I. OBLIGATIONS 4.

There must be a direct relation of cause

and effect between the act or omission and
OBLIGATION the damage; and
 A juridical necessity to give, to do, or not to do 5. There is no pre-existing contractual
(Article 1156), one impressed with the relation between the parties.
character of enforceability.
NOTES:
 Requisites:  The same negligent act or omission causing
a. juridical or legal tie or efficient cause damage may produce civil liability arising
b. active subject (obligee or creditor) from crime under Art. 100 of the RPC or
c. passive subject (obligor or debtor) create an action for quasi-delict under Article
d. fact, prestation or service constituting the 2176.
object of the obligation  While it is true that in order that a person may
 Requisites: be liable for quasi-delicts, there must be no
i) it must be licit pre-existing contractual relationship between
ii) it must be possible, physically & the parties, yet, “the act that breaks the
juridically contract may also be a tort.” (Air France vs.
iii) it must be determinate or Carrascoso, 18 SCRA 155).
determinable
Nature of Obligations
Sources (Article 1157): 1. Personal Obligations - obligations to do
1. Law a. Positive – obligation to do
2. Contracts b. Negative – obligation not to do
3. Quasi-contracts 2. Real Obligations - obligations to give
4. Delicts a. Determinate or specific – object is
5. Quasi-delicts particularly designated or physically
segregated from all other of the same class
QUASI-CONTRACTS b. Generic – object is designated merely by
 Those juridical relations arising from lawful, its class or genus
voluntary and unilateral acts, by virtue of c. Limited generic thing – when the generic
which the parties become bound to each other, objects are confined to a particular class,
based on the principle that no one shall be e.g. an obligation to deliver one of my
unjustly enriched or benefited at the expense of horses (Tolentino, Volume IV, p. 91).
another.
PERSONAL vs. REAL RIGHT
Principal Kinds of Quasi-contracts: Personal Real
1. Negotiorum gestio - arises whenever a person 1. jus ad rem, a right 1. jus in re, a right
voluntarily takes charge of the agency or enforceable only enforceable against
management of the against a definite the whole world
business or property of another without any person or group of
power or authority from the latter. persons
2. Solutio indebiti - arises whenever a person 2. right pertaining to 2. right pertaining to
the person to demand a person over a
unduly delivers a thing from another, as a specific thing,
definite passive without a passive
through mistake to another who has no right to subject, the subject individually
demand it. fulfillment of a determined against
prestation to give, to whom such right may
QUASI-DELICTS do or not to do. be personally
 An act or omission by a person (tortfeasor) enforced
which causes damage to another giving rise to
an obligation to pay for the damage done, there RIGHTS OF A CREDITOR
being fault or negligence but there is no pre- Determinate Generic
existing contractual relation between the 1. compel specific 1. ask for
parties (Article 2176). performance performance of the
obligation
2. recover damages 2. ask that the
 Requisites:
in case of breach of obligation be
1. There must be an act or omission; the obligation, complied with at the
2. There must be fault or negligence; exclusive or in expense of the debtor
3. There must be damage caused to the addition to specific
plaintiff; performance
 3. entitlement to 3. recover damages in action for damages)
fruits, interests from case of breach of the 2. ask that what has
the time the obligation been poorly done be
obligation to deliver undone
arises. 3. recover damages
because of breach of
Principle of Balancing of Equities as Applied in the obligation
Actions for Specific Performance
 In decreeing specific performance, equity Cases where the remedy granted under Article
requires not only that the contract be just and 1168 is not available:
equitable in its provisions, but that the 1. Where the effects of the act which is
consequences of specific performance likewise forbidden, are definite in character, in which
be equitable and just. The general rule is that case, even if it is possible for the obligee to ask
this equitable relief will not be granted if, that the act be undone at the expense of the
under the circumstances of the case, the result obligor, consequences contrary to the object of
of the specific performance of the contract the obligation will have been produced which
would be harsh, inequitable, oppressive or are permanent in character
result in an unconscionable advantage to the 2. Where it would be physically or legally
plaintiff. The courts may adjust the rights of impossible to undo what has been undone
the parties in accordance with the because of the very nature of the act itself or
circumstances obtaining at the time of because of a provision of law, or because of
rendition of judgment, when these are conflicting rights of 3rd persons
significantly different from those existing at NOTE: In either case, the remedy is to ask for
the time of generation of those rights. damages.
(Agcaoili vs. GSIS, G.R. No. 30056, August 30,
1988) BREACH OF OBLIGATIONS
1. Voluntary - debtor, in the performance of the
OBLIGATIONS OF THE DEBTOR obligation, is guilty of:
Determinate Generic a. default (mora)
1. deliver the thing 1. deliver the thing b. fraud (dolo)
which he has obligated which is neither of c. negligence (culpa)
himself to give superior nor inferior d. contravention of the tenor of the
2. take care of the quality obligation
thing with the proper 2. pay damages in NOTE: debtor is liable for damages
diligence of a good case of breach of the
father of a family obligation by reason of 2. Involuntary - debtor is unable to comply with
3. deliver all delay, fraud,
accessions and negligence or
his obligation because of fortuitous event
accessories of the contravention of the NOTE: debtor is not liable for damages
thing even though they tenor thereof
may not have been DEFAULT or DELAY
mentioned  Non-fulfillment of the obligation with respect
4. pay damages in case to time
of breach of the  Requisites:
obligation by reason of 1. Obligation is demandable and already
delay, fraud, liquidated
negligence or
contravention of the
2. The debtor delays performance
tenor thereof 3. The creditor requires performance judicially or
extra-judicially

EFFECTS OF BREACH
Positive Personal Negative Personal
Obligations Obligations  3 Kinds:
The creditor can: If the obligor does what 1. Mora solvendi - delay of the debtor to perform
1. have the obligation has been forbidden him, his obligation. It may be:
performed or executed the creditor can:
a. Ex re – obligation is to give
at the expense of the 1. have it undone at the
obligor (except in cases expense of the obligor; b. Ex persona – obligation is to do
where the personal and 2. Mora accipiendi - delay of the creditor to
qualifications of the 2. ask for damages accept the delivery of the thing w/c is the
debtor are taken into object of the obligation
account in which case 3. Compensatio morae - delay of the parties or
the only remedy is an obligors in reciprocal obligation
 When incurred: with the circumstances of the persons, of the
General Rule: There must be a demand (judicial time and of the place
or extra-judicial) before delay may be incurred. NOTE: Negligence can be waived unless the
Exceptions: nature of the obligation or public policy requires
1. obligation or law expressly so declares extraordinary diligence as in common carrier.
2. time is of the essence of the contract
3. demand is useless as when obligor has Diligence Required
rendered beyond his power to perform 1. That agreed upon by the parties
4. there is acknowledgment of default 2. In the absence of stipulation, that required by
law in the particular case
NOTES: 3. If both the contract and law are silent,
 There can be delay only in positive obligations diligence of a good father of a family
(to give/to do). There can be no delay in
negative obligations (not to give/not to do). Concept of Diligence of Good Father of a Family
 In reciprocal obligations one party incurs in  That reasonable diligence which an ordinary
delay from the moment the other party fulfills prudent person would have done under the
his obligation, while he himself does not same circumstances
comply or is not ready to comply in a proper
manner with what is incumbent upon him. The Test of Negligence
general rule is that fulfillment by both parties
should be simultaneous except when different  The test of negligence can be determined by
dates for the performance of obligation is fixed this standard: If the defendant, in committing
by the parties. or causing the negligent act, had used
reasonable care and vigilance which a man of
 Demand is still necessary if their respective ordinary prudence would have employed under
obligations are to be performed on separate
the same situation, he is not guilty of
dates
negligence. Otherwise, he is guilty.
FRAUD
Doctrine of Res Ipsa Loquitur as Applied in
 Deliberate and intentional evasion of the Negligence Cases
fulfillment of an obligation
 The thing or transaction speaks for itself
NOTE: Future fraud cannot be waived because it  When the thing which caused injury, without
would result to illusory obligation. fault of the injured person, is under the
exclusive control of the defendant and the
Incidental Causal Fraud/dolo injury is such as in the ordinary course of
Fraud/dolo causante things does not occur if he having such control
incidente (Article 1338) use proper care, it affords reasonable evidence,
(Article 1170) in the absence of explanation from the
defendant, that the injury arose from
1. Present during the 1. Present during the defendant’s want of care (Africa vs. Caltex, 16
performance of a time of birth or SCRA 448 and Republic vs. Luzon
pre-existing obligation perfection of the Stevedoring, 21 SCRA 279).
obligation
FORTUITOUS EVENT
2. Purpose is to evade 2. Purpose is to secure
the normal fulfillment the consent of the other  An event which could not be foreseen or which
of the obligation to enter into a contract though foreseen was inevitable.

3. Results in the non- 3. Results in the  Requisites:

fulfillment or breach vitiation of consent 1. cause is independent of the will of the debtor
of the obligation 2. the event must be unforeseeable or
unavoidable
4. Gives rise to a right 4. Gives rise to a right
3. occurrence must be such as to render it
of the creditor to of an innocent party to
recover damages from annul the contract impossible for the debtor to fulfill his
the debtor obligation in a normal manner
4. debtor must be free from any participation in
NEGLIGENCE 5. the aggravation of the injury resulting to the
 Omission of that diligence which is required creditor (Lasam vs. Smith, 45 Phil. 657)
by the nature of the obligation and corresponds
 NOTE: It must not only be the proximate
cause but it must be the ONLY and SOLE
CAUSE.
GENERAL RULE: No liability in case of
fortuitous event.
EXCEPTIONS:
1 When expressly declared by law
NOTE: e.g. Article 552(2), 1165(3),
1268, 1942, 2147, 2148 and 2159 of the
Civil Code.
2 When expressly declared by stipulation or
contract
3 When the nature of the obligation requires
the assumption of risk
4 When the obligor is in default or has
promised to deliver the same thing to 2 or
more persons who do not have the same
interest [Article 1165(3)].
EFFECT OF FORTUITOUS EVENT
Determinate Generic Obligation
Obligation
obligation is obligation is not
extinguished extinguished based on
the rule that a genus
never perishes (genus
nunquam peruit)
PRINCIPLE UNDER ARTICLE 1176
 Before the presumption that a prior installment
had been paid may arise, the receipt must
specify the installment for which payment is
made.
 REMEDIES OF CREDITOR TO
PROTECT CREDIT:
1. Exhaustion of debtor’s property
2. Accion subrogatoria - to be subrogated to all
the rights and actions of the debtor save those
which are inherent in his person.
3. Accion pauliana - impugn all the acts w/c the
debtor may have done to defraud them.
NOTE: 2nd & 3rd remedies are subsidiary to the
first
GENERAL RULE: Rights acquired by virtue of
an obligation are transmissible in character
EXCEPTIONS:
1. When they are not transmissible by their
very nature e.g. purely personal right
2. When there is a stipulation of the parties
that they are not transmissible
3. Not transmissible by operation of law
PURE OBLIGATION
 One whose effectivity or extinguishment does
not depend upon the fulfillment or non-
fulfillment of a condition or upon the
expiration of a term or period and is
demandable at once.
CONDITIONAL OBLIGATION
 One whose effectivity is subordinated to the
fulfillment or non-fulfillment of a future AND
uncertain fact or event
Kinds of conditions:
1. Suspensive - fulfillment of the condition
results in the acquisition of rights arising out of
the obligation
2. Resolutory - fulfillment of the condition results
in the extinguishments of rights arising out of
the obligation
3. Potestative - fulfillment of the condition
depends upon the will of a party to the
obligation
4. Casual - fulfillment of the condition depends
upon chance and/or upon the will of a third
person
5. Mixed - fulfillment of the condition depends
partly upon chance and/or the will of a third
person
6. Possible - condition is capable of realization
according to nature, law, public policy and
good customs
7. Impossible - condition is not capable of
realization according to nature, law, public
policy and good customs
8. Positive - condition involves the performance
of an act
9. Negative - condition involves the omission of
an act
10. Divisible - condition is susceptible of partial
realization
11. Indivisible - condition is not susceptible of
partial realization
12. Conjunctive - where there are several
conditions, all of which must be realized
13. Alternative - where there are several
conditions but only one must be realized
Rule in Potestative Conditions
a. If the fulfillment of the potestative
condition depends upon the sole will of the
debtor, the condition as well as the
obligation itself is void. It renders the
obligation illusory. (Applicable only to a
suspensive condition and to an obligation
which depends for its perfection upon the
fulfillment of the potestative condition and
not to a pre-existing obligation.)
b. If the fulfillment depends exclusively upon
the will of the creditor, both the condition
and obligation is valid.
 NOTE: In case of simple potestative condition, 1. if fulfilled, 1. if fulfilled,
e.g. right of first refusal, such condition is valid. obligation arises or obligation is
becomes effective extinguished
Rule in Impossible Conditions 2. if not fulfilled, no
juridical relation is 2. if not fulfilled,
GENERAL RULE: They shall annul the
created juridical relation
obligation which depends upon them. 3. rights are not yet is consolidated
EXCEPTIONS: acquired, but there 3. rights are already
1. pre-existing obligation is hope or acquired, but
2. if obligation is divisible expectancy that they subject to the
3. in simple or renumeratory donations will soon be threat or danger
4. in testamentary dispositions acquired of extinction
5. in case of conditions not to do an impossible
thing
Effects of Loss, Deterioration and Improvement
Effects of Suspensive Condition in real obligations (during the pendency of the
1. Before fulfillment of the condition, the condition)
demandability as well as the acquisition or
effectivity of the rights arising from the 1. Loss
obligation is suspended a. without debtor’s fault - obligation is
2. After the fulfillment of the condition, the extinguished
obligation arises or becomes effective b. with debtor’s fault - debtor pays damages
3. The effects of a conditional obligation to give,
once the condition has been fulfilled, shall 2. Deterioration
retroact to the day of the constitution of the a. without debtor’s fault - impairment to be
obligation borne by the creditor
4. When the obligation imposes reciprocal b. with debtor’s fault - creditor may choose
prestations upon the parties, the fruits & between the rescission of the obligation
interests shall be deemed to have been and its fulfillment with indemnity for
mutually compensated damages in either case
5. If the obligation is unilateral, the debtor shall
appropriate the fruits & interests received, 3. Improvement
unless from the nature & circumstances it a. by the thing’s nature or by time -
should be inferred that the intention of the improvement shall inure to the benefit of
persons constituting the same was different the creditor
6. In obligations to do or not to do, the court shall b. at the debtor’s expense - debtor shall have
determine the retroactive effect or the no other right than that granted to a
conditions that has been complied with usufructuary

Constructive fulfillment of Suspensive NOTE: Applies only to determinate things

Condition
 The condition shall be deemed fulfilled when
the obligor actually prevented the obligee from
complying with the condition and such
prevention must have been voluntary and
willful in character.
Effects of Resolutory Condition
1. Before the fulfillment of the condition, the
right which the creditor has already acquired
by virtue of the obligation is subject to a threat
of extinction.
2. If condition is not fulfilled, rights are
consolidated; they become absolute.
3. Upon fulfillment of the condition, the parties
shall return to each other what they received
including the fruits
SUMMARY:
SUSPENSIVE RESOLUTORY
CONDITION CONDITION
A Thing is Lost when it:
1. perishes
2. goes out of commerce
3. disappears in such a way that its existence is
unknown or it cannot be recovered
RECIPROCAL OBLIGATIONS
Those which are created or established at the
same time, out of the same cause, and which result
in mutual relationships of creditor & debtor
between the parties
TACIT RESOLUTORY CONDITION
If one of the parties fails to comply with what is
incumbent upon him, there is a right on the part of
the other to rescind the obligation.
RIGHT TO RESCIND (ART 1191)
GENERAL RULE: The right to rescind needs
judicial approval.
 EXCEPTIONS: 3.exerts an influence 3. exerts an influence
1. If there is an express stipulation of upon the time of upon the very existence
automatic rescission demandability or of the obligation itself
2. When the debtor voluntarily returned the extinguishment of an
obligation
thing
4. does not have any 4. has retroactive effect
retroactive effect
NOTES: unless there is an
 Article 1191 refers to judicial rescission. It agreement to the
does not apply if there is an express stipulation contrary
to rescind, in which case such stipulation must 5. when it is left 5. when it is left
prevail. There is nothing in the law which exclusively to the exclusively to the will
prohibits the parties from entering into an will of the debtor, the of the debtor, the very
agreement that violation of the terms of the existence of the existence of the
obligation is not obligation is affected
contract would cause its cancellation without affected
court intervention. Said stipulation is in the
nature of facultative resolutory condition
GENERAL RULE: When a period is designated
(Angeles vs. Calasanz, 135 SCRA 323).
for the performance or fulfillment of an obligation,
 Rescission will be ordered only where the it is presumed to have been established for the
breach is substantial as to defeat the object of benefit of both creditor and debtor.
the parties in entering into the agreement. EXCEPTION: When it appears from the tenor of
 The injured party may choose between the obligation or other circumstances that the
fulfillment and rescission of the obligations, period has been established in favor of one or of
with the payment of damages in either case. the other.
These remedies are alternative, not cumulative.
However, should fulfillment become When court may fix period:
impossible, the injured party may also seek 1. if the obligation does not fix a period, but from
rescission. its nature and circumstances it can be inferred
 The right to rescind belongs exclusively to the that a period was intended by the parties
injured party. 2. if the duration of the period depends upon the
will of the debtor; and
OBLIGATION WITH A PERIOD 3. If the debtor binds himself when his means
 Those whose demandability or extinguishment permit him to do so (Article 1180)
is subject to the expiration of a term or period
 Requisites: NOTE: The only action that can be maintained is
1. future an action to ask the court to fix the duration of the
2. certain term or period. The fulfillment of the obligation
3. possible, legally and physically itself cannot be demanded until after the court has
fixed the period for compliance therewith, and such
CLASSIFICATION OF TERM OR PERIOD period has arrived. However, such technicality need
1. a. suspensive (ex die) – obligation becomes not be adhered to when a prior and separate action
demandable only upon arrival of a day certain would be a mere formality and would serve no
other purpose than to delay (Borromeo vs. CA, 47
b. resolutory (in diem) – arrival of day certain SCRA 65).
terminates the obligation
2. a. legal – granted by law Reason for Fixing the Period (ART 1197)
b. conventional – stipulated by parties  There can be no possibility of any breach of
c. judicial – fixed by courts contract or failure to perform the obligation
3. a. definite – date/time is know beforehand unless the period is fixed by courts.
b. indefinite – the date/time of day certain is
unknown When debtor loses right to make use of period:
(IGIVA)
TERM CONDITION 1. when after the obligation has been contracted,
1. interval of time 1. fact or event w/c is he becomes insolvent, unless he gives
w/c is future & future and uncertain guaranties or securities for the debt (the
certain insolvency need not be judicially declared)
2. interval of time 2. future and uncertain 2. when he does not furnish to the creditor the
w/c must necessarily fact or event w/c may or guaranties or securities he promised
come, although it may not happen 3. when by his own act he has impaired said
may not be known
when
guaranties or securities after their
establishment, and when through fortuitous
 event they disappear, unless he gives new the creditor should choose from among
ones equally satisfactory when debtor violates the remainder, or that which remains if
any undertaking, in consideration of which only 1 subsists
the creditor agreed to the period or b. If the loss of 1 of the things occurs
4. when debtor attempts to abscond through the fault of the debtor, the
creditor may claim any of those
FACULTATIVE ALTERNATIVE subsisting, or the price of that which,
Obligations Obligations through the fault of the former, has
disappeared with a right to damages
1. comprehends only 1. comprehends several c. If all the things are lost through the fault
one object or objects or prestations of the debtor, the choice by the creditor
prestation which is which are due but may be shall fall upon the price of any 1 of them,
due, but it may be complied with by the also with indemnity for damages
complied with by the delivery or performance
delivery of another of only one of them
object or JOINT AND SOLIDARY OBLIGATIONS
performance of GENERAL RULE: Obligation is presumed joint
another prestation in if there is concurrence of two or more debtors
substitution and/or creditors.
EXCEPTIONS:
2. fortuitous loss 2. fortuitous loss of all 1. when expressly stated that there is
extinguishes the prestations will solidarity
obligation extinguish the obligation 2. when the law requires solidarity
3. when the nature of the obligation requires
3. culpable loss 3. culpable loss of any
obliges the debtor to object due will give rise
solidarity
deliver substitute to liability to debtor
prestation without JOINT DIVISIBLE OBLIGATIONS
liability to debtor  Each creditor can demand for the payment of
his proportionate share of the credit, while
each debtor can be held liable only for the
4. choice pertains 4. choice may pertain to payment of his proportionate share of the debt.
only to debtor creditor or even third  A joint creditor cannot act in representation of
person the other creditors while a joint debtor cannot
be compelled to answer for the acts or liability
NOTES: of the other debtors.

 In alternative obligations, choice takes effect JOINT INDIVISIBLE OBLIGATIONS

only upon communication of the choice to the
other party and from such time the obligation
ceases to be alternative.
 The debtor cannot choose those prestations or
undertakings which are impossible, unlawful
or w/c could not have been the object of the
obligation.
EFFECT OF LOSS OF OBJECT OF
OBLIGATION:
1. If right of choice belongs to debtor
a. If through a fortuitous event - debtor
cannot be held liable for damages
b. If 1 or more but not all of the things are
lost or one or some but not all of the
prestations cannot be performed due to
the fault of the debtor, creditor cannot
hold the debtor liable for damages
because the debtor can still comply with
his obligation.
2. If right of choice belongs to the creditor
a. If 1 of the things is lost through a
fortuitous event, the debtor shall perform
the obligation by delivering that which
1. If there are 2 or more debtors, the fulfillment
of or compliance with the obligation requires
the concurrence of all the debtors, although
each for his own share. Consequently, the
obligation can be enforced only by proceeding
against all of the debtors.
2. If there are 2 or more creditors, the
concurrence or collective act of all the
creditors, although each for his own share, is
also necessary for the enforcement of the
obligation.
Effect of breach – If one of the joint debtors fails
to comply with his undertaking, the obligation can
no longer be fulfilled or performed. Consequently,
it is converted into one of indemnity for damages.
Innocent joint debtors shall not contribute to the
indemnity beyond their corresponding share of the
obligation.
Effect of insolvency of a debtor – If one of the
joint debtors should be insolvent, the others shall
not be liable for his share.
 INDIVISIBILITY SOLIDARITY damages are incurred by the other solidary
1. refers to the 1. refers to the legal tie creditors as a result of the substitution.
prestation which or vinculum juris & 4. If the novation is effected by subrogating a
constitutes the object consequently to the third person in the rights of the solidary
of the obligation subjects or parties of creditor responsible for the novation, the
the obligation relation between the other creditors not
2. plurality of subjects 2. plurality of subjects
substituted and the debtor or debtors is
is not required is indispensable
3. in case of breach, 3. when there is
maintained.
obligation is converted liability on the part of
into 1 of indemnity for the debtors because of Effect of Compensation and Confusion upon
damages because of the breach, the Solidary Obligation
breach, indivisibility solidarity among the 1. If the confusion or compensation is partial, the
of the obligation is debtors remains rules regarding application of payment shall
terminated apply. This is without prejudice to the right of
other creditors who have not caused the
confusion or compensation to be reimbursed
KINDS OF SOLIDARITY to the extent that their rights are diminished or
1. Active solidarity affected.
 solidarity of creditors 2. If the confusion or compensation is total, the
 each creditor is empowered to exercise against obligation is extinguished, what is left is the
the debtor not only the rights which correspond ensuing liability for reimbursement within
to him, but also all the rights which correspond each group:
to the other creditors, with the consequent a. The creditor causing the confusion or
obligation to render an accounting of his acts compensation is obliged to reimburse the
to such creditors other creditors
 creates a relationship of mutual agency among b. The debtors benefited by the
solidary creditors extinguishments of the obligation are
2. Passive solidarity obliged to reimburse the debtor who made
 solidarity of debtors the confusion or compensation possible.
 liability of each debtor for the payment of the
entire obligation, with the consequent right to Effect of Remission upon Solidary Obligation
demand reimbursement from the others for 1. If the remission covers the entire obligation,
their corresponding shares once payment has the obligation is totally extinguished and the
been made entire juridical relation among the debtors is
3. Mixed solidarity extinguished all together.
 solidarity among creditors and debtors 2. If the remission is for the benefit of one of the
Effect of Assignment by Solidary Creditor debtors and it covers his entire share in the
Without Consent of Others obligation, he is completely released from the
1. assignee is co-creditor – no violation of Article creditors but is still bound to his co-debtors.
1213 because there can be no invasion of the 3. If the remission is for the benefit of one of the
personal or confidential relationship debtors and it covers only a part of his share in
2. assignee is third person – co-creditors and the obligation, his character as a solidary
debtors are not bound by the assignment debtor is not affected.

Effect of Novation upon Solidary Obligation Effect of Payment by Solidary Debtor

1. If the novation is prejudicial, the solidary
creditor who effected the novation shall
reimburse the others for damages incurred by
them
2. If it is beneficial and the creditor who effected
the novation is able to secure performance of
the obligation, such creditor shall be liable to
the others for the share which corresponds to
them, not only in the obligation, but also in the
benefits
3. If the novation is effected by substituting
another person in place of the debtor, the
solidary creditor who effected the novation is
liable for the acts of the new debtor in case the
is deficiency in performance or in case
1. Whole or partial extinguishment of debt
2. Right to recover against co-debtor
3. Right to recover interest from time the
obligation becomes due
Effect of Loss or Impossibility of Performance
1. If it is not due to the fault of the solidary
debtors, the obligation is extinguished.
2. If the loss or impossibility is due to the fault of
one of the solidary debtors or due to a
fortuitous event after one of the solidary
debtors had already incurred in delay, the
obligation is converted into an obligation of
indemnity for damages but the solidary
character of the obligation remains.

Defenses available to a Solidary Debtor
1. Defenses derived from the very nature of the
obligation
2. Defenses personal to him or pertaining to his
own share
3. Defenses personal to the others, but only as
regards that part of the debt for w/c the latter
are responsible
DIVISIBLE OBLIGATIONS
 Those which have as their object a prestation
which is susceptible of partial performance
without the essence of obligation changed.
INDIVISIBLE OBLIGATIONS
 Prestation is not susceptible of partial
performance, otherwise, the essence of the
obligation will be changed
NOTES:
 Divisibility or indivisibility of the obligation
refers to the performance of the prestation and
not to the thing which is the object thereof.
 Intention of parties should be taken into
account to determine whether obligation is
divisible or not.
GENERAL RULE: The creditor cannot be
compelled partially to receive the prestation in
which the obligation consists; neither may the
debtor be required to make partial payments.
EXCEPTIONS:
1. When the obligation expressly stipulates
the contrary;
2. When the different prestations constituting
the objects of the obligation are subject to
different terms and conditions; and
3. When the obligation is in part liquidated
and in part unliquidated.
OBLIGATIONS WITH A PENAL CLAUSE
 One to which an accessory undertaking is
attached for the purpose of insuring its
performance by virtue of which the obligor is
bound to pay a stipulated indemnity or perform
a stipulated prestation in case of breach.
 Purpose of Penalty:
1. To insure the performance of the
obligation;
2. to liquidate the amount of damages to be
awarded to the injured party in case of
breach of the principal obligation
(compensatory); and
3. in certain exceptional cases, to punish the
obligor in case of breach of the principal
obligation (punitive).
GENERAL RULE: The penalty fixed by the
parties is a compensation or substitute for damages
in case of breach.
EXCEPTIONS:
1. when there is a stipulation to the contrary;
2. when the debtor is sued for refusal to pay
the agreed penalty; and
3. when debtor is guilty of fraud
NOTE: Article 1228 does not apply to these
exceptions; there must be proof of actual
damages.
NOTES:
 The debtor cannot exempt himself from the
performance of the principal obligation by
paying the stipulated penalty unless when the
right has been expressly reserved for him.
 The creditor cannot demand the fulfillment of
the principal obligation and the satisfaction of
the stipulated penalty at the same time unless
the right has been clearly granted him.
When penalty may be reduced
1. If the principal obligation has been partly
complied with;
2. If the principal obligation has been irregularly
complied with; and
3. If the penalty is iniquitous or unconscionable
even if there has been no performance.
MODES OF EXTINGUISHMENT OF
OBLIGATIONS (LFC3NARP2)
1. loss of the thing due
2. fulfillment of resolutory condition
3. compensation
4. condonation or remission of the debt
5. confusion or merger of rights of the creditor
and debtor
6. novation
7. annulment
8. rescission
9. prescription
10. payment or performance
Payment or Performance
 Means not only the delivery of money but also
the performance, in any other manner, of an
obligation.
Integrity of Payment
GENERAL RULE: A debt shall not be
understood to have been paid unless the thing or
service in which the obligation consists has been
completely delivered or rendered, as the case may
be.
EXCEPTIONS:
1. When the obligation has been substantially
performed in good faith;
2. When the obligee accepts performance,
knowing its incompleteness or irregularity &
w/out expressing any protest or objection;
3. When there is an express stipulation; and
4. When the debt is in part liquidated and in part
unliquidated.
Identity of Payment
 requires that the very thing, service or
forbearance, as the object of the prestation,
must be performed or observed
Persons who may pay the obligation:
1. the debtor himself or his legal representative
2. any third person
GENERAL RULE: Creditor is not bound to
accept payment or performance by a third person.
EXCEPTIONS:
1. when made by a third person who has an
interest in the fulfillment of the obligation;
2. when there is a stipulation to the contrary.
Rights of 3rd person who paid the obligation:
1. If payment was made with knowledge and
consent of the debtor:
a. can recover entire amount paid
b. can be subrogated to all the rights
of the creditor.
2. If payment was made without knowledge
or against the will of the debtor, he can
recover only insofar as the payment has
been beneficial to the debtor.
To whom payment must be made:
1. The person in whose favor the obligation has
been constituted;
2. His successor in interest; or
3. Any person authorized to receive it.
GENERAL RULE: If payment is made to a
person other than those enumerated, it shall not be
valid.
EXCEPTIONS:
1. Payment made to a 3rd person, provided
that it has redounded to the benefit of the
creditor. Such benefit to the creditor is
presumed in the following cases:
 If after the payment, the third person
acquires the creditor’s rights;
 If the creditor ratifies the payment to
the third person;
 If by the creditor’s conduct, the
debtor has been led to believe that
the third person had authority to
receive the payment.
2. Payment made to the possessor of the
credit, provided that it was made in good
faith.
Obligation to Deliver a Generic Thing
 If the quality and circumstances have not been
stated, the creditor cannot demand a thing of
superior quality; neither can the debtor deliver
a thing of inferior quality.
Rules in Monetary Obligations:
1. Payment in cash - must be made in the
currency stipulated; if it is not possible to
deliver such currency, then in the currency
which is legal tender in the Philippines.
2. Payment in check or other negotiable
instrument - not considered payment; not
considered legal tender and may be refused by
the creditor. It shall only produce the effect of
payment:
a. when it has been cashed or
b. when it has been impaired through the
fault of the creditor.
LEGAL TENDER
 Such currency which may be used for the
payment of all debts, whether private or public.
The kind of currency which a debtor can
legally compel a creditor to accept in payment
of a debt in money when tendered by the
debtor in the right amount.
 Legal tender of the Philippines would be all
notes and coins issued by the Central Bank.
 Section 52, R.A. No. 7653
1. 25c and above, legal tender up to P50
2. 10c and below, legal tender up to P20
Extraordinary inflation or deflation
 unusual or beyond the common fluctuation in
the value of currency, which the parties could
not have reasonably foreseen or which was
manifestly beyond their contemplation at the
time the obligation was established.
 Applies only to contractual obligations
 Requisites:
a. The decrease in the value of the currency
could not have been reasonably foreseen
by the parties or beyond their
contemplation at the time the obligation
was established ;
b. There must be a declaration of such
extraordinary inflation or
deflation by the Bangko Sentral. Without
such declaration, the creditors cannot
demand an increase, and debtors a
decrease, of what is due to or from them.
(Ramos vs. CA, 275 SCRA 167 and Mobil
Oil Phils. vs. CA, 180 SCRA 651)
Place of payment
1. Place stipulated by the parties. c. satisfaction of the money obligation of the
2. No stipulation and the obligation is to deliver a debtor
determinate thing, payment shall be made at
the place where the thing might be at the time c. Payment by Cession
the obligation was constituted.  Debtor abandons all of his property for the
3. In any other case, the payment shall be made at benefit of his creditors in order that from the
the domicile of the debtor. proceeds thereof, the latter may obtain
payment of their credits.
Special Forms of Payment:  Requisites:
a. Application of payment a. plurality of debts
b. Dation in Payment b. partial or relative insolvency of the debtor
c. Payment by Cession c. acceptance of the cession by the creditors
d. Tender of payment and Consignation
DATION IN PAYMENT BY
a. Application of Payment PAYMENT CESSION
 Designation of the debt to which the payment
must be applied when the debtor has several 1. one creditor 1. plurality of creditors
obligations of the same kind in favor of the
same creditor.
2. not necessarily in 2. debtor must be
 Requisites: state of financial partially or relatively
a. there must be only 1 debtor & only 1 difficulty insolvent
creditor;
b. there must be 2 or more debts of the same 3. thing delivered is 3. universality of
kind; considered as property of debtor is
c. all of the debts must be due; except: if equivalent of what is ceded
there’s stipulation to the contrary; or performance
application of payment is made by the
party for whose benefit the term has been 4. payment 4. merely releases
constituted; and extinguishes debtor for net proceeds
obligation to the of things ceded or
d. amount paid by the debtor must not be
extent of the value of assigned, unless there
sufficient to cover the total amount of all the thing delivered as is contrary intention
the debts. agreed upon, proved
or implied from the
GENERAL RULE: The right to designate the debt conduct of the
to which the payment shall be applied primarily creditor
belongs to the debtor.
EXCEPTION: If the debtor does not avail of such d. Tender of Payment and Consignation
right and he accepts from the creditor a receipt in Tender of Payment
which the application is made.  Manifestation of he debtor to the creditor of
his decision to comply immediately with his
Legal Application of Payment (ART1254) obligation.
1. If neither the debtor nor the creditor makes any  It is the preparatory act and extrajudicial in
application of payment, or if it cannot be character.
inferred from other circumstances, the debt
which is most onerous to the debtor, among Consignation
those which are due, shall be deemed to have  Deposit of the object of the obligation in a
been satisfied. competent court in accordance with the rules
2. If the debts due are of the same nature and prescribed by law, after the tender of payment
burden, payment shall be applied to all of them has been refused or because of circumstances
proportionately. which render direct payment to the creditor
impossible or inadvisable.
b. Dation in Payment (DACION EN PAGO)  It is the principal act and judicial in character.
 Delivery and transmission of ownership of a
thing by the debtor to the creditor as an  Special Requisites:
accepted equivalent of the performance of the a. The debt sought to be paid must be due;
obligation. b. There must be a valid and unconditional
 Requisites: tender of payment or any of the causes
a. existence of a money obligation stated by law for effective consignation
b. alienation to the creditor of a property by without previous tender of payment exists;
the debtor with the consent of the former
 c. The consignation of the thing due must
first be announced to the persons
interested in the fulfillment of the
obligation;
d. Consignation shall be made by depositing
the things due at the disposal of judicial
authority; and
e. The consignation having been made, the
interested parties shall also be notified
thereof.
 Effects of consignation:
1. If the creditor accepts the thing or amount
deposited without contesting the validity
or efficacy of the consignation, the
obligation is extinguished.
2. If the creditor contests the validity or
efficacy of the consignation or if the
creditor is not interested or unknown or is
absent, the result is a litigation. If the
debtor complied with all the requisites, the
obligation is extinguished.
GENERAL RULE: Consignation shall produce
effects of payment only if there is a valid tender of
payment.
EXCEPTIONS: (TIRAT or TRAIT)
1. creditor is absent or unknown, or does not
appear at the place of payment
2. creditor incapacitated to receive payment at the
time it is due
3. when two or more persons claim the right to
collect
4. when the title of the obligation has been lost
5. when without just cause creditor refuses to
give a receipt
NOTES:
 It is the consignation which constitutes a form
of payment and must follow, supplement or
complete the tender of payment in order to
discharge the obligation.
 A valid tender of payment has the effect of
exempting the debtor from payment of interest
and/or damages.
 If tender is made by means of a check, such
tender is valid because it is an exercise of a
right. Article 1249 is not applicable.
LOSS OF THE THING DUE
In Determinate Obligations to Give
GENERAL RULE: Obligation is extinguished.
 Requisites:
1. The thing which is lost is determinate;
2. The thing is lost without the fault of the
debtor; and
3. The thing is lost before the debtor has
incurred in delay.
EXCEPTIONS:
1. when by law, obligor is liable even for
fortuitous event;
2. when by stipulation, obligor is liable even
for fortuitous event;
3. when the nature of the obligation requires
the assumption of risk;
4. when the loss of the thing is due partly to
the fault of the debtor;
5. when the loss of the thing occurs after the
debtor incurred in delay;
6. when the debtor promised to deliver the
same thing to two or more persons who do
not have the same interest; and
7. when the debt of a certain and determinate
thing proceeds from a criminal offense
In Generic Obligations to Give
GENERAL RULE: Obligation is not extinguished
because the genus of a thing cannot perish.
EXCEPTION: In case of generic obligations
whose object is a particular class or group with
specific or determinate qualities (Limited Generic
Obligations)
In Obligations to Do
Obligation is extinguished when prestation
becomes legally or physically impossible.
Effect of Relative Impossibility or Doctrine of
Unforeseen Events (ART 1267)
 When the service has become difficult as to be
manifestly beyond the contemplation of the
parties, the obligor may also be released
therefrom, in whole or in part.
 Requisites:
1. The event or change in circumstances
could not have been foreseen at the time
of the execution of the contract;
2. It makes the performance of the contract
extremely difficult but not impossible;
3. The event must not be due to the act of
any of the parties; and
4. The contract is for a future prestation.
Principle of Subjective Impossibility
 When there is no physical or legal loss but the
thing object of the obligation belongs to
another, the performance by the debtor of the
obligation undoubtedly becomes impossible.
Failure of performance is imputable to the
debtor. Thus, the debtor must indemnify the
creditor for the damages suffered by the latter.
(Tolentino, Volume IV, p. 336)
Effect of Loss on Reciprocal Obligations
 First view (Tolentino, Volume IV, pp. 337- b. both debts must consist in money, or if the
338) – If an obligation is extinguished by the things due are fungibles, they must be of
loss of the thing or impossibility of the same kind & quality;
performance through fortuitous events, the c. both debts must be due;
counter-prestation is also extinguished. The d. both debts must be liquidated &
debtor is released from liability but he cannot demandable;
demand the prestation which has been e. there must be no retention or controversy
stipulated for his benefit. He who gives nothing commenced by 3rd persons over either of
has no reason to demand anything. the debts & communicated in due time to
the debtor; and
 Second View (JBL Reyes) – The loss or f. compensation must not be prohibited by
impossibility of performance must be due to law.
the fault of the debtor. In this case, the injured
party may ask for rescission under Article Compensation Confusion
1191 plus damages. If the loss or impossibility 1. two persons who 1. one person where
was due to a fortuitous event, the other party is are mutual debtors qualities of debtor and
still obliged to give the prestation due to the and creditors of each creditor are merged
other. other
2. there must be at 2. only one
CONDONATION OR REMISSION OF THE least two obligations obligation
DEBT
 An act of pure liberality by virtue of which the
obligee, without receiving any price or Compensation Payment
equivalent, renounces the enforcement of the 1. The requisites prescribe by law for
obligation, as a result of which it is compensation are different from those
extinguished in its entirety or in that part or prescribed by law for payment.
aspect of the same to which the remission 2. Takes effect by 2. Takes effect by act
refers. operation of law of the parties
 It is the gratuitous abandonment by the creditor 3. Capacity to give 3. Capacity to give
and to acquire is not and to acquire is
of his right.
necessary essential
 Requisites: 4. As a rule, it is 4. As a rule, complete
a. It must be gratuitous partial and indivisible
b. It must be accepted by the debtor
c. The obligation must be demandable

NOTE: Express condonation or remission must Compensation Counterclaim

comply with the formalities of donation.
1. Requires 2 debts 1. Not necessary
CONFUSION OR MERGER OF RIGHTS must consist in
 Merger of the characters of the creditor and the money or if
debtor in one and the same person by virtue of fungibles, same kind
which the obligation is extinguished. and quality
 Requisites:
2. Both debts must 2. Does not require
a. that the characters of creditor & debtor be liquidated that debts be
must be in the same person; liquidated
b. that it must take place in the person of
either the principal creditor or the 3. Need not be 3. Must be pleaded to
principal debtor; and pleaded be effectual
c. it must be complete & definite

COMPENSATION Kinds of Compensation

 Extinguishment in the concurrent amount of
the obligation of those persons who are
reciprocally debtors and creditors of each
other.
 Requisites:
a. there must be 2 parties, who, in their own
right, are principal creditors & principal
debtors of each other (except in case of
guarantor, Article 1280);
1. Legal – takes effect by operation of law
2. Voluntary – agreed upon by the parties
3. Judicial – takes effect by judicial decree
4. Facultative – when it can be claimed by
one of the parties who, however, has the
right to object to it
Debts not subject to Compensation:
1. debts arising from contracts of deposit
 2. debts arising from contracts of
commodatum
3. claims for support due by gratuitous title
4. obligations arising from criminal offenses
5. certain obligations in favor of government
NOTE: Taxes are not subject to set-off or legal
compensation because the government & taxpayers
are not mutually creditors & debtors of each other
(Francia vs. IAC, 162 SCRA 753).
Facultative Compensation
 This is compensation which can be set up only
at the option of a creditor, when legal
compensation cannot take place because of
want of some legal requisites for the benefit of
the creditor. The latter can renounce his right
to oppose the compensation and he himself can
set it up. It differs from conventional
compensation because it is unilateral while the
latter depends upon the agreement of both
parties. (Tolentino, Volume IV, p. 367)
consequently, there is no novation. If they
cannot stand together, there is incompatibility;
consequently, there is novation.
Forms of Substitution of Debtors:
1. Expromision - effected with the consent of the
creditor at the instance of the new debtor
even without the consent or even against
the will of the old debtor.
Requisites:
a. Initiative for substitution must emanate
from the new debtor
b. Consent of the creditor to the substitution
2. Delegacion - effected with the consent of the
creditor at the instance of the old debtor,
with the concurrence of the new debtor.
Requisites:
a. Initiative for substitution must emanate
from the old debtor
b. Consent of the new debtor
c. Acceptance by the creditor

NOVATION Effect of insolvency of new debtor

 Substitution or change of an obligation by
another, resulting in its extinguishment or
modification, either by changing its object or
principal conditions, or by substituting another
in place of the debtor, or by subrogating a third
person in the rights of the creditor.
 Requisites:
a. a previous valid obligation;
b. agreement of the parties to the new
obligation;
c. extinguishment of the old obligation; and
d. validity of the new obligation.
1. Expromision – the new debtor’s insolvency or
nonfulfillment of the obligation shall not
revive the original debtor’s liability to the
creditor whether the substitution is
effected with or without the knowledge or
against the will of the original debtor.
2. Delegacion – the creditor can sue the old
debtor only when the insolvency was prior
to the delegation and publicly known or
when the old debtor knew of such
insolvency at the time he delegated the
obligation.

Kinds: NOTE: A change in the incidental elements of, or

1. As to its essence an addition of such elements to an obligation,
a. Objective/Real - refers to the change unless otherwise expressed by the parties, will not
either in the cause, object or principal result in its extinguishment.
conditions of the obligations
b. Subjective/Personal - refers to the CONVENTIONAL ASSIGNMENT OF
substitution of the person of the debtor or SUBROGATION RIGHTS
to the subrogation of a 3rd person in the
rights of the creditor 1. governed by Arts. 1. governed by Arts.
c. Mixed 1300 to 1304 1624 to 1627
2. As to its form/constitution
a. Express - when it is declared in 2. debtor’s consent is 2. debtor’s consent is
required not required
unequivocal terms that the old obligation
is extinguished by a new one w/c 3. extinguishes the 3. transmission of right
substitutes the same. obligation and gives of the creditor to third
b. Implied - when the old & new obligation rise to a new one person without
are incompatible w/ each other on every modifying or
point. extinguishing the
obligation
Test of Incompatibility
 Whether or not the old and new obligations 4. defects and vices 4. defects and vices in
can stand together, each having its own in the old obligation the old obligation are
are cured not cured
independent existence. If they can stand
5. takes effect upon 5. as far as the debtor is
together, there is no incompatibility; moment of novation or concerned, takes effect
 subrogation upon notification
 Kinds of Subrogation
1. Conventional – takes place by agreement of
the parties; this kind of subrogation requires
the intervention and consent of 3 persons: the
original creditor, the new creditor and the
debtor.
2. Legal – takes place without agreement but by
operation of law because of certain acts
(Article 1302).
GENERAL RULE: Legal subrogation cannot be
presumed.
EXCEPTIONS:
1. Creditor pays another creditor who is
preferred, without debtor’s knowledge;
2. A third person not interested in the obligation
pays with the express or tacit approval of the
debtor; or
3. Even without debtor’s knowledge, a person
interested in the fulfillment of the obligation
pays without prejudice to the effects of
confusion as to the latter’s share.
II. CONTRACTS
CONTRACT
 A contract is a meeting of minds between two
persons whereby one binds himself, with
respect to the other, to give something or to
render some service (Article 1305).
 Elements
1. Essential – those without which there can be
no contract.
a. Consent
b. Object or Subject Matter
c. Cause or Consideration
2. Natural – those derived from the nature of the
contract and ordinarily accompany the same.
3. Accidental – those which exist only when the
parties expressly provide for them for the
purpose of limiting or modifying the normal
effects of the contract.
Nominate contracts
 Those which have their own distinctive
individuality and are regulated by special
provisions of law.
Innominate contracts
 Those which lack individuality and are not
regulated by special provisions of law.
 Regulated by the stipulations of the parties, by
the general provisions of the Civil Code on
obligations and contracts, by rule governing
the most analogous nominate contracts and by
the customs of the place.
 Kinds:
a. Do ut des - I give that you give
b. Do ut facias - I give that you do
c. Facio ut des - I do that you give
d. Facio ut facias - I do that you do
NOTE: According to some authorities. do ut
des in no longer an innominate contract. It has
already been given a name of its own, i.e.
barter or exchange (Article 1638).
Characteristics of Contracts: (ROMA)
1. Relativity (ART 1311)
2. Obligatory Force and Consensuality
(ART 1315)
3. Mutuality (ART 1308)
4. Autonomy (ART 1306)
Relativity
GENERAL RULE: Contracts take effect only
between parties, their assigns and heirs.
EXCEPTIONS:
1. Stipulation pour atrui - stipulation in favor
of a third person.
 Requisites:
a. the stipulation must be a part, not
the whole of the contract;
b. the contracting parties must have
clearly and deliberately conferred
a favor upon a third person, not a
mere incidental benefit or
interest;
c. the third person must have
communicated his acceptance to
the obligor before its revocation;
d. the favorable stipulation should
not be conditioned or
compensated by any kind of
obligation whatever; and
e. neither of the contracting parties
bears the legal representative or
authorization of the third person.
Test of Beneficial Stipulation – the fairest test to
determine whether the interest of a 3rd person in a
contract is a stipulation pour atrui or merely an
incidental interest is to rely upon the intention of
the parties as disclosed by their contract. Determine
whether the contracting parties desired to tender
him such an interest (Uy Tam vs. Leonard, 30 Phil.
471).
2. When a third person induces a party to
violate contract (ART1314)
 Requisites:
a. Existence of a valid contract;
b. knowledge of contract by third
person; and
c. interference by third person without
legal justification or excuse.
3. Third persons who come into possession
of the object of the contract creating real
rights
4. Contracts entered into in fraud of creditors

Mutuality
 The contract must bind both parties; its validity
or compliance must not be left to the will of
one of them. (ART 1308)
 The contract cannot have any stipulation
authorizing one of the contracting parties (a) to
determine whether or not the contract shall be
valid, or (b) to determine whether or not the
contract shall be fulfilled.
Autonomy
 The parties are free to stipulate anything they
deem convenient provided that they are not
contrary to law, morals, good customs, public
order and public policy. (ART 1306)
Consensuality
 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
consequences which, according to their nature
may be in keeping with good faith, usage and
law.
CONSENT
 Manifested by the concurrence of the offer and
acceptance upon the thing and the cause which
are to constitute the contract.
 Requisites:
a. Legal capacity of the contracting parties
b. Manifestation of the conformity of the
contracting parties
c. The parties’ conformity to the object,
cause, the terms and conditions of the
contract must be intelligent, spontaneous
and free from all vices of consent
d. The said conformity must be real and not
simulated or fictitious
Offer
 A proposal made by one party to another to
enter into a contract.
 It must be certain or definite, complete and
intentional.
NOTE: Offer/proposal may be withdrawn so long
as the offeror has no knowledge of acceptance by
offeree.
Acceptance
 Manifestation by the offeree of his assent to
the terms of the offer.
 It must me absolute.
 A qualified acceptance constitutes counter-
offer.
NOTE: Acceptance may be revoked before it
comes to the knowledge of the offeror.
Amplified Acceptance
 Under certain circumstances, a mere
amplification on the offer must be understood
as an acceptance of the original offer, plus a
new offer which is contained in the
amplification. (Tolentino, Volume IV, p. 452)
Rule on Complex offers
1. Offers are interrelated – contract is perfected if
all the offers are accepted.
2. Offers are not interrelated – single acceptance
of each offer results in a perfected contract
unless the offeror has made it clear that one is
dependent upon the other and acceptance of
both is necessary.
NOTES:
 Consensual contracts are perfected from the
moment there is a manifestation of
concurrence between the offer and the
acceptance regarding the object and the cause.
 Real contracts like deposit, pledge and
commodatum requires delivery of object for
perfection.
 Solemn contracts are those which requires
compliance with certain formalities prescribed
by law, such prescribed form being an
essential element (i.e., donation of real
property).
 An offer made inter praesentes must be
accepted IMMEDIATELY. If the parties
intended that there should be an express
acceptance, the contract will be perfected only
upon knowledge by the offeror of the express
acceptance by the offeree of the offer. An
acceptance which is not made in the manner
prescribed by the offeror is NOT EFFECTIVE
BUT A COUNTER-OFFER which the offeror
may accept or reject. (Malbarosa vs. CA, et al.,
G.R. # 125761, April 30, 2003)
 Contracts under the Civil Code generally
adhere to the Cognition Theory (contract is
perfected from the moment the acceptance
comes to the knowledge of the offeror), while
transactions under the Code of Commerce use
the Manifestation Theory (it is perfected
from the moment the acceptance is declared or
made).
PERSONS INCAPACITATED TO GIVE
CONSENT:
1. Minors
EXCEPTIONS:
 Contracts where the minor is estopped to
raise minority as a defense through his
own misrepresentation
 Contracts for necessaries
 Contracts by guardians or legal
representatives
  Voluntary fulfillment of a natural
obligation provided that the minor is
between 18-21 years of age
 Contracts of life, health or accident
insurance taken on the life of the minor
2. Insane or demented persons, unless the
contract was entered into during a lucid
interval
3. Deaf-mutes who do not know how to read and
write
Effect of Misrepresentation of Age by the Minor
 Misrepresentation by minors with regard to
their age when entering into a contract shall
bind them in the sense that they are estopped
subsequently from impugning the validity of
the contract on the ground of minority. It is
necessary that the misrepresentation must be
active (e.g. when minors specifically stated in
a contract that they were of age), not merely
constructive.
VICES OF CONSENT (VIMFU)
1. Violence - when in order to wrest consent,
serious or irresistible force is employed.
2. Intimidation - when 1 of the contracting
parties is compelled by a reasonable & well-
grounded fear of an imminent & grave evil
upon his person or property, or upon the
person or property of his spouse, descendants
or ascendants, to give his consent.
3. Mistake - should refer to the substance of the
thing which is the object of the contract, or to
those conditions which have principally
moved one or both parties to enter into the
contact.
 Must be mistake of fact and not of law,
except under Article 1334.
 Requisites under Article 1334:
a. Mistake must be with respect to the
legal effect of an agreement
b. Mistake must be mutual
c. Real purpose of the parties must have
been frustrated.
4. Fraud - when, through insidious words or
machinations of 1 of the contracting parties,
the other is induced to enter into a contract
which, without them, he would not have
agreed to.
5. Undue influence - when a person takes
improper advantage of his power over the will
of another, depriving the latter of a reasonable
freedom of choice.
Reluctant Consent
 A contract is valid even though one of the
parties entered into it against his wishes and
desires or even against his better judgment.
Contracts are also valid even though they are
entered into by one of the parties without hope
of advantage or profit. (Martinez vs. Hongkong
and Shanghai Bank, 15 Phil. 252)
Simulation of Contracts
1. Absolute – when the contracting parties do not
intend to be bound by the contract at all. Thus,
an absolutely simulated contract is VOID.
2. Relative – when the contracting parties conceal
their true agreement. A relatively simulate
contract binds the parties to their real
agreement, when it does not prejudice a 3rd
person and is not intended for any purpose
contrary to law, morals, good customs, public
order or public policy.
OBJECT
 The thing, right or service which is the subject
matter of the obligation arising from the
contract.
 Requisites:
a. It must be w/in the commerce of man
b. It must be licit or not contrary law, morals,
good customs, public order or public
policy
c. It must be possible
d. It must be determinate as to its kind
Things which Cannot be the Object of Contract
1. Things which are outside the commerce of
men
2. Intransmissible rights
3. Future inheritance, except in cases
expressly authorized by law
4. Services which are contrary to law,
morals, good customs, public order or
public policy
5. Impossible things or services
6. Objects which are not possible of
determination as to their kind
CAUSE
 The immediate, direct and most proximate
reason which explains and justifies the creation
of obligation.
 Requisites
a. Cause should be in existence at the time of
the celebration of the contract
b. Cause should be licit or lawful
c. Cause should be true
 Rules:
1. In onerous contracts, the cause is understood
to be, for each contracting party, the prestation
of promise of a thing or service by the other.
2. In remuneratory contracts, the service or
benefit w/c is remunerated.
3. In contracts of pure beneficence, the mere
liberality of the donor or benefactor.
4. In accessory contracts (mortgage or pledge),
the cause is identical with the cause of the
 principal contract, that is, the loan from which
it derives its life and existence.
CAUSE EFFECT
the contract confers no
1. Absence of cause right and produces no
legal effect
does not render the
2. Failure of cause contract void
the contract is null and
3. Illegality of cause void
the contract is void,
4. Falsity of cause unless the parties show
that there is another
cause which is true and
lawful
does not invalidate the
5. Lesion contract, unless (a)
there is fraud, mistake
or undue influence; or
(b) when the parties
intended a donation or
some other contract
FORM OF CONTRACTS
GENERAL RULE: Contracts shall be obligatory,
in whatever form they may have been entered into,
provided all the essential requisites for their
validity are present.
EXCEPTIONS:
1. When the law requires that a contract be in
some form in order that it may be valid
2. When the law requires that a contract be in
some form in order that it may be enforceable
NOTES:
 Parties may compel each other to comply with
the form required once the contract has been
perfected. (Article 1357)
 Contracts under Art 1358 which are required to
be in some specific form is only for the
convenience of parties and does not affect its
validity and enforceability as between them.
RA 8792 (E- COMMERCE ACT) provides that
the formal requirements to make contracts effective
as against third persons and to establish the
existence of a contract are deemed complied with
provided that the electronic document is unaltered
and can be authenticated as to be usable for future
reference.
REFORMATION OF INSTRUMENTS
 Requisites:
a. meeting of the minds to the contract
b. true intention is not expressed in the
instrument by reason of mistake, accident,
relative simulation, fraud, or inequitable
conduct
c. clear and convincing proof of mistake,
accident, relative simulation, fraud, or
inequitable conduct
Instances when there can be no reformation:
1. Simple unconditional donations inter
vivos;
2. Wills;
3. When the agreement is void;
When one of the parties has brought an action to
enforce the instrument, no subsequent reformation
can be asked.

COMPARATIVE TABLE OF DEFECTIVE CONTRACTS

VOID VOIDABLE RESCISSIBLE UNENFORCEABL

E

1. Defect is caused by Defect is caused by vice of Defect is caused by injury/ Defect is caused by lack
lack of essential consent damage either to one of the of form, authority, or
elements or illegality parties of to a 3rd person capacity of both parties
not cured by
prescription

2. Do not, as a general Valid and enforceable until Valid and enforceable until Cannot be enforced by a
rule produce any legal they are annulled by a they are rescinded by a proper action in court
effect competent court competent court

3. Action for the Action for annulment or Action for rescission may Corresponding action
declaration or nullity or defense of annulability prescribe for recovery, if there
inexistence or defense may prescribe was total or partial
of nullity or inexistence performance of the
does not prescribe unenforceable contract
under No. 1 or 3 of
Article 1403 may
prescribe

4. Not cured by Cured by prescription Cured by prescription Not cured by

prescription prescription

5. Cannot be ratified Can be ratified Need not be ratified Can be ratified

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

7. Assailed directly or Assailed directly or Assailed directly only Assailed directly or

collaterally collaterally collaterally
 non-performance of to rescind. Non-
RESCISSIBLE CONTRACTS one’s obligation/s or performance by the
 Contracts validly agreed upon but, by what is incumbent upon other party is not
reason of lesion or economic prejudice may him. important.
be rescinded in cases established by law. 3. It applies only to 3. It applies to both
reciprocal obligation unilateral and reciprocal
obligations.
What contracts are rescissible 4. Only a party to the 4. Even a 3rd person
1. those entered into by guardians where the contract may demand who is prejudiced by
ward suffers lesion of more than ¼ of the fulfillment or seek the the contract may
value of the things which are objects rescission of the demand the rescission
thereof; contract. of the contract.
5. Court may fix a 5. Court cannot grant
2. those agreed upon in representation of
period or grant extension of time for
absentees, if the latter suffer lesion by more extension of time for fulfillment of the
than ¼ of the value of the things which are the fulfillment of the obligation.
subject thereof; obligation.
3. those undertaken in fraud of creditors when 6. Its purpose is to 6. Its purpose is to seek
the latter cannot in any manner claim what cancel the contract. reparation for the
are due them; damage or injury
caused, thus allowing
4. those which refer to things under litigation partial rescission of the
if they have been entered into by the contract.
defendant without the knowledge and
approval of the litigants and the court; VOIDABLE CONTRACTS
5. all other contracts especially declared by  Those in which all of the essential elements
law to be subject to rescission; and for validity are present, although the
6. payments made in a state of insolvency on element of consent is vitiated either by lack
account of obligations not yet enforceable of capacity of one of the contracting parties
or by VIMFU.
 Requisites:
a. the contract must be rescissible What contracts are voidable
b. the party asking for rescission must 1. Those where one of the parties is incapable
have no other legal means of giving consent to a contract
c. to obtain reparation for the damages 2. Those where the consent is vitiated by
suffered by him mistake, violence, intimidation, undue
d. the person demanding rescission must influence or fraud
be able to return whatever he may be
obliged to restore if rescission is Causes of extinction of action to annul:
granted 1. PRESCRIPTION
e. the things w/c are the object of the  the action must be commenced within 4
contract must not have passed legally years from:
to the possession of a 3rd person acting a. the time the incapacity ends;
in good faith b. the time the violence, intimidation
f. the action for rescission must be or undue influence ends; or
brought w/in the prescriptive period of c. the time the mistake or fraud is
4 years discovered.
NOTE: Discovery of fraud must be
reckoned to have taken place from the time
BADGES OF FRAUD: the document was registered in the office of
1. Consideration of the conveyance is the register of deeds. Registration
inadequate or fictitious; constitutes constructive notice to the whole
2. Transfer was made by a debtor after a world. (Carantes vs. CA, 76 SCRA 514)
suit has been begun and while it is
pending against him; 2. RATIFICATION
3. Sale upon credit by an insolvent  Requisites:
debtor; a. there must be knowledge of the
4. Evidence of indebtedness or complete reason which renders the contract
insolvency voidable
5. Transfer of all his property by a debtor b. such reason must have ceased and
when he is financially embarrassed or c. the injured party must have
insolvent; executed an act which expressly or
6. Transfer made between father & son, impliedly conveys an intention to
where there is present any of the above waive his right
circumstances 3. By loss of the thing which is the object of
7. Failure of the vendee to take exclusive the contract through fraud or fault of the
possession of all the property person who is entitled to annul the contract.

Rescission in Article
1191
1. It is a principal action
retaliatory in character.
2. The only ground is
Rescission Proper in NOTE: If the object is lost through fortuitous
Article 1381 event, the contract can still be annulled, but the
1. It is a subsidiary person obliged to return the same can be held
remedy. liable only for the value of the thing at the time
2. There are 5 grounds of the loss, but without interest thereon.

UNENFORCEABLE CONTRACTS
 Those which cannot be enforced by proper
action in court unless they are ratified
What contracts are unenforceable
1. those entered into in the name of another by
one without or acting in excess of authority;
2. those where both parties are incapable of
giving consent; and
3. those which do not comply with the Statute
of Frauds
Agreements within the scope of the Statute of
Frauds (EXCLUSIVE LIST):
1. Agreements not to be performed within one
year from the making thereof;
2. Special promise to answer for the debt,
default or miscarriage of another;
NOTE: This does not refer to the original or
independent promise of the debtor to his
own creditor. It refers rather to a collateral
promise.
3. Agreement in consideration of marriage
other than a mutual promise to marry;
4. Agreement for the sale of goods, etc. at a
price not less than P500.00;
5. Contracts of lease for a period longer than
one year;
6. Agreements for the sale of real property or
interest therein; and
7. Representation as to the credit of a third
person.
NOTES:
 The contracts/agreements under the Statute
of Frauds require that the same be
evidenced by some note, memorandum or
writing, subscribed by the party charged or
by his agent, otherwise, the said contracts
shall be unenforceable.
 The statute of frauds applies only to
executory contracts, not to those that are
partially or completely fulfilled.
Ratification of contracts in violation of the
Statute of Frauds
1. Failure to object to the presentation of oral
evidence to prove such contracts
2. Acceptance of benefits under these
contracts
VOID CONTRACTS
 Those where all of the requisites of a
contract are present but the cause, object or
purpose is contrary to law, morals, good
customs, public order or public policy, or
contract itself is prohibited or declared void
by law.
What contracts are void
1. Those whose cause, object or purpose is
contrary to law, morals good customs,
public order or public policy;
2. Those whose object is outside the
commerce of men;
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; and
5. Those expressly prohibited or declared void
by law.
INEXISTENT CONTRACTS
 Those where one or some or all of the
requisites essential for the validity of a
contract are absolutely lacking.
What contracts are inexistent
1. Those which are absolutely simulated or
fictitious; and
2. Those whose cause or object did not exist
at the time of the transaction.
NOTE: The principle of In Pari Delicto is
applicable only to void contracts and not as to
inexistent contracts.
Principle of In Pari Delicto
GENERAL RULE: When the defect of a void
contract consists in the illegality of the cause or
object of the contract and both of the parties are
at fault or in pari delicto, the law refuses them
every remedy and leaves them where they are.
EXCEPTIONS:
1. Payment of usurious interest
2. Payment of money or delivery of
property for an illegal purpose, where
the party who paid or delivered
repudiates the contract before the
purpose has been accomplished, or
before any damage has been caused to
a 3rd person.
3. Payment of money or delivery of
property made by an incapacitated
person
4. Agreement or contract which is not
illegal per se & the prohibition is
designed for the protection of the
plaintiff
5. Payment of any amount in excess of
the maximum price of any article or
commodity fixed by law or regulation
by competent authority.
6. Contract whereby a laborer undertakes
to work longer than the maximum # of
hours fixed by law.
7. Contract whereby a laborer accepts a
wage lower than the minimum wage
fixed by law.
8. One who lost in gambling because of
fraudulent schemes practiced on him is
allowed to recover his losses [(Art.
315, 3 (b), RPC] even if gambling is a
prohibited one.
Rules when only one of the parties is at fault:
1. Executed Contracts:
a. Guilty party is barred from recovering
what he has given to the other party is
barred from recovering what he has
given to the other party by reason of
the contract.
b. Innocent party may demand for the
return for the return of what he has
given.
2. Executory Contracts - Neither of the
contracting parties can demand for the
fulfillment of any obligation from the
 contract nor may be compelled to comply afforded the opportunity to institute a
with such obligation suit
c. Lack of knowledge or notice on the
NATURAL OBLIGATIONS part of the defendant that the
 They are real obligations to which the law complainant would assert the right on
denies an action, but which the debtor may which he bases his suit
perform voluntarily. d. Injury to the defendant in the event
 It is patrimonial, and presupposes a relief is accorded tot the complainant,
prestation. or the suit in not held to be barred
 The binding tie of these obligations is in the
conscience of man, for under the law, they LACHES PRESCRIPTION
do not have the necessary efficacy to give
rise to an action. 1. concerned with 1. concerned with
effect of delay fact of delay
Examples of natural obligations enumerated
under the Civil Code: 2. question of inequity 2. question or matter of
1. Performance after the civil obligation has of permitting the claim time
prescribed; to be enforced
2. Reimbursement of a third person for a debt
that has prescribed;
3. Restitution by minor after annulment of 3. not statutory 3. statutory
contract;
4. Delivery by minor of money or fungible 4. applies in equity 4. applies at law
thing in fulfillment of obligation;
5. Performance after action to enforce civil 5. not based on a fixed 5. based on a fixed
obligation has failed; time time
6. Payment by heir of debt exceeding value of
property inherited; and
7. Payment of legacy after will have been
declared void.

ESTOPPEL
 A condition or state by virtue of which an
admission or representation is rendered
conclusive upon the person making it and
cannot be denied or disproved as against
the person relying thereon.
 Kinds:
1. Estoppel in Pais (by conduct)
a. Estoppel by silence
b. Estoppel by acceptance of benefits
2. Technical Estoppel
a. Estoppel by deed
b. Estoppel by record
c. Estoppel by judgment
d. Estoppel by laches

LACHES or “STALE DEMANDS”

 Failure or neglect, for an unreasonable and
unexplained length of time, to do that
which, by exercising due diligence, could
or should have been done earlier; it is
negligence or omission to assert a right
within reasonable time, warranting a
presumption that the party entitled to assert
it either has abandoned it or declined to
assert it.

 Elements:
a. Conduct on part of the defendant, or of
one under whom he claims, giving rise
to the situation of which complaint is
made and for which the complaint
seeks a remedy
b. Delay in asserting the complainant’s
rights, the complainant having
knowledge or notice, of the
defendant’s conduct and having been