debtors
As to UNIFORMITY
Uniform
- same terms and conditions to all
Varied
- different periods and/or
conditions for each

Solidary creditors
Common debtor

Solidary co-creditors

Each creditor can collect the

entire debt

Creditor which collects the

entire debt id liable to the
others for their share

Debtor may pay any one of

the solidary co-debtors (but
payment shall be made to
the one making demand)

Each of the solidary

creditors may do whatever
may be useful to the others

Novation, compensation,
confusion or remission made
by any of the creditors shall
extinguish the obligation

One solidary creditor cannot

assign his rights without the
consent of the others

Solidary debtors
Common creditor

Solidary debtor who made

the payment may claim
from his co-debtors only the
share which corresponds to
each

Each debtor may utilize

against the creditor his own
defenses

No contribution may be
demanded if payment is
made after obligation has
prescribed

If two or more solidary

debtors offer to pay, the
creditor may choose which
offer to accept

Remission made by the

creditor to the share which
affects one of the debtors
does not release the latter
from his responsibility
towards his co-debtors when
the obligation was paid
before the remission was
effected

Payment by one
extinguishes the obligation
to the extent of the
payment

If one of the debtors is

insolvent, his share shall be
borne by all his co-debtors

If the thing was lost or

became impossible without
the fault of the debtors, the
obligation is extinguished

Share of debtors are

presumed equal

If there was fault on the part

of any one of the debtors, all
are liable to the creditor

Damages paid due to

negligence or fault of one
are subject to proportional
contribution

- defenses available to solidary

debtor:

Divisible and Indivisible Obligations

Divisible Obligations
- can be performed by parts
- presumed to be divisible when
obligation involves certain
number of
days of word, work by
metrical units
or analogous
things

Solidary co-debtors

Each debtor is bound to

perform the whole
obligation as the creditor
may proceed against any
one of them

Mora of one is mora of all

and all shall bore the loss in
case of a fortuitous event

Joint Indivisible Obligations

- several debtors and creditors
but
prestation is indivisible
- necessity of collective
fulfillment and
the action must be
against all debtors
- indivisibility does not give rise
to
solidarity nor does solidarity give
rise
to indivisibility [1210]

not
parts
thing

Indivisible Obligations
- by reason of their purpose are
susceptible of being executed by
or fractions
- presumed to be indivisible when
obligation is to give a definite
and in obligations not to do
Indivisible

Solidary

Only one creditor and

one debtor

Many creditors and/or

many debtors

Arises from the

nature of the thing

Arises from the tie

that binds the parties

KINDS
Natural
- prestation is physically
indivisible
Legal
- indivisible by law
Conventional
- intended by the parties

Obligations with a Penal Clause

- accessory stipulation added to an
obligation
whereby the debtor promises to
perform a
prestation in case the principal
obligation is not performed
As to EFFECT
Subsidiary
- when only the penalty may be enforced
Complementary
- when both the principal and penalty may
be enforced

far as the payment has

been beneficial to the
debtor

As to SOURCE
Conventional
- stipulation of the
parties
Legal
- provided by law

- payment made by a third person who

does not
intend to be reimbursed is
deemed a donation
which requires the
debtors acceptance

As to PURPOSE
Punitive
- damages may be collected
Reparatory
- penalty substitutes for
damages

Effects of Penal Clause

1. Substitute for indemnity for damages
and payment for interest
2. Does not exempt debtor from
performance of the principal obligation
3. Creditor cannot demand both
performance and penalty at the same
time
4. Creditor cannot collect other damages
in addition to penalty
- judge shall equitably reduce the
penalty when there is partial
performance or if it is iniquitous or
unconscionable [1229]
- nullity of penal clause does not carry
with it that of the principal obligation
but the nullity of the principal carried
with it that of the penal clause [1230]

Reimbursement
Personal action to
recover the amount
paid

payment
1. Payor
(solvens)
Who can pay?

4. manner
5. time
6. place
7. expenses of making

payment by
creditor is
benefit except:

(privy)

- any person interested in the fulfillment

whether the debtor consents to it or not,
even without the debtors knowledge

and
[1302]
creditor is
him [1236]

- a third person not interested but the

not bound to accept payment by

Without debtors
consent

With debtors
Consent

Cannot compel the

creditor to subrogate
him in his rights

May demand subrogation

in the creditors rights

Can recover only in so

May demand from the

- creditor at the time of payment

- his successor in interest
- any person authorized to receive
law or stipulation
- person not authorized provided the
benefited must prove said
1. after the payment, the payee
acquires the rights of the creditor
2. creditor ratifies the payment
3. creditor by his conduct leads the
debtor to believe that the payee
had authority to receive payment
4. payment made in good faith to any
person in possession of the credit

3. Object (solutio)
What is to be paid?
receive a
must be
includes all
Central Bank
the effect of
cashed

- debtor or his duly authorized agent

- debtors heir or successor in interest

Not only reimbursement

but the exercise of other
rights attached to the
original obligation

2. Payee (accipiens)
Who can accept payment? [1240]

[1231] (Payment or Performance, Loss or Impossibility,

Condonation or Remission, Confusion or Merger,
Compensation, Novation)

Payment or Performance
- carrying out of an obligation
- delivery of the money due
- requires acceptance of the creditor
- debtor has burden of proving payment

Subrogation

- in obligations to give, payment by one

who
does not have the free disposal of the
thing due
shall not be valid except that
voluntary payment
by a minor without the
consent of his parent or
guardian of a fungible
thing does not entitle him
to recover the payment
made if the creditor
spent it in good faith
[1427]

Extinguishment of Obligations

1. payor (solvens)
(integrity)
2. payee (accipiens)
3. object (solution)

debtor what he has paid

- the thing or service or abstention due

- debtor cannot compel the creditor to
different one
- in generic obligations, the thing paid
of the quantity and quality specified
- the legal tender in the Philippines
notes and coins issued by he
- payment by check or other negotiable
instruments shall only produce
payment when they have been

4. Manner (integrity)
How is payment made?
- payment must be complete
- no partial payment is allowed except:
1. in case of express stipulation
2. the debt it in part liquidated and in
part unliquidated
3. in case of compensation
4. several guarantors invoke the
benefit of division
5. debtor dies, each heir answers
only for his share
6. when work is to be done by parts

5. Time
When is payment made?
- upon demand judicial or extrajudicial

- when debt has become due and

demandable
agreement
period

- when time is the essence of the

- when debtor loses the benefit of the
- obligation is reciprocal

6. Place
Where is payment made?
- place designated by the obligation
[1251]

- if no place is designated:
- specific thing: place wherever
thing might be habitually
- generic thing: domicile of the

the
debtor

7. Expenses of making payments

- paid according to stipulation
- in the absence of stipulation:
- extrajudicial expenses debtor
- judicial costs Rules of Court

Application of Payments
- designation of the debt to which should
be
applied the payment made by a debtor
who
has various debts of the same in favor of
one
and the same creditor
1. one debtor and one creditor
2. two or more debts
3. debts must be of the same kind
4. debts applied must be due
5. payment made must not be sufficient to cover all
debts

Rules in Application of Payments

1. debtor has first choice; he must
indicate choice at the time of
making payment
2. if the debtor does not apply
payment, creditor may make the
designation by specifying in the
receipt which debt is paid
3. if the creditor has not also made
the application, the most onerous
(burdensome) to the debtor is
deemed satisfied
4. if debts due are of the same
burden, payment shall be applied
proportionately to all

to
may
credits

Payment by Cession [1255]

- Payment by Assignment
- debtor abandons all his property
his creditors, so that the latter
apply the proceeds to their

proceeds of the

1. plurality of debts
2. plurality of creditors
3. partial or relative insolvency of the
debtor
4. abandonment of the totality of the
debtors properties for the benefit of the
creditors
liberates
thebydebtor
up to the
5. acceptance
the creditors

amount of the net

sale of his assets

to the
only

- assignment does not vest title

property in the creditors, who are
authorized to sell it

Dation in Payment [1245]

- Datio in Solutum
- property of the debtor is
alienated to
the creditor in satisfaction
of a debt in
money
Cession

Dacion

Only entitles creditors

to sell the thing and
apply the price to the
credit

Transfers ownership of the

substituted thing to the
creditor

Extinguishes only to the

extent of the price
obtained

Extinguishes totally the

credit

Two or more creditors

Can only be one creditor

Presupposes insolvency
of debtor

Debtor does not have to

be insolvent

Does not novate the

contract

Novatory

Tender of Payment
- declaration of intention by the
debtor
manifesting his firm
decision to pay
- coupled with a
demand upon a
creditor to accept
immediate
performance
- unjust refusal leads to
consignment
Consignation
- deposit of the thing due made
by
the debtor in lawful form,
whenever
the creditor refuses or
cannot accept
payment
- purpose is to avoid delay
- not required when the payment
is
voluntary and not coercible
- if creditor accepts consignation,
the obligation is extinguished
- if the court declares that the
consignation was properly made,
the obligation is extinguished
- if before approval of the court
the debtor withdraws the
deposit, the obligation subsists
- if without creditors approval,
guarantors and co-debtors
remain liable
- if with creditors approval,
guarantors and co-debtors are
liberated

- if consignation is disapproved, it
is deemed ineffective
Procedure in Consignation
1. Tender of payment and unjustified
rejection
2. First notice to the interested
parties to give creditors a chance

to reconsider and accept payment

thereby avoiding litigation
3. Filing the complaint against the
creditor
4. Judicial deposit of the thing due
with proof of tender and notice
5. Second notice to interested parties
6. Trial and judgment
7. Incidents of consignation

-gratuitous abandonment by a creditor

of his right
1. it must be gratuitous
2. accepted by the obligor
3. parties must have capacity
4. must not be inofficious
5. made expressly and comply with the forms of
donation

- whenever private document in which

appears is found in the possession of the
debtor, it is presumed that the creditor
delivered it voluntarily [1272]
- voluntary delivery of a private
document
evidencing a credit implies
renunciation of the creditors action against
the debtor [1271]
- accessory obligation of pledge has
been remitted when the thing pledged after
delivery
is found in the possession of the
debtor or a
third person who owns the thing
[1274]
- creditors omission of a debt or of the
name of a debtor from an inventory does not
imply remission
debt

Loss or Impossibility

its

Loss of the thing due [1189]

- perishes
- goes out of commerce
- disappears in such as way that
existence is unknown
- cannot be recovered
- hence, a generic thing never
perishes
1. obligation is to deliver a specific thing
2. loss of the thing occurs without the fault
of the debtor
3. debtor is not guilty of delay

- presumption of fault whenever

thing to be delivered is lost in the
possession of the debtor [1265]
- presumption of fault does not
in case of natural calamities
- effects of loss:

the
apply
extinguishes
not
shall
as
action
against

1267]

- to give specific thing, it

obligation [1262]
- to give generic thing, it does
extinguish the obligation [1263]
- in case of partial loss, the court
determine if the loss is important
to the extinguishment of the
obligation [2164]
- creditor has all the rights of
which the debtor may have
third persons [1269]

Impossibility of performance [1266,

- not only legal or physical

impossibility but also
impracticability
because of
extreme difficulty,
manifestly
beyond the contemplation
of the
parties
- impossibility releases the
obligor
1. without fault of the debtor
2. before the debtor incurs delay
3. after the obligation is
constituted

Physical impossibility
obligation

obligor dies or becomes physically

incapacitated to perform the

Legal impossibility
it is

obligation cannot be performed because

rendered impossible by provision of law

Condonation or Remission

Inter vivos during the lifetime of the donor

Mortis causa upon the death of the donor
- oral donation requires the simultaneous
delivery of the thing or of the document

Rules in Condonation
1. subject to the rules that govern
inofficious donations
2. remission in advance of future
obligation is void
3. renunciation of the principal debt
extinguishes accessory obligation,
but waiver of the latter shall leave
the former in force
Confusion or Merger
- meeting in one person of the qualities
of
creditor and debtor with respect to the
same obligation
1. must take place between the principal debtor
and creditor
2. must be complete and definite

- obligation is extinguished from the

moment
the characters of debtor and
creditor are totally merged in the same
person [1275]
- does not extinguish a joint obligation
except
as regards the share
corresponding the
merged creditor and
debtor [1277]
- merger benefits the guarantors [1276]
Compensation
- extinguishment to the concurrent
amount of
the debts of two persons who, in
their own
right, are debtors and creditors
of each other
Compensation

Confusion

Two persons involved

Only one person is

involved

Two obligations

Only one obligation

There is indirect
payment

There is impossibility of
payment

As to EXTENT
Total
- both obligations are of the same amount
and are entirely extinguished [1281]
Partial
- when two obligations are of different
amounts and a balance remains
As to ORIGIN
Legal
- by operation of law even without the
knowledge of the parties
Conventional
- by agreement of the parties
Judicial
- effected by decision of the Court
Facultative
- one of the parties have the option to
claim compensation or to object to it

- there are three possible cases

of
compensation after an
assignment of
rights:
1. with consent of the
debtor
2. with the knowledge but
without the consent of the
debtor
3. without the knowledge
of
the debtor
- only in the first case is
compensation
not allowed to be
set up as defense
Novation
- extinction of an obligation through the
creation of a new one which
substitutes it
As to FORM
Express
- declared in unequivocal terms
Implied
- old and new obligations are
essentially incompatible with each
other
As to ORIGIN
Legal
- operation of law
Conventional
- by agreement of the parties

Legal Compensation
1. each one of the obligors be bound
principally
2. both debts consist in a sum of money, or
of consumable things of the same kinds
and quality
3. two debts are due and demandable
4. two debts are liquidated
5. no retention or controversy commenced
by a third person
6. compensation not prohibited

As to OBJECT
Subjective or Personal
- person of the debtor is substituted
and/or when a third person is
subrogated in the rights of the creditor
Objective or Real
- object or principal conditions are
changed

Prohibitions:
-

deposit or obligations of a depositary

commodatum or obligation of the bailee
future support due by gratuitous title
civil liability arising from a penal offense
damage to the partnership by a partner

- compensation takes place by

operation of law though
the debts
may be in different places
but there is
indemnity for expenses of
exchange or
transportation [1286]
- when one or both debts are
rescissible or voidable,
they may be
compensated against
each other
before they are judicially
rescinded or
avoided [1284]
- compensation shall take place
before
the assignment of rights of the
creditor [1285]
e.g. Katz owes Yen 20 pesos due
yesterday. Yen also owes Katz 10
pesos due yesterday. Hence, Katz
now only owes Yen 10 pesos. If
Yen
assigns her rights to Cuayo,
Cuayo
can collect the 10 pesos from
Katz.
However, if Katz allowed the
assignment of creditor
before the
compensation, she
cannot assert such
defense. She
can only collect the 10
pesos that Yen
owes her but she shall
pay the 20
pesos to the new creditor,
Cuayo.

1. previous valid obligation

2. new valid obligation
3. substantial difference between the old and
new
4. capacity of the parties
5. intention to extinguish or modify the old one

[1298]

- novation is VOID if original is void

- voidable obligations may be novated

before they are annulled, or after they are
ratified
- obligations under the Statutes of Fraud
and
Natural Obligations are not void; hence,
they can be novated
- if the new obligation is void, the
original one shall SUBSIST unless the parties
intended that the former relation be
extinguished in any event [1297]
- if the original obligation was subject to
a
suspensive or resolutory condition, the
new
obligation shall be under the same
condition
[1299]
- a prescribed obligation may be
novated
- accessory obligations are also
extinguished but may subsist insofar as they
may benefit third persons who did not give
their consent [1296]

interest.
that the
directly to
obligation in
make a digest
subsists.

e.g. Katz owes Yen 10 pesos at 2%

Yen owes Cuayo 2 pesos. They agreed
2 peso interest will be paid by Katz
Cuayo. If Katz and Yen novate the
such a way that Katz is only to
for Yen, the 2 peso interest

Objective Novation
1. change on the nature or quality of
the subject matter
2. change of causa or consideration
3. change of the principal conditions
or terms

debtor

Subjective Novation
1. substitution or by change of

Characteristics
1. Obligatory force [1308]
- obligations arising from contract have
force of law between the contracting

the
parties
observance of
and diligence

2. Mutuality [1308-1310]
- must bind both contracting parties and
performance shall not be left to the will of

the
one

3. Relativity
- contracts take effect only between the
their assigns and heirs [1311]
- no one may contract in the name of
[1317]

parties,
another

Parties
1. Auto-contracts
- one contracts with himself
- valid because the existence of a
is not determined by the number of
who intervene but by the number of

Expromision
1. consent of two parties: creditor
and new debtor
2. knowledge or consent of old debtor
not required
3. old debtor is released
4. insolvency of the new debtor does
not revive the old obligation

contract
persons
parties

2. Freedom to contract
- the right to enter into contracts

Special disqualifications:
- spouses are disqualified to donate or sell to
each other [1490]
- guardian; property of his ward
- agents; property entrusted to them unless
there is consent of the principal
- executors and administrators; property
under administration
- public officers and employees; property of
the state
- justices, judges, prosecuting attorneys,
clerks or superior and inferior courts and other
officers and employees connected with the
administration of justice; property in litigation

Delegacion
1. consent of the old debtor, new
debtor and the creditor
2. insolvency of the new debtor
revives the obligation of the old
debtor

creditor

- compliance in good faith is the

the standards of loyalty, fairness
required by society

2. subrogation or by change of
Conventional Subrogation

Limitations:
1. contrary to law

1. must be clearly
established
2. consent of all is required

Pactum commissorium [2088]

- appropriate things given by way
of pledge or mortgage VOID!

Legal Subrogation
1. not presumed except:
- creditor pays another
creditor who is preferred
- not interested third
person pays with approval of
Contract
debtor
[1305] a meeting of minds- between
two pays
person interested
debtor
persons whereby onewithout
bindsapproval
himselfofwith
respect

to the other to give something or render some

service
Elements
1. Essential

Pactum leonina [1799]

- stipulation which excludes one or
more partners from any share in
the profits or losses VOID!

2.
conduct

3. contrary to good customs

4. contrary to public order

- public safety or public weal

5. contrary to public policy

1. Consent
2. Object
3. Cause
presumed to exists unless the contrary
is stipulated

3. Accidental

- habits and practices which

long usage have been followed
enforced by society

through
and

without which there is no contract

2. Natural

Pactum de non alienado [2130]

- forbidding
owner from selling
contrary
to morals
immovable mortgaged VOID!
- norms of good and right
evolved in a community

- for the common good

Classification
1. Subject matter
Things
Services

exists only when stipulated

2. Name

Nominate

Innominate [1307]

no special name

Do ut des I give so that you may give

Do ut facias I give so that you may do
Facio ut facias I do so that you may do
Facio ut des I do so that you may give
3. Perfection
Consensual [1315] consent is sufficient
Real [1316] delivery is required
4. Degree of Dependence
Preparatory contract based on future
transaction

Principal contract may exist alone

Accessory depends upon some other contract
5. Form
Common/Informal - loan
Special/Formal law requires formalities
6. Purpose
Transfer of Ownership
Conveyance of Use
Rendition of Services
7. Parties obligated
Unilateral only one party is bound
Bilateral both parties are bound to reciprocal
ones

8. Cause
Onerous exchange of correlative values
Gratuitous no correlative prestation
9. Risk
Commutative fulfillment is predetermined
Aleatory fulfillment is dependent upon chances
Stages
1. Preparation
- negotiations are in progress

2. Perfection
- parties come to an agreement

3. Consummation or Death
- contract is fully executed

Promise
Perfect Promise
for the

acceptance before Yen revokes the

stipulation por autri.

law gives the contract a special

name

- tends only to assure and pave the way

celebration of a contract in the future
- rights and obligation not yet determined

Imperfect Promise (policitacion)

- a mere unaccepted offer

Third Persons
1. Stipulations pour autrui [1311]
- stipulation in a contract clearly and
deliberately conferring a favor upon a
third person who has a right to demand its
fulfillment
provided he communicates his
acceptance to the obligor before its revocation
e.g. Katz owes Yen 10 pesos at 2%
interest. Yen owes Cuayo 2 pesos.
They agreed that the 2 peso interest
will be paid by Katz directly to Cuayo.
Cuayo shall communicate his

2. Contracts creating real rights [1312]

- third persons who came into possession
of the object of a contract over which there is a
real right are bound thereby even if they were
not
parties to the contract
- real right is binding against the whole
world and attaches to the property over which it
is
exercised wherever it goes
e.g. Katz owes Yen 1M pesos and she
mortgaged a parcel of land as a
security. Katz then sold the same
land to Cuayo. Cuayo is then bound
by the contract between Katz and Yen
since the mortgage followed the
parcel of land.

3. Entered into to defraud creditors

[1313]
- creditor has the rights to impugn
contracts of
his debtor intended to defraud
them
e.g. Katz owes Yen 1M. Katz only
remaining property is a house. She
then sold the house to Cuayo in order
that Yen may not attach the house to
the payment of her debt. Yen, who is
a stranger to the contract between
Katz and Yen, may ask the rescission
of the sale.

4. Violated at the inducement of a

third person [1314]
- stranger can be sued for damages for
his
unwarranted interference with the
contract
e.g. Katz agreed to sell her laptop to
Yen. If Katz sells her laptop to Cuayo
instead because of his inducement,
Yen can sue for damages.

Essential Requisites of Contracts

[1319] (Consent, Object, Cause)

Consent
- conformity of wills (offer and
acceptance)
1. plurality of parties
2. parties be capable of formulating a desire or
intent
Incapacity VOIDABLE
Prohibition VOIDABLE
Against public policy - VOID
3. no vice or defect in their wills; consent not
vitiated
4. intent be expressed in due time and in proper
form
5. no conflict between intent and expression or
declaration

Offer
- proposal made by one party to
another to enter into a contract
- a promise to act or to refrain
from
acting on condition that the
terms
thereof are accepted
- must be certain [1319]
- may fix time, place and manner
of
acceptance [1321]
- offer made through an agent is
accepted from the time
acceptance is
communicated
[1322]

things for
but mere
offer [1325]

- offer becomes ineffective upon

death, civil interdiction, insanity,
insolvency before acceptance is
conveyed [1323]
- business advertisement of
sale are not definite offers
invitations to make an
- advertisement for bidders are
invitations to make proposals

mere
[1326]

Express
- oral or written acceptance
Implied
- inferred by the conduct of the
offeree
Qualified
- constitutes a counter-offer

- if acceptance is made by letter

telegram, it does not bind the
except from the time it
knowledge
- when the offerer has allowed
the
offeree a certain period to
accept, the
offer may be withdrawn at
any time
before acceptance by
communicating
such withdrawal
[1324]
or
offerer
came to his

Contract of option [1324]

- one giving a person a certain period
which

- except: mutual error of law

[1334]

- doubtful question, construction

application of law, analogous to
mistake of fact
e.g. Katz loaned 10
from Yen. As a security,
mortgaged her phone.
then signed a deed of
thinking that it has the
same effect as a

or
a

Acceptance
- must be absolute [1319]

within

- the general rule for error of law

ignorance of the law excuses no

is
one

which to accept the offer of the offerer

- separate and distinct from the contract
will be perfected upon the acceptance

pesos
she
They
sale
mortgage.

- if one of the parties is unable to

read, the party enforcing the
contract
shall prove that the said
contract was
read and explained to the
other party
[1332]
- there is no mistake when the
party
alleging it knew the doubt,
contingency or risk affecting the
object of the contract [1333]
2. Violence and Intimidation [1335]
violence - serious or irresistible force
intimidation - reasonable and wellgrounded fear of an imminent
and grave evil
upon his person or property, or
person or
property of his spouse,
descendants, ascendants

3. Undue Influence [1337]

- improper advantage of his
power
over the will of another, depriving
the
latter of a reasonable freedom of
choice

Legal Capacity
- unemancipated minors and
insane or
demented persons as well
as deafmutes who do not know
how to read
and write cannot give
consent [1327]
Vices of Consent
- consent given through mistake,
violence, intimidation, undue
influence
or fraud is VOIDABLE
[1330]

1. confidential, family, spiritual and

other relations between parties
2. mental weakness
3. ignorance
4. financial distress

4. Fraud or Dolo [1338]

- insidious words or machinations
Dolo causante
fraud committed before or at
the

time of the celebration of the

contract; used to induce
enter into a contract
the latter would not

the other to
without which
have agreed to

1. Mistake or Error
1. not intentional or reckless
2. excusable without failure to take
advantage of the opportunity to
ascertain the truth
3. mistake of fact, not of law
4. past or present mistake; nonrealization of the partys expectation
is not an error
5. material mistake; must refer to
factors inducing consent
- substance of the thing
- principal qualities of the
object
- quantity

there is
constitutes
[1339]
unintentional,

1. misrepresentation or
concealment
2. serious
employed
by facts
only one
of the
failure3.to
disclose
when
parties
a duty to reveal them
4. in bad faith or with intent to
fraud
(concealment)
deceive
5. induced the consent of the other
- if it would have been
is mistake not fraud

- usual exaggerations in trade

when
the other party had an
opportunity to
know the facts are
not fraudulent
[1340]
- mere expression of an opinion
does
not signify fraud unless made by
an
expert and the other party has
relied
on the formers special
knowledge
[1341]
5. Misrepresentation
- misrepresentation by a third
person
does not vitiate consent
unless such
misrepresentation has
created
substantial mistake
and the same is
mutual [1342]
is
Katz
for
unless
deceived
for
that
school.
Yen.
that
sale
was

e.g. Katz plans to sell her land to

Yen. The market value of the land
50 pesos. However, Cuayo told
that the value is only 25 pesos.
Hence, Katz sold the land to Yen
25 pesos. The contract is valid
it is proven that Yen also
Katz.
e.g. Katz had a bought a laptop
her own use in class. Cuayo said
laptops are not allowed in law
Hence, Katz sold her laptop to
Katz and Cuayo later found out
laptops are actually allowed. The
to Yen is annullable since there
mutual mistake.

good

1. can legally be the subject of commercial

transaction
2. must not be impossible, legally or physically
3. must be in existence or capable of coming to
existence
4. must be determinate or determinable without
the need of a new contract between the parties

- future inheritance may not be the

object of a
contract unless it is authorized
by law
- impossible things or services cannot be
objects of contracts [1348]
e.g. opium, illicit acts, etc.

Cause [1350]
- essential or more proximate purpose
which the contracting parties have in view at
the
time of entering into the contract
- consideration
In ONEROUS contracts
- cause for each contracting party is the prestation
or promise of a thing or service by the other
- reciprocal obligation
In REMUNERATORY contracts
- cause is the service or benefit which is
remunerated
- purpose is to reward the service that had been
previously rendered

- misrepresentation made in good

faith is not fraudulent but may
constitute error [1343]
6. Simulation of Contracts [1345]
- declaration of a non-existent will
made deliberately and by
agreement
of the parties for the
purpose of
producing the appearance
of a
transaction that does not
exist or
which is different from the
one that
actually arose

In GRATUITOUS contracts
- cause of which is the mere liberality of the
benefactor

Motive
enters into

Remote or indirect reason

Always known to the

other contracting party

May be unknown

Essential element of a
contract

Not an essential element

Illegality of cause
affects the validity of
the contract

Illegality of motive does

not render the contract
void

Defective causes
1. Absence of cause and unlawful
case [1352]
2. statement of a false cause,
unless there is another true and
valid cause [1353]

contract does not really

the parties do not intend to be
VOID! [1346]

Relative

contract

contract entered into by the

parties is different from their true

valid

- apparent contract is VOID but hidden

is VALID

Object [1347]
- subject matter or the obligation
created
- all things which are not outside the
commerce of men, including
future things may
be the object of a contract

Motive

Immediate or direct
reason

Absolute

agreement

purely personal reason why a party

a contract

Cause

1. declaration deliberately different

from true will of the parties
2. agreement to create the
appearance of a valid act
3. purpose of deceiving third
persons

exist and
bound at all

- all rights not intransmissible

- all services not contrary to law, morals,
customs, public order or public policy

- parties bound by the true and

cause if there is any

3. lesion or inadequacy of cause

[1355]
that
contract

- any damage cause by the fact

the price is unjust or inadequate
- lesion does not invalidate a

Form of Contracts
General Rule and Exception [1356]

General Rule:
Contracts shall be obligatory, in
whatever
form they may have been
entered into,
provided all the essential
requisites for their
validity is present.
Exception:
When the law requires that a contract be
in
some form in order that it may be valid
or
enforceable or that a contract be proved
in a
certain way, that requirement is absolute
and
indispensable.

Reformation of Instruments
- remedy in equity by means of which a
written instrument is made or construed
so as to express or conform to the real
intention of the parties when some error or
mistake has been committed
1. meeting of the minds upon the contract
2. true intention of the parties is not expressed
3. failure of the instrument to express the true
intent is due to mistake, fraud, inequitable
conduct, accident or relative simulation

Kinds of Formalities
1. For the validity of contracts
- oral donation of a movable requires the
simultaneous delivery of the thing or of
the
document representing the right donated;
if the
value of the personal property donated
exceeds
five thousand pesos, donation and
acceptance
shall be made in writing;
otherwise, donation is
VOID! [748]
- donation of an immovable must be in a
public
document; acceptance may be in the
same or
separate public document but must be
done
during the lifetime of the donor [749]
- the authority of the agent shall be in
writing
when the sale is of a piece of land or any
interest therein; otherwise, sale shall be
VOID!
[1874]
- amount of principal and interest must be
specified in writing; otherwise, contract of
antichresis shall be VOID! [2134]
- partnership may be constituted in any
form,
except where immovable property or real
rights
are contributed thereto, in which case a
public
instrument is necessary [1771]
- when there is an immovable property
which
an inventory is not made, contract of
partnership is VOID! [1773]

2. For the effectivity against third

persons
order that the
property
against third

- public document is required for the

convenience of the parties in
contract may be registered in the
registry to make effective as
persons [1357]
- must be in public instrument: [1358]
1. creation of real rights over
immovable property
2. renunciation of hereditary rights or
of those conjugal partnership of
gains
3. power to administer property
4. transfer of actions or rights

3. For the proving the existence of a

contract
- Statute of Frauds [1403]

Formal
Contracts

Real
Contracts

Unenforcea
ble

Others

Statute of
Frauds
Not binding
unless
formality is
observed

Not binding
until thing is
delivered

Binding even if
made orally

Not
enforceable
by action if
formality is
not
observed

Not
enforceable if
there is no
delivery

Not
enforceable
without
memorandum
in writing

Binding
even if
made
orally
Enforceabl
e by
action as
between
parties

When is reformation not allowed?

1. simple donations inter vivos
wherein no condition is imposed
2. wills
3. real agreement is void
Implied Ratification
- when one of the parties has brought an
action
to enforce the instrument, he
subsequently ask
for its reformation
[1367]

Who may ask for reformation?

1. injured party
prejudiced
simulation

person mistaken
person defrauded
victim of the inequity
victim of the accident
persons whose rights are
by the relative

2. heirs and assigns

Interpretation of Contracts
Intention
- deduced from the language employed
by the parties and the terms of the contract,
where unambiguous, are conclusive in the
absence of
averment and proof of mistake
- the question being not what the
intention
was but what is express in the
language used
- if the words appear to be contrary to
the
evident intention of the parties, the
intention
shall prevail [1370]
- contemporaneous and subsequent acts
of
the parties shall be principally
considered
[1371]
Interpreting
1. contains stipulations that admit several
meanings
is
[1373]

- understood as bearing that import which

most adequate to render it effectual

2. contains various stipulations that are

doubtful
given in
of

- interpreted together with others, and

the sense that may result from making all
them jointly [1374]

3. contains words with different significations

- understood in that most in keeping with

nature and object of the contract [1375]

the

Rescission in 1191 Breach

- principal

Rescission in 1381 Lesion

- subsidiary

action
action

4. contains ambiguities and omissions of

stipulations
- interpreted according to the usage or
of the place, that shall fill the omission of
stipulations ordinarily established [1375]

custom

5. with respect to the party who cause the

obscurity
- interpretation must not favor the party
causing the obscurity [1377]

6. absolutely impossible to settle doubts by the

rules
circumstances
are resolved in
interests

- when doubts refer to incidental

of gratuitous contracts, doubts
favor of the least transmission of

- when doubts refer to incidental

of onerous contracts, doubts are
favor of greatest reciprocity
- when doubts refer to the principal
consideration and the intent
cannot be
ascertained, the
contract is VOID! [1378]
circumstances
resolved in the

Defective Contracts
Rescissible, Voidable or Annullable, Unenforceable, Void or
Inexistent

Rescissible Contracts
- those contracts validly agreed upon
because
the essential elements exist but
due to injury or damage, the remedy of
rescission is granted in interest of equity
Rescission

remedy granted by law to the contracting

parties and sometimes even to third persons
in order to secure reparation of damages
caused them by a contract even if the contract
be valid, by means of the restoration of the
things to their condition prior to the
celebration of said contract

Kinds [1381]
1. entered into by guardians whenever the
wards whom they represent suffer lesion by
more than one-fourth of the value of the
thing
2. agreed upon in representation of absentees,
if the absentee suffers lesion by more than
one-fourth of the value of the thing
3. undertaken in fraud of creditors
4. things under litigation if they have been
entered into by the defendant without the
knowledge and approval of the litigants or of
competent judicial authority
5. all other contracts specially declared by law

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

1. contract is rescissible
2. party asking for rescission has no other
legal means
3. able to restore whatever he may be
obliged to restore
4. object of the contract is not in the
possession of a third person acting in
good faith
rescission
onlywithin
be tothe
the
5. actionshall
is brought
prescriptive
extent
to cover
damages
period
of four the
years

caused [1384]

Presumptions of fraud [1387]

1. Alienation by gratuitous title
with the remaining property not
sufficient to cover existing debts
2. Alienation by onerous title when
a judgement has already been
rendered or writ of attachment
has been issued
Badges of Fraud
1. consideration of the conveyance is
inadequate
2. transfer made by debtor after suit has
begun and is still pending
3. sale upon credit by an insolvent debtor
4. evidence of large indebtedness or
complete insolvency
5. transfer of all or nearly all of his property
6. transfer is made between father and son
7. failure of vendee to take exclusive
possession of all the property

- purchaser in bad faith who acquired

the
object alienated in fraud of creditor
must return the same if the sale is rescinded
[1388]
- the action to claim rescission must
commence within four years from the
fate the
contract was entered into,
except:
1. for persons under guardianship, period
shall begin from the termination of
incapacity
2. for absentees, from the time the domicile
is known

Voidable Contracts
- those contracts which possess all the
essential requisites of a valid contract
but one
of the parties is incapable of
giving consent, or
consent is vitiated by
mistake, violence,
intimidation, undue
influence or fraud
- these are valid and binding unless
annulled
by proper action in court
- once ratified, they become absolutely
valid [1390]
Annulment

remedy granted by law for reason of

public interest for the declaration of the
inefficacy of a contract based on a defect or
vice in the consent of one of the contracting
parties in order to restore them to their

original position before the contract was

executed

Kinds [1390]
1. one of the parties is incapable of giving
consent
2. consent is vitiated by mistake, violence,
intimidation, undue influence or fraud

Characteristics
1. their defect consists in the vitiation of
consent of one of the contracting parties
2. they are binding until they are annulled by a
competent court
3. they are susceptible of convalidation by
ratification or by prescription

Who may ask for annulment?

- the party whose consent was vitiated but
not the other

- action for annulment shall be brought

within four years [1391]:
- from the time the intimidation,
violence or undue influence
ceases
- from the discovery of the fraud
or
false cause
- from majority of minors or
removal
of disability of
incapacitated persons
- contracting parties shall restore to
each other the things which have been the
subject
matter of the contract with the
fruits and the price with its interest [1398]
- when the defect consists in the
incapacity of one of the parties, he is not
obliged to make
any restitution except
insofar as he has been
benefited by the
thing or price [1399]
- when the thing was lost through the
fault of
the party obliged to return the
same, he shall
return the fruits received
and the value of the thing at the time of the
loss [1400]
- action to annul is extinguished upon
ratification [1392]
- action to annul is extinguished when
the
thing is lost by the person who has the
right to file the action due to his fault [1401]
Ratification of a voidable contract
- cures the contracts entered into
1. contract is voidable
2. ratification is made with the
knowledge of the cause for nullity
3. at the time of the ratification, the
cause of the nullity already ceased to
exist
Express
- waiver of the right of annulment by
the party or his guardian
Implied
- an act which necessarily implies the
intention to waive nullity, which is
incompatible with the intention to
annul
- done with knowledge of the ground or
cause of nullity

that
[1396]

- ratification retroacts to the time

the contract was entered into

Unenforceable Contracts
- those that cannot be enforced in court
or
sued upon by reason of defects provided
by
law until and unless they are ratified
according
to law
1. those entered into in the name of
another by one without or acting in
excess of authority
2. those that do not comply with the
Statute of Frauds
3. those where both parties are
incapable of giving consent

Statute of Frauds
1. agreement not to be performed
within one year from the making
e.g. Katz and Yen are freshies. Katz
promised Yen that she will make all her
digests for her
come third year. If it is
not done in writing, it is
unenforceable.

2. promise to answer for the debt,

default or miscarriage of another
e.g. Katz owes Yen 10 pesos. Cuayo
promised to pay Yen in case Katz fails to
pay for the
same. The promise is
unenforceable if not made in writing.
However, Katz obligation to pay Yen is in
enforceable even if it is not in writing.

3. agreement in consideration of
marriage other than mutual
promise to marry
e.g. Mico purchased a house in
consideration of
Katz promise to marry
him after doing so. For
the promise to
be enforceable, it must be made
in
writing.

4. agreement for sale of goods at a

price not less than 500 pesos
e.g. Katz and Yen mutually promised to
buy and
sell the formers laptop for 1,000
pesos. This
contract must be in
writing to be enforceable
unless there is
delivery and partial or full
payment.

5. agreement for leasing for a longer

period than one year
e.g. Katz leased her house to Yen for 2
years. It
must be in writing to be
enforceable.

6. agreement for the sale of real

property or of an interest therein
e.g. Katz promised to sell a parcel of land
to
Yen. This must be in writing to be
enforceable.
However, if Katz has
partially or fully paid the
price, it is
already enforceable.

7. representation as to the credit of a

third person
e.g. Katz seeks a loan from Yen. Cuayo
told Yen
that Katz is capable of paying
her debts when in fact she is insolvent.
Due to Cuayos
representation, Yen
agreed to extend a loan to Katz. Cuayos
representation of Katz solvency
must
be in writing to be enforceable.

Ratification of an unenforceable contract

1. by failure to object to the
presentation of oral evidence to
prove the contract; this amounts to
a waiver
2. by acceptance of benefits under
the contract

3. those which contemplate an

impossible service
4. those where the intention of the
parties relative to the principal object
of the contract cannot be
ascertained
5. those expressly prohibited or
declared void by law

- when a public document is necessary

for
registration, the contract must first be
ratified
to be enforceable [1406]
was
transfer
unenforceable.

Inexistent Contracts
1 those which are absolutely
simulated or fictitious
2. those whose cause or object did
not exist at the time of the
transaction

e.g. Katz bought a land from Yen. The sale

made orally. Katz cannot compel Yen to
title to her as the contract is

- in a contract where both parties are

incapable of giving consent, the contract
is
unenforceable [1407]
- if the parent or guardian of one party
ratifies
the contract, the contract
becomes voidable
- if the parents or guardians of both
parties
ratify the contract, the contract
becomes valid
from inception
Void Contracts
- those which, because of certain defects
produce no effect at all
- considered inexistent from the very
beginning

Void

Voidable

Rescissible

Unenforcea
ble

Lack of
essential
elements
or illegality

Vitiated
consent or
incapacity
of one party

Lesion or
prejudice

Lack of formal
authority or
capacity of
both parties

Not cured
by
prescriptio
n

Cured by
prescription

Cured by
prescription

Not cured by
prescription

Cannot be
ratified

Can be
ratified

No need to
be ratified

Can be ratified

Not binding

Binding until
annulled

Binding
unless
rescinded

Binding unless
the defect used
as a defense

Characteristics
1. it cannot be ratified
2. right to set up the defense of illegality
cannot be waived
3. action or defense for declaration of nullity
does not prescribe
4. defense of illegality is available to third
persons whose interests are directly
affected
5. cannot give rise to a valid contract

Void Contracts [1409]

1. those whose cause, object or
purpose is contrary to law, morals,
good customs, public order or public
policy
- act constitutes a criminal offense
- act is unlawful but does not
constitute a
criminal offense
- purpose is illegal and money is paid or
property is delivered
- contract is illegal and one of the parties
is
incapable of giving consent
- agreement is not illegal per se but is
prohibited
- amount paid exceeds the maximum
fixed by
law
- by virtue of a contract a laborer
undertakes
to work longer than the
maximum number of
hours of work fixed by
law
- laborer agrees to accept a lower wage
than
that set by law
- illegal parts of a divisible contracts
- when contract is the direct result of a
previous
illegal contract

2. those whose object is outside the

commerce of men

Natural Obligations
- based on equity and natural law, not
positive
law, and do not grant right of
action to
enforce their performance [1423]
Natural Obligations

Civil Obligations

Based not on positive law but

on equity and natural law

Arise from law, contracts,

quasi-contracts, delicts and
quasi delicts

Do not grant right of action to

enforce performance

Give a right of action to

compel their performance

- when right to sue upon a civil

obligation has
lapsed by extinctive
prescription, the obligor
who voluntarily
performs the contract cannot
recover
what he has delivered or the value of
the
service he has rendered [1424]
years,
file the
Katz,
already

e.g. Katz owes Yen 10 pesos. After 10

the debt prescribed for failure of Yen to
necessary action to recover the same. If
even if she knew that the debt has
prescribed, paid Yen 10 pesos, she cannot
recover it anymore.

- when a third person pays the

prescribed debt
of the debtor, without the
latters knowledge
or against his will, he is
not obliged to
reimburse the former
[1425]
- when a minor between 18 and 21
years old
entered a contract without the

consent of the
parent or guardian, and
the contract was later
on annulled, and
the minor voluntarily returns
the whole
thing or price received, there is no right to
demand the thing or price returned
[1426]
- when a minor between 18 and 21 years
old
entered a contract without the consent
of the parent or guardian, voluntarily pays a
sum of money or delivers a fungible thing in
fulfillment of the obligation, there shall
be no right to recover the same from the
obligee
who has spent or consumed it in
good faith
[1427]
- if after the action to enforce a civil
obligation
has failed, the debtor still
voluntarily paid the creditor, the former
cannot demand the return of what he has
delivered [1428]
- when the heir voluntarily pays a debt
of the decedent exceeding the value of the
property
which he received by will or by
law of intestacy, payment is deemed valid
[1429]
- when even after a will is declared void,
an
heir pays a legacy in compliance with a
clause in the defective will, payment is
effective and irrevocable [1430]

- when a person who is not the owner of

a
thing sells and delivers it, and later the
seller acquires title thereto, the title by
operation of law passes to the buyer [1434]
- when a person in representation of
another
sells a thing, the former cannot
set up his own
title against the buyer
[1435]
- the lessee or bailee is estopped from
asserting title to the thing leased or
received
[1436]
- when in a contract between third
persons
concerning immovable property,
one of them is misled by a person with
respect to the
ownership or real right
over the real estate, the person who
misrepresented cannot assert
his legal
title or interest [1437]
- one who has allowed another to
assume
apparent ownership of personal
property for purpose of making any transfer
of it cannot, if
he received a pledge, set
up his own title to
defeat the pledge [1438]

Legacy reward to friends, servants, etc

Estoppel
- an admission or representation is
rendered
conclusive upon the person
making it, and
cannot be denied or
disproved by him as against the person relying
thereon [1431]
Technical Estoppel
1. by record or judgement
(res judicata)
2. by deed, mortgage or
bond
Equitable Estoppel
1. by express
representation
2. by silence
estoppel is3.effective
by laches only

as between
the
parties thereto or their successors in
interest
even if one party is a minor
[1439]
On the party estopped:
1. conduct amounting to false representation or
concealment of material facts
2. intent or expectation that this conduct shall
be acted upon by the other party
3. knowledge of the truth
On the party invoking estoppel:
1. lack of knowledge and means to ascertain the
truth
2. reliance upon the conduct of the party
estopped
3. action or failure to act so as to change his
position prejudicially

Trusts

the
the
person

- a fiduciary relationship with respect to

property, subjecting the person holding
same to the obligation of dealing with
property for the benefit of another

- separation of the legal title from the

beneficial title
- differs from a stipulation pour autrui in
that a trust refers to a specific property
- differs from a condition in that
accomplishment of the latter is not
enforceable, but performance of a trust
is
enforceable
- differs from guardianship in that the
trustee
has legal title to the property
Parties [1440]
1. Trustee
- one who hold the property in trust
Express
Trust
2. Trustor
- created -by
assent
of the parties
one
who establishes
or created a trust

3. Beneficiary

Implied Trust
- person for whose benefit property is
- created by law
held for
by the trustee
1. Resulting trust
- imposed by law to carry out the
actual or presumed intent of the
parties, where express trust fails
2. Constructive trust
- established by law regardless of
intention, in order to prevent
fraud,
oppression or unjust enrichment

Express trusts
- cannot be proved by parol
evidence
[1443]
- no particular words required as
long
as a trust is clearly intended
[1444]
Implied trusts
- may be proved by oral evidence
[1457]
- when property is sold, and 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; if
the person
to whom the title is
conveyed is a
child, legitimate or
illegitimate, 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 [1448]
- when a donation is made to a
person
but it appears that
although the legal
estate is
transmitted to the donee, he
nevertheless is either to have no
beneficial interest or only a part
thereof [1449]
- price of a sale of property is
loaned
or paid by one person for
the benefit
of another and the
conveyance is
made to the lender
or payor to secure
the payment of the
debt, a trust
arises by operation of law
in favor of
the person to whom the
money is
loaned or for whom its is
paid [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 for the benefit of the
true owner
[1451]
- if two or more persons agree to
purchase property and by
common
consent the legal title is
taken in the
name of one of them for
the benefit
of all, a trust is created by
force of
law in favor of the others
in
proportion to the interest
of each
[1452]
- when property is conveyed to a
person in reliance upon his

declared
intention to hold it for, or
transfer it to
another or the grantor,
there is an
implied trust in favor of
the person
whose benefit is
contemplated [1453]
- absolute conveyance of
property is
made in order to secure
the
performance of an
obligation of the
grantor toward the
grantee, a trust by
virtue of law is
established [1454]
- when any trustee, guardian or
other
person holding a fiduciary
relationship
uses trust funds for the
purchase of
property and causes the
conveyance
to be made to him or to a
third
person, a trust is
established by
operation of
law in favor of the person
to whom
the funds belong [1455]
- if property is acquired through
mistake or fraud, the person
obtaining
it is, by force of law,
considered a
trustee of an implied trust
for the
benefit of the person from
whom the
property comes [1456]