Law On Obligations & Contracts: PH Laws Governing Obligations

1st SEMESTER (UST AMV Academic Yr 2019-2020) @edrian1011
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Law on Obligations & Contracts

Law on obligations
Obligation’s definition
- From Latin “obligare” (“to tie/bind”).
- The 1st provision of the Law on Obligations says that it is “...a juridical necessity to give,
to do, or not to do.” (Article 1156)
- PH laws governing obligations: Civil obligation - based on positive law
- Art1156-1304 of RA#386 (PH’s new Civil Code) Enforceable in the court (obligation not done=“sue-
able”)
- New Civil Code took effect on 08/30/1950 *unlike natural obligation (obligation not done=can’t
- No changes have occurred since then. sue)
Natural obligation = fr. natural law, not based on
positive law
Prescription
- If this period of time is over, you can’t sue anymore.
- Obligation becomes natural upon prescription’s expiration.
- Example: A vehicular accident leads to injury of victim (quasi-delict = fr. negligence).
- The victim only has 4 years left to sue the party at fault.
Essential elements that make an obligation civil

1. Passive subject
• Has duty.
• Debtor/obligor.
2. Active subject
• Has right to demand/sue.
• Creditor/obligee.
3. Legal tie
• Efficient cause, vinculum juris, or juridical tie.
• This is what binds the passive subject to the active subject.
• Obligation’s “source”
• It could be fr. law, contract, quasi-contract, delict, or quasi-delict. (Article 1157)
4. Object
• Prestation
• Obligation’s subject matter. To give = real obligation (re=thing)
To do = positive personal obligation
• “What is the obligation all about?” Not to do = negative personal obligation
• Which one of “...to give, to do, or not to do.”
Example:
A person has an income source, so he/she has a civil obligation.
1. Passive subject - The person him/herself
2. Active subject - Government (Department of Finance)
3. Legal tie - Law (National Internal Revenue Code of the Philippines)
4. Object - “To give” (by being taxed through the income tax system)
Sources of Obligation
I. Law
A. Law’s meaning
- A body or rules of action/conduct prescribed by the controlling authority, having
binding legal force, or that which must be obeyed by citizens subject to legal
consequences/sanctions. (Black’s Law Dictionary 6th Edition pp84)
- Rule of civil conduct prescribed by supreme power in the state, to command what is
right and to prohibit what is wrong. (Bouvier’s Law Dictionary, Vol. II,p1876)
Finalized on 12/12/2019 Page 1

- Principal source of obligations. Most obligations are derived from this.
B. Kinds of Law
1. State law
• Promulgated by the state.
1.1 Constitution
• Highest law of the land.
• Made by the state’s sovereign people.
1.2 Statutes
• Made by representatives elected by the sovereign people. (By congress in
presidential type gov’t, by parliament in parliamentary gov’t)
a. Civil Law
- Law on:
- Obligations & contracts
- Partnerships
- Sales
- Agency
- Credit transactions
b. Commercial Law
- Law on Private Corps. (BP blg68)
- Negotiable Instruments Law. (Act#2031)
c. Criminal Law
- What are the different crimes? What are the punishments for crimes?
d. Remedial Law (Procedural Law)
- In what court do you sue/ file a particular case?
- This includes rule of evidence.
2. Non-state law
• State is not the one promulgating it.
2.1 Divine Law
• Religion.
• Subject is sin vs. salvation.
2.2 Natural Law
• Sense of right vs. wrong.
• Inherent in all people.
2.3 Moral Law
• Norms of right vs. wrong.
• Varies in each communities and changes in time.
2.4 Physical Law
• Law of nature that cannot be violated.
• Some examples are gravity and buoyancy laws.
General principles/concepts of law

1. Ignorance of law isn’t an excuse (Ignorantia Legis Non Excusat)
• Art3 of New Civil Code: “Ignorance of the law excuses no one from compliance...”
• Presumption that everyone knows the law.
• No evidence is enough to be against this presumption.
• If this isn’t the case, everyone would use the alibi of not knowing to escape liability.
2. Obligations derives from law aren’t presumed. It is hard to disprove one’s knowledge
3. Law looks forward ONLY (Lex Prospicit Non Respicit) or the lack of it about the law
• Prospective effect of law: they affect things that happen only after their effectivity.

• Art4 of New Civil Code says that “laws shall have no retroactive effect, unless the
contrary is provided.”
• Example: A crime was committed in 2019; the court hearing for the said crime isn’t
done even by 2021; a new law was passed on 2021; the court hearing has already
concluded by 2022. -> the new law that was passed on 2021 could not be imposed on
the obligor being sued.
4. Constitution can judicially declare any statute as unconstitutional & void if the latter
violates the former.
• Example: The constitution gives people the freedom of speech; a law against that
freedom was passed; the concern should be passed on to the Supreme Court, and
they would declare that law unconstitutional.
Examples of obligations arising from law:

1. Obligation to pay income taxes.
2. Obligation to secure driver’s license.
3. Obligation to pay at least minimum wage.
4. Obligation to secure business permits.
Addt’l info: An employer’s obligation to pay wages to employees arises from a contract
(contract of employment), but the employer’s obligation to pay the CORRECT/MINIMUM
wage is the one that arises from the law.
II. Contract
A. Contract’s meaning
- Meeting of minds between 2 persons, where one binds self, w/ respect to the other, to
give something or to render service (art1305).
- Not limited to “papered agreements.”
- Most have no written form, for convenience.
- The notion that no paper means no contract, is not always right.
B. Kinds of contract
1. As to perfection (How it was created)
1.1 Consensual - perfected through consent only. (no written form, most contracts use
this form)
An example of this is transfer of ownership when buying a ball pen, driver/operator of public transportations being responsible for his/her
passengers, etc.
1.2 Formal - perfected through observation of formalities required by law. (written form,
fewer contracts use this form) Process of contract creation
An example of this is donation of land.
- one of the most complicated 1. Offer
- requirements: • Invitation to enter a contract
- Written agreement w/ donor’s signature 2. Offer acceptance
- Notary • Consensual
- Document of acceptance w/ donee’s signature • Contract is already formed once the offer is
- Not required if there is a last will/testament accepted
1.3 Real - perfected through delivery of the object

An example of this is contract of pledge in pawnshops
- surrender of one’s property like jewelries, gadgets, etc. for cash
2. As to independent existence
2.1 Principal - can exist independently of other contracts.
An example of this is contract of loan
2.2 Accessory - existence depends on another contract’s existence.

An example of this is contract of mortgage. (For it to exist, there should be a contract of loan)
Mortgage = security contract -> Secures that loan would be paid.
- If the loan isn’t paid, the mortgaged property would be sold so the sale proceeds would be the loan payment.
Symbiotic relationship of loan (can live w/o mortgage contract) & mortgage contract. (can’t live w/o loan)
3. As to existence of consideration
3.1 Onerous - for consideration.
Example/s of this are contract of sale and contract of barter
Contract of sale = buyer receives the property or goods; the buyer should give money equivalent to the property’s or goods’ value to
the seller.
Contract of barter = the parties involved giving property, for exchange of another property.
3.2 Gratuitous - w/o consideration.

An example of this is contract of donation.
Contract of donation = beneficiary receives something, but he/she has no obligation to give something in return.
3.3 Remunerative - consideration is in form of services.

Example/s of this are contract of employment and contract of transportation.
Contract of employment = employee renders his/her services so his/her employer would pay him/her salaries.
Contract of transportation = passenger pays fare so the operator/driver would bring him/her to the destination.
4. As to whether it has a name or designation

4.1 Nominate - has a specific designation which differentiates it from other contracts.
- its purpose can be determined by its name.
4.2 Innominate - has no special name to differentiate it from other contracts.
- it’s described by the obligation that arises from it.
Example/:
- Do ut facias (I give that you may do)
- Facio ut des (I do that you may give)
- Facio ut facias (I do that you may do)
*Do ut des (I give that you may give) isn’t innominate anymore because it has been named as “barter” already.
5. As to number of obligations created

5.1 Bilateral - both parties have obligations.
- most contracts are in this form.
Bilateral obligation is classified into two:
- Reciprocal = obligations done simultaneously.
- Non-reciprocal = not done simultaneously.
Example/s of this are contract of sale, transportation, and employment.

Contract of sale = seller should deliver the goods, buyer should pay.
*most are reciprocal = once paid, goods should be delivered already.
*exceptions: construction materials = if the buyer doesn’t have the equipment to transport such materials and the delivery truck of the
seller entity is available only the next day. (Buyer pays 1st before receiving any goods)
Contract of transportation = driver should drive safely to destination, passengers should pay fare. (Non-reciprocal)
*the passengers pay 1st before reaching the destination.
Contract of employment = worker should work, employer should pay wages. (Non-reciprocal)
5.2 Unilateral - only one party have an obligation.
An example of this is contract of loan.
Contract of loan = obliged party is the borrower only. (Only obligation of borrower = to pay)
6. As to existence of defect
6.1 Perfectly valid - no defect.
6.2 Defective - either imperfectly valid or void.*
6.2.1 Imperfectly Valid - defective but capable of producing legal effects.*
a. Rescissible - valid until rescinded (rescission). It has an economic defect.
*Not all economic defect results into a rescissible contract. -> lesion = incur loss in contract
* there must be a law backing it up. (If the law is silent, contract is still perfectly valid regardless of how much loss you incur)
Example:
A 15 y/o (minor-aged) person inherits land and you’re interested in buying the mentioned property.
*you shouldn’t buy it directly from the minor-aged person because that would lead into a voidable contract.
To buy it, you should go through the guardian.
Most loss the selling party can incur at most is Php250,000 (1/4 of Php1M value); if not > rescissible contract.
* if the 15 y/o person reaches legal age already he/she can avail for a rescission to reclaim
the property. He/she still has to repay the value.
If the sales price is Php1,000,000.00; the lowest price you can buy it is at Php750,000.00. (Still valid contract)

b. Voidable - valid until annulled. Its defect has to do with consent.

If the other party is minor-aged (less than 18y/o) they have no legal capacity. (Issue on consent)
*the minor-aged person, upon turning 18 y/o can avail annulment on the contract. (He/she can do it only w/in 4 yrs after he/
she turns 18 y/o)
Even if the other party is in his/her legal age, the contract is still voidable if the contract was done involuntarily.
*un-consented marriage -> can be subject to annulment (time allowance is 4 years after marriage)
c. Unenforceable - valid, but can’t be sued upon in court.

Both parties are incapacitated like 2 minor-aged people.
*they enter into an unrealistic imaginative contract of buying a celestial object. > They think it’s valid but it really is not.
6.2.2 Void - non-existing and can’t produce any effect. (No obligations)
- worst contract.
- invalid, even if there’s a papered contract, signatures, etc.
*listed from least defective to most defective.
General principles/concepts of contract

1. Three (3) essential elements:
• Consent
• Object (subject matter)
• Cause (consideration)
Example: buying a product.
Consent = when the offer to sell/buy was accepted by both parties, and they agree on what would be bought at what price.
Object = the product/s.
Cause = the cash paid for the product/s.
No consent
If the product is a stolen item; contract is void.
*there was no consent -> because the seller can’t give consent on what he/she doesn’t actually own.
*there really was no transfer of ownership so even if the buyer sells it to another person, the contract is still void.
*the actual owner can just seize the product from buyer even w/o paying buyer anything. > can also sue buyer for “fencing.”
(Fencing = one knows what he/she was buying was actually, in fact stolen.)
Exception = buying that stolen product through a commercial establishment, market, or fair. (Still perfectly valid)
Why?
When making the law of exception they chose the “lesser evil.”
- if there was no exception like this, transactions in the commercial setting would be affected and made unstable.
- law was made in the 1950s. (No clear statement/s for online commerce)
No object
Advance payment before receiving a product still makes a contract perfectly valid.
*for products that aren’t still in stock / being produced at the time of agreement.
*only if the product was actually delivered on the date/time agreed upon; otherwise not perfectly valid anymore.
Object = none at time of agreement / transaction.
Cause = money paid.
Consent = agreed price, accepts the offer to buy/sell.
2. Most contracts are consensual in form.

3. Void contract doesn’t exist and can’t produce any legal effect.
4. Contract = law between contracting parties, and must be complied with in good faith.
Examples of obligations arising from contract:

1. Contract of loan obliges debtor to pay debt.
2. Contract of sale obliges buyer to pay price.
3. Contract of lease obliges tenant to pay rent.
4. Contract of employment obliges employer to pay wages.
III. Quasi-contract
A. Quasi-contract’s meaning
- A judicial relationship arising from certain lawful, voluntary, and unilateral acts to the
end that no one shall be unjustly enriched/benefited at the expense of another.
(Art2142)
- “Quasi” = “as if.” “As if” only because consent is absent. (One of contract’s requisites)
B. Kinds of Quasi-contract
1. Negotiorium Gestio
• Voluntary management of another’s neglected property without the owner’s consent.
(Art2144)
Example of this is if a homeowner leaves his house w/o giving anyone consent to look after it and a fire breaks out in their area. Their
neighbor saved their house, but incurred expenses also. The homeowner should reimburse the neighbor.
2. Solution Indebiti (Mistake in the Payment)

• When the seller erroneously overpaid the buyer his change or when the taxpayer
mistakenly pays gov’t taxes which he is not obliged by law to pay. (Art2154)
Example of this is if a debtor pays his debt too early on the wrong knowledge that the debt is due already. Creditor can be obliged to
return the amount borrowed (principal) and interest to debtor, if the latter would request the former to do so. (More details on this
example on examples of obligations arising from quasi-contract. (Period = “Due date”)
3. Others
• Obligation to return a lost property. (Art2171)
• When during a calamity, property is saved from destruction by another person w/o
knowledge of the owner, the latter is bound to pay the former just compensation.
<
(Art2168) Owner’s house is burning. Neighbor saves it through using 2 fire extinguishers.
Neighbor should be compensated for the cost of the 2 fire extinguishers.
• Any person who is constrained to pay the taxes of another shall be entitled to
reimbursement from the latter. (Art2175)
General principles/concepts of quasi-contract

1. Its purpose is to prevent unjust enrichment.
2. For an obligation arising from quasi-contract to exist, the act done must be lawful,
voluntary, and unilateral.
An example of this is when an owner leaves his lot for years and then someone lives in its premises (informal settling) and takes care
of the lot (didn’t let anyone else live there, trims the grasses, etc.), the owner can make the informal settler leave without paying any
compensation.
*informal settling is not lawful.
Examples of obligations arising from quasi-contract:

1. Patient’s obligation to pay medical bills, even if he was brought in unconscious.
2. Gov’t’s obligation to refund overpaid taxes.
3. Obligation to return a lost property.
4. Obligation to refund the amount paid, together w/ its fruits/interest, by an obligor who
paid before arrival of the period of the said debt unaware of the said period or under
the belief that the obligation had become due and demandable already. (Art1195)
Example of this is if a debtor pays his debt too early on the wrong knowledge that the debt is due already. Creditor can be obliged to
return the amount borrowed (principal) and interest (accdg to legal rate of interest) to debtor, if the latter would request the former to
do so. (Period = “Due date”) *Solution Indebiti application
The creditor should inform the debtor, if applicable, that it’s too early for the debt payment; otherwise the creditor is obliged to return.
Why can debtor demand for interest?
- According to the law, the creditor is the party who doesn’t forget how much was borrowed, the due date of the debt, and who are
the borrower/s. However, the debtor may forget.
If the debtor knows the correct due date of the debt, but still pays early, the Solution Indebiti won’t be applicable anymore.
* not “sue-able” in court.
* the obligation to return any amount to the debtor would be just a natural obligation.
Addt’l info: damages -> fraud, negligence, contravention, legal delay.
IV. Delict
A. Delict’s meaning
- An act/omission punishable by law. (Art3, Revised Penal Code)
- Also called “felony” (in criminal law) or “crime.” (in general) (“Delict” [in civil law])
- Committing a crime would lead to having a civil liability (to pay damages to the victim)
and a criminal liability. (go to jail)

B. Kinds of delict
1. Mala en Se (Wrong by itself)
• Inherently wrong and still bad regardless if the law penalizing the act as crime, exists or
not. (Examples: murder, rape, robbery)
2. Mala Prohibita (Wrong because prohibited by law)

• It’s bad only because there is a law punishing it as a crime. (Examples: drinking liquor,
carrying firearm/s during election period, jaywalking, possession of unlicensed firearm)
General principles/concepts of delict

1. For delict to be an obligation’s source, there must be an overt act done and that act
must be punishable by law as a crime.
Example of this is if someone assists another person in committing suicide. The assisting person pushes the other from a high place
(w/ consent), but the pushed person survived the fall.
The pushed person won’t go to jail.
- Suicide is not a good thing. (overt act)
- However, the law doesn’t declare it as a crime.
The assisting person, however could go to jail.

- Mercy killing is an overt act.
- The law declares it as a crime. Guilty of “Assisting a person to commit suicide.” (Under the revised Penal Code)
2. Delict gives rise to civil and criminal obligations.

3. If an act is merely exempted by law from criminal & civil liability by an insane person or
a child under 9 y/o.
4. If the act is justified by law, there will be no criminal & civil liabilities.
Example of this is an act of self-defense that resulted into death of another party.
Requisites of self defense:

1. No provocation on your part
• You didn’t provoke the victim to attack you.
2. Commensurate to attack
• If the other party attacked w/ a non-lethal force (like hitting with a small sweeper), the “defender” shouldn’t respond w/ a stronger/
lethal force. (like firing a gun)
Defense of a relative
- Saving one’s parents/siblings.
- If the attacker was killed, “defender” wouldn’t be criminally liable.
- If it’s the saved person’s fault that the aggressor attacked him/her, the “defender” would still not be liable. However, the saved
person would be the one liable.
Examples of obligations arising from delict:

1. Thief’s obligation to return stolen property.
2. Criminal’s obligation to serve X years in jail.
V. Quasi-delict
A. Quasi-delict’s meaning
- Legal Wrong done through fault or negligence on or property independent of contract.
- Unintentional, unlike delict which is intentional.
- Can’t go to jail.
- Also known as “torts” in US law.
B. Kinds of quasi-delict
1. Single-tortfeasor
• Only one is liable.
• Examples: Customer buys an expired food from a store. The store is the only one liable
to pay damages to customer. Supplier isn’t liable.
• Customer buys bottled drink with glass shards inside. The manufacturer is the only
one who has liability. Store doesn’t have a liability.
2. Joint-tortfeasor
• More than 1 is liable.
• Example: do-er is a minor. Damages can be claimed from the minor and his/her
parents. Minors can possess assets because no law prohibits that. When they’re under
18 y/o; parents control these assets until they reach 18 y/o or older.
General principles/concepts of quasi-delict

1. Proximate cause doctrine
• Art2179: “No damages can be recovered if the immediate & proximate cause of the
victim’s injury is his very own negligence.”
Example: A naughty kid pokes dog (which was inside a cage) with stick multiple times and the dog bites the kid’s hand.
*the parents of the kid cannot claim damages from the dog owner.
2. Contributory negligence doctrine

• If the victim’s negligence is just a mere contributor to his injury, he can still recover
damages, although, at a reduced amount.
Example: There was a car driver/owner who was speeding. He runs a red light and he hits a jaywalker. (also negligent) The jaywalker
who was hit can claim damages from the driver, but it would be reduced because both of them were negligent.
3. Doctrine of last clear chance

• The one who has the last opportunity to prevent the harm done but fails to do so is the
one liable for damages.
Example: A jeepney and a car are traveling at the same road. The latter is traveling behind the former. The jeepney then abruptly
stops at a place that isn’t really a loading/unloading zone; then the car rear-ends the jeepney.
- The last chance is on the car owner (he was the one behind so he should’ve kept more distance), so he is liable.
- Jeepney driver’s negligence would lessen damages he can claim against the car driver.
4. If there’s a contract existing between the parties causing the injury and the injured
party, the source of obligation is contract.
5. Quasi-delict is also called culpa-aquiliana or civil negligence.
Examples of obligations arising from quasi-delict:

1. Gov’t’s obligation to pay damages to a passerby who fell into an open manhole.
Example: City of Manila vs. Teotico, L-23052, January 29, 1968.
- Citizens can sue a city government.
- The Supreme Court said: “The City of Manila, as a public corporation, has an obligation to maintain streets under safe conditions.”
2. Manufacturer’s obligation to pay damages to consumers injured by its defective
products.
Nature & effects of obligations (Art1163-1178)

I. Concomitant or accompanying obligations
A. Obligation to give
- Difference from “to do:” “to give” involves a “thing” or “object” that should be
transferred from one person to another. Thus, to pay or to deliver are obligations to
give, while to construct or to repair are obligations to do.
- Specific performance (suit to compel performance of obligation) is a legal remedy
for this obligation only.
- Constitutional prohibition against involuntary servitude. (“No person should be
compelled to do something against his will.”)
Example: If a borrower doesn’t want to pay, the one who lent money can use specific performance.
*the borrower would also be obliged to pay damages. (usually, the interest)
Specific performance can’t be used for “to do”

Example: A person hires a contractor to construct his house. (pakyawan style contract) The materials and all necessary stuff are
already in their possession and the construction starts, however, midway through the construction process, the contractor stops their
job unless the person would pay more because materials weren’t enough and the prices increased. They can’t sue the contractor to
compel them to continue the construction (constitutional prohibition against involuntary servitude), however; they can still claim for
damages after they hired another contractor. (The first contractor would be obliged to compensate the person for the costs incurred
for hiring another contractor.)

Object of obligation to give

1. Generic/Indeterminate
• Refers to a class/genus.
• Can’t be singled out w/ particularity.
• Can’t be destroyed & lost.
• Replaceable.
2. Specific/Determinate
• Refers to a definite class/genus member.
• Can be singled out.
• Can be destroyed & lost.
• Irreplaceable.
Example: A person goes to a subdivision and a manager tours him around the place. All the available houses look the same so when
the person bought a house, he haven’t chose which specific one yet. He already paid though, and said that even if he hasn’t chosen a
specific unit yet, he already owns one. He went away for a week, and the houses burnt down.
- Should subdivision/real estate developer replace the house? Yes, because the person bought a generic/indeterminate object.
(Can’t be destroyed)
However, if he chose a specific house/address to buy; the subdivision isn’t liable. This already involves a specific/determinate object.
(Can be destroyed)
Concomitant obligations to obligation to give if object is specific

1. To take care or to preserve the object prior to its delivery (Art1163)
1.a Standard of care required:
• As a rule: good father’s proper diligence.
• Exceptions:
• If law so provides. (extraordinary diligence of a very cautious person for common
carriers [highest standard of care])
For transportation operators/businesses.
- Whatever happens to the passenger, operator is considered negligent automatically. (Even if it’s the passenger’s fault) They can
still prove their innocence though.
• Parties stipulate another standard of care. (may be higher, or lower; but never
absolute exemption) -> both parties should agree.
1.b Rules & limitations:
• Diligence required depends on obligation’s nature, circumstances of person, time,
and place. (Art1173)
Is it a case of negligence if one drives a vehicle with defective headlights?
- Depends on circumstances of time.
- Driving in morning and an accident happens; case wouldn’t be based on the defective headlights. (Not negligence)
- Driving at night and an accident happens; case would be based on the defective headlights. (Negligence)
Is driving at a high speed a case of negligence?

- Depends on circumstances of place.
- Driving at freeway. (Not negligence) Driving slow there would be more dangerous (not going w/ flow of traffic)
- Driving at a small city road. (Negligence)
• If the diligence required is not observed due to fortuitous event, the obligor isn’t liable.
> accident
(Art1174)
Example: A delivery package was destroyed because of an accident. (where the one at fault isn’t the side of the delivery service
provider) The delivery service provider wouldn’t be liable.
• Parties may agree to lower/higher standard, but not to total/absolute exemption from
liability in case of negligence. Why? It’s against public policy.
2. To deliver its fruits from the time the obligation to deliver the principal thing arises
(Art1164)
2.a “Fruit” = any product of a thing or of a juridical relation.
2.b Kinds of fruits:
• Natural
• Spontaneous products of the soil & the young & other animal products.
• Arose w/o anyone doing anything.

• Wild trees, chicken eggs, young animals from normal breeding, etc.
• Industrial
• Produced by lands of any kind through cultivation or labor.
•
• Planted grafeted trees, young animals from artificial insemination, etc.
• Civil
• Derived by juridical relation’s virtue. Juridical relation are usually from contracts.
• Rentals, loan interests, etc.
Fruit formed before/after contract perfection.
- A seller & buyer are talking about puppies from a mother dog. (Principal)
- If the puppies were born (fruit formed) before contract perfection; buyer doesn’t own the fruits yet, so he should pay additional if
he wants the fruits too.
- If the puppies were born (fruit formed) after contract perfection; buyer owns the fruits already, so he doesn’t need to pay
additional if he wants the fruits too.
• Time when the obligation to deliver arises:
• “Delivery” = “tradicion” in law.
• This is what makes a person an owner of something. Contract doesn’t make
someone an owner.
Example:
A seller sells an object to buyer 1 (pays already, but haven’t received the object yet), but seller sells it to buyer 2 (pays & receives)
- contract only - contract & delivery
- actual owner; only if in
good faith that buyer 2
2.c Time when obligation to deliver arises doesn’t know that it’s
• Qualifications: already sold to buyer 1.
• If subject to a condition or period
• From time of fulfillment of condition or expiration of period.
• If sale contract
• From contract perfection.
• If obligation arose from law, quasi-contract, delict, or quasi-delict
• Determined by applicable law’s specific provisions.
2.d Personal right and real right
• PR = there is a definitive active & passive subject. It is enforceable against particular
person. (passive subject)
• RR = definitive active subject only. It is enforceable against the whole world. (all
persons)
3. To deliver its accessions and accessories even though they may not have been
mentioned (Art1166)
• Accessions = fruits of a thing or additions to/improvements upon thing. Thing could
work without it, but it isn’t ornamental.
• Accessories = things joined to another as an ornament or to make it complete.
Automobiles,
Accessions: air conditioning system
Accessories: essential parts like wheels & tires, headlights, engine, etc., and ornamental decals / emblems.
4. To deliver the thing itself

• Delivery is also known as “tradicion.”
• Ownership and other real rights (enforceable against the whole world) are acquired
and transmitted in consequences of certain contracts by tradicion or delivery.
• Agreement doesn’t affect ownership transfer.
5. To answer for damages in the event of fraud, negligence, delay, or contravention in any
manner of the tenor of the obligation (Art1170) [FNDC]
• Tenor = how contract was written.

Concomitant obligations to obligation to give if object is generic

1. To deliver a thing which is of the quality intended by the parties taking into
consideration the purpose of the obligation and other circumstances (Art1246)
• No delivery of fruits, regardless of when fruit was formed or contract was perfected.
Example:
A birthday celebrant orders 1000 servings of food (generic) from a restaurant.
*the food were delivered successfully but when it was eaten, the people got sick because the food was spoiled.
*the restaurant wasn’t able to meet their obligation due to bad quality of the food.
*the restaurant is liable to pay damages to those who got sick.
A customer orders one pack of leftovers from a restaurant (with right knowledge that what he/she was ordering could be not safe for
consumption) *may be for pet food, compost, etc.
* customer’s maid ate the food when she saw it and got sick.
* Restaurant wouldn’t be liable because they were able to meet the obligation (quality wasn’t intended to be very good) & it was the
customer’s fault (proximate cause doctrine)
2. To be liable for damages in case of fraud, negligence, or delay in the performance of

the obligation, or contravention of the tenor thereof. (FNDC)
3. To bear expenses of giving if he fails to give.

Example:
A retailer agrees with a supplier so the latter would supply the former with an agreed-upon amount of soda bottles on a date they also
agreed upon.
*if the supplier fails to supply the retailer the products, the retailer can go find another supplier.
*if the 2nd supplier’s price is more expensive, the 1st supplier could be made liable to pay for damages (damages equivalent to how
much more expensive the retailer spent to have the products)
B. Obligation to do
1. To do exactly what was agreed upon (not more, not less; but exactly)
2. To bear the expenses of doing the obligation if he fails to perform (Art1167)

Example: A person hires a contractor to construct his house. (pakyawan style contract) The materials and all necessary stuff are
already in their possession and the construction starts, however, midway through the construction process, the contractor stops their
job unless the person would pay more because materials weren’t enough and the prices increased. They can’t sue the contractor to
compel them to continue the construction (constitutional prohibition against involuntary servitude), however; they can still claim for
damages after they hired another contractor. (The first contractor would be obliged to compensate the person for the costs incurred
for hiring another contractor.)
3. To undo what was poorly done (Art1167)

Example: A homeowner asks a contractor to paint a room wall in the color white.
*the contractor fails to meet the demand, and uses a dark color.
*the contractor could be made liable to repaint the wall without any additional payment from the homeowner.
4. To pay damages in cause of fraud, negligence, delay, or contravention of tenor of

obligation (Art1170)
C. Obligation not to do
1. To abstain from doing the prohibited act
2. To pay damages in case of fraud, negligence, or contravention... (Art1170)

*no delay in obligation to do.
II. Instances when a party is liable to pay damages (Art1170) (FNDC)

A. Fraud (“Dolo”)
- Deliberate/intentional evasion of normal fulfillment of an obligation (De Leon)
- Voluntary/deliberate act to evade fulfillment of an obligation (Torres)

Kinds of fraud
1. As to manner of commission
1.1 Incidental Fraud (“Dolo Incidente”)
• Committed in obligation performance.
• Fraud was done after contract perfection.
• Doesn’t invalidate the contract.
• Less serious.
• Remedy: recover damages only.
Example:
A rice supplier in Bulacan has a frequent customer who asked for a rice supply amounting to 1000 50-kilogram sacks of rice.
*it would be delivered to the customer’s given address in Manila.
*during travel, the workers assigned to the delivery decided to steal some from the sacks of rice which reduced the amount of some
sacks down to 48 kilograms.
*when it arrives at the address of the customer, and the sacks were weighed; the customer found out that some of the sacks aren’t 50
kilograms anymore.
*the customer can claim for damages, but cannot annul the contract.
1.2 Causal Fraud (“Dolo Causante”)

• Committed in execution of contractual obligation. (Art1338)
• Fraud was done before contract perfection.
• Makes the contract voidable/defective.
• Vitiates consent. Most serious type of fraud.
Example:
• Remedies: annulment & damage recovery.
A woman was trying to sell her uncle a fake jewelry, w/o telling that fact. (Fraud done before contract of sale was perfected)
* woman sells it for Php5000 and their agreement is that within 2 months she still has the option of buying it back.
* The sale contract got perfected.
* Later on, the son of the uncle told him that it is actually fake and can be bought for much cheaper.
* Uncle can annul the contract and recover damages.
2. As to time of commission
2.1 Past Fraud
• already happened.
• Waiver of action is valid.
Example:
Neighbor#1 and #2 are in the barangay hall arguing about debt payment.
#1 borrowed from #2 but is now denying that fact. The brgy chairman recommends that they go to court but lender (#2) decides not to
sue anymore. (Waiver for action)
*if #2 changes his mind and wants to sue suddenly, he can’t do it anymore because the waive for action is valid.
2.2 Future Fraud

• Yet to happen.
• Waiver of action is void. (Art1171)
Example:
Person#1 and #2 enters into an agreement that #1 wouldn’t sue #2 (waiver for action) even if the latter would be fraudulent (like steal
from the goods being delivered, etc,) in doing the obligation that he will have.
*However, after that, #2 steals some goods and #1 changes his mind and wants to sue already. (He can still sue because the waiver
for action wasn’t valid in the first place)
Waiver for action = give up the right to sue in court. Used in reference to that right.
Difference from negligence

- Fraud (“Dolo”)
- Intentional/malicious.
- Waiver of action for future fraud = void.
- Clearly proved.
- Liability from this can’t be reduced.
- Negligence (“Culpa”)
- Unintentional/ without malice.
- Waiver of action for future negligence = valid.
- Presumed in case of breach of contract.
- Liability from this can be reduced.
General principles/concepts of fraud

1. Responsibility from this is demandable in all kinds of obligations. (Art1171)
2. Waiver of action for future fraud is void. (Art1171)
3. Fraud involves intent & dishonesty. (De Leon)
4. In “causal fraud,” injured party can annul and claim damages, but in “incidental fraud,”
injured party can only claim damages.
To be able to claim for damages, there should be:

1. Source of obligation to get damages (FNDC)
2. There must be injury/damage. Example:
A person was walking by a construction site without safety nets and a cement
3. Late performance. object almost hit him, but not hurting him.
* there was negligence, however there was no damage / injury. -> person cannot
sue the construction developer for damages.
B. Negligence (“Culpa”)
- Any voluntary act or omission, there being no malice, which prevents the normal
fulfillment of an obligation. (De Leon)
- Omission of that diligence which is required by the nature of the obligation &
corresponds with the circumstances of the person, of the time, & of the place.
Kinds of negligence
1. Contractual negligence (“Culpa Contractual”)
• Negligence in the fulfillment of a contract.
• Negligence is not a source of obligation, the contract is.
2. Civil negligence (“Culpa Aquiliana”)

• Negligence in doing or omitting an act independent of any contract.
• Obligation source.
• “Quasi-delict” or “torts.”
3. Criminal Negligence
• Negligence resulting in commission of a crime or delict.
• Results into Civil & Criminal Obligations.
Example: Driving under influence of a substance like alcohol -> accident -> driver goes to jail.
*reckless imprudence resulting to homicide/damages to property/multiple energy/etc.
Illustration of kinds of negligence

- There was a public passenger vehicle with a driver and a passenger inside.
- The driver was careless and an accident happened.
- The driver saw a child cross the road and tried to avoid hitting that child.
- The driver avoided the child but he crashed into a tree which resulted into injury of the passenger inside, and a pedestrian
outside the vehicle.
* Passenger-driver relationship is in a contract, so the former can sue the latter for contractual negligence. (Contract of transportation)
* Pedestrian-driver relationship isn’t in any contract, so the former can sue the latter for civil negligence, w/c can escalate into criminal
negligence.
General principles/concepts of negligence

1. Damages arising from negligence is recoverable in all kinds of obligations. (Art1172)
2. Waiver of action for future negligence is valid. (Except when nature of the obligation
requires exercise of extraordinary diligence like in cases of common carriers)
3. If negligence shows bad faith, it’s considered equivalent to fraud.
4. Contributory negligence reduces amount of damages recoverable by injured party.
5. Factors for determination if party is negligent or not:

• Obligation’s nature;
• Circumstances of person;
• Circumstances of place;
• Circumstances of time. (Art1173)
C. Legal delay (“Mora”/“Default”)

- Non-performance of the obligation w/c is already due despited creditor’s demand/s.
Kinds of legal delay

1. Mora Solvendi
• Delay on part of debtor. Damages is usually equivalent to the interest rate.
1.1 Mora Solvendi Ex Re (to give)
• Delay in giving/delivering of a thing.
1.2 Mora Solvendi Ex Persona (to do)
• Delay in obligation to do or perform personal service/s.
2. Mora Accipiendi
• Delay on part of debtor, like delay in accepting the delivery of the thing due.
Example:
The debtor who is already willing to pay the creditor agrees to meet up with the latter.
Debtor goes to place they agreed upon and stays in a hotel, buys food, and incurs other necessary expenses.
On the day they agreed upon, the creditor didn’t show up. (Legal delay)
The creditor should compensate debtor with amount equivalent to incurred costs/expenses.
3. Compensatio Morae
• Delay in reciprocal obligation.
• Delay of creditor cancels delay of debtor, & vice versa.
• No need for “demand.”
Example:
Bilateral obligations like contract of sale.
Buyer has an obligation to pay and seller has an obligation to give the goods/services being paid for.
*done simultaneously (reciprocal)
Buyer should receive the goods/services from the seller, once paid. If not = legal delay.
Seller should receive payment, from the buyer, once the goods/services were delivered. If not = legal delay.
Requisites for legal delay to exist

1. Non-performance of the obligation on time. (Ordinary Delay)
• Obligation already due and demandable.
2. Demand, either extrajudicially or judicially made by the creditor requiring debtor to
perform his obligation.
3. Obligation wasn’t done, despite of the demand.
General principles/concepts of legal delay

1. No legal delay in obligation not to do.
2. An obligor who delays the performance of his obligation to give shall be responsible for
any fortuitous event until he has effected the delivery of the determinate thing. Art1165
3. “Demand” not needed in the following situations to put obligor in legal/ordinary delay:
• Performance of parties undertaking in reciprocal obligations.
• Law says so.
Example:
Obligation to pay taxes.
- already given a deadline by law.
- Non-payment = automatically puts non-paying taxpayer in legal delay. (Should pay penalty.)
Obligation to contribute on time for contracts of partnerships
- If a partner didn’t contribute on the date he agreed/promised upon, he would be in legal delay.
- Principal of supposed contribution + interest + damages
• Uselessness of demand. (Object is specific)

• Time is of the essence.
Example:
Creditor lets debtor borrow an amount of money.
Creditor gives debtor Monday as the due date for payment,
Creditor says that if debtor doesn’t pay on Monday, there would be legal delay starting Tuesday. (Alr. incurring interest) debtor agrees.
A store owner (creditor) perfects a contract with a soft drink supplier (debtor) which involves the latter delivering a certain amount of
drinks to the former. The store owner was assured by the supplier that they can do the obligation on time that they agreed upon.
• Obligation so provides.
• (Art1169)
Effects of legal delay

1. Mora Solvendi
• Debtor is guilty of breach of obligation.
• Liable for interest or damages.
• Liable for a fortuitous event when obligation is to deliver a determinate thing.
2. Mora Accipiendi
• Creditor is guilty of breach of obligation.
• Liable for damages.
• Bears the risk of loss of thing due.
• Obligation to pay money = debtor isn’t liable for interest from time of creditor’s delay.
• Debtor may release self from obligation by the consignation of the thing or sum due.
Consignation
- Deposit the amount either in court or bank.
- Remedy if the creditor doesn’t want to accept debtor’s payment.
- Only useable when the creditor is the unjust party.
- Refusal of checks won’t make creditor unjust, but refusal of cash does.
Example situation when a creditor doesn’t want to accept payment of debtor

On rental houses;
Landlord won’t collect rental fees to make the tenant leave.
After 3 months of non-payment: landlord would sue tenant to make the latter leave.
*not paying is different from not accepting.
*remedy for this is depositing in bank account under landlord’s name. (consignation)
*if landlord sues, tenant would just show deposit slips/receipts to prove the landlord was the one on the unjust side.
3. Compensatio Morae
• Obligor’s delay cancels obligee’s. (Vice versa)
• Net result = no actionable default on part of both.
• Delay of one party followed by that of the other, liability of first infractor shall be
equitably tempered by the courts.
• Can’t determine w/c of the parties is guilty of delay = contract deemed extinguished &
each shall bear their own negligence.
D. Fortuitous event
- Event w/c can’t be foreseen or though foreseen, is inevitable.
- No liability if obligation wasn’t done because of this. (Subject to requisites &
exemptions)
Kinds of fortuitous events

1. As to manner of occurrence
1.1 Totally unexpected/unforeseen
• Earthquake, robbery, etc.
1.2 Expected/foreseen, but unpreventable/inevitable
• Volcanic eruptions, typhoon, etc.

2. As to its nature
2.1 Acts of Man = independent of obligor’s will, but not of other human wills.
• War, crime, etc.
2.2 Acts of God (Force Majuere) = totally independent of any human will.
• Natural calamities like tornadoes, typhoons, etc.
Requisites for exemption from liability due to fortuitous event

1. Free from any participation in aggravation of creditor’s injury. (Debtor has no
concurrent negligence.)
Example:
A maritime accident happens because of an underwater earthquake.
*earthquake situation doesn’t make the shipping line liable, but if there was a concurrent negligence (like overloading) they would still
be liable.
2. Independent of human will, or at least of debtor’s will.

Example:
Taxi driver and passenger.
- while traveling thieves stopped them, and stole from them. (Driver not involved in stealing) The driver isn’t liable.
- If, however, the driver and thieves are actually working together; the driver would be liable.
3. Renders it impossible for debtor to comply.

Example:
Taxi driver and passenger.
- A tree falls on the taxi and completely immobilizes it. The driver can’t comply with the obligation anymore, but won’t be liable.
- A tree falls but that just resulted into minor damages to the taxi (still runs, etc.), there is no excuse to not comply.
4. Event can’t be foreseen or if foreseen, is inevitable.
Instances where debtor remains liable although non-performance of obligation is due to

fortuitous event
1. Law so provides,
• FNDC (Art1170)
• Debtor promised to deliver the same thing to 2/more persons who don’t have the same
interest. (Art1165)
• Obligation arose from crime. (Art1260)
• Thing to be delivered is generic. (Art1263)
2. Agreement in writing or stipulation of the parties so provided.
Example:
Creditor and debtor agrees that the latter would be liable for damages even if the cause of those damages is a fortuitous event.
* that contract is valid.
* Diligence standard could be “upgraded” or “downgraded”
3. Nature of obligation requires assumption of risk.

Example:
An insurance company would still be liable to compensate insurance client if the client’s insured property would be destroyed by a
fortuitous event like a fire.
Different kinds of obligation and their legal effects

Principal classifications of obligations
I. As to whether they depend upon happening of the event
• “Event” in law classified into two by test of certainty.
• Period = must happen sooner/later at a date known beforehand or at undeterminable
time.
• certain to happen. (100% chance it’ll happen)
• Refers only to future events.
• If left to debtor’s will: Obligation to such period empowers court to fix its duration
(valid).
• No retroactive effects.
• Court may fix duration if:
• obligation doesn’t fix a period, but from its nature & circumstances it can be
inferred that a period was intended.
• When it’s dependent on debtor’s will.

• In every case, courts shall determine such period as may under the
circumstances that have been probably contemplated by the parties. Once fixed
by courts, they can’t change period anymore.
• Examples: “I’ll pay once I have the money,” “I oblige myself to pay ASAP.”
• Condition = uncertain event.
• Uncertain. (May or may not happen)
• Generally refers to future events, but may refer to past events unknown to the
parties.
• If left to debtor’s will: obligation subject to such condition is void.
• Has retroactive effects.
A patient’s relative says that he will pay the medical bills when the patient dies. (A period because all humans are bound to die)
Someone tells his friend that if the latter would die this week, he would support the latter’s children. (A condition because although all
humans are bound to die, the chance that his friend would die within the mentioned week is just a chance)
• Exception to the rule = “When debtor binds himself to pay when his means permit him
to do so, the obligation isn’t one with a condition, but one w/ a period.”
• The court is the one that’ll fix the period.
Illustration: a financially unstable person (debtor) borrows Php5000 from someone. (Creditor)
* Creditor told the debtor that he is only required to pay when he is capable already. The debtor agreed to this statement.
* After a few days, the debtor wins Php100M from the lottery. This means that he is already more than capable to pay his Php5K
debt.
* However, the creditor, legally speaking, cannot demand payment yet because it is with a period. (The court will be the one who
decides what/when the period is.)
* Creditor should go through the court to fix when the debt is to be paid by the debtor.
* If court fixes the period to a specific date; creditor can already demand collection from the debtor that day.
* If debtor won’t pay = he would be in legal delay.
1. Pure obligation
• W/o period, w/o condition.
• Immediately demandable anytime. Although it’s not the only obligation that is this way.
Example: a debtor writes a promissory note that says “I will pay Php10,000.” The debtor signed it too.
* it is valid and the creditor can demand the amount anytime because there is no period or event.
2. Conditional obligation
• Subject to a condition. (Uncertain event)
• Kind of condition determines the obligation’s effect/s.
Kinds of conditions determines obligation’s effect:
As to demandability
A. Suspensive condition
- Begins/creates the obligation subject to it.
- At time when obligation was agreed upon = obligation not existing yet.
- This condition materializes obligation subject to it. (Can only demand after the
condition occurs.)
- While the condition isn’t occurring yet, creditor can’t demand yet.
Friend#1 tells friend#2 that if the latter gets a job, he will receive Php10,000 as a reward from the former.
Condition = #2 gets a job.
* can only demand the Php10,000 after he gets a job.
- Void if it depends on debtor’s will (potestative) -> “I’ll pay if I so desire.”
- Void if impossible to perform -> “I’ll pay $1B if you construct 3-lvl bldg. w/in 24hrs.”
B. Resolutory condition
- Ends the obligation.
- Immediately demandable.
- Once the condition occurs, creditor can’t demand anymore.
Friend#1 tells friend#2 that the former will give the latter a monthly allowance of Php10,000, until #2 gets a job.
* once he gets a job, he can’t demand Php10,000 monthly allowance anymore.

As to source of performance
A. Potestative condition
- Depends solely on debtor’s will (void) or solely on creditor’s will. (valid)
On debtor’s will
- if debtor says that he will only pay if he so desires, the basis of his payment would be his pleasure to pay or not.
- May not pay at all that’s why it’s void.
On creditor’s will
- if debtor says that he will only pay when the creditor demands for the payment, the basis of his payment is the creditor’s decision.
- This one is valid.
B. Casual condition
- Upon chance or will of a 3rd party/person.
Person#1 says that he will give person#2 a certain amount of money 💰 , if the former would be able to win the lottery. (Chance)
Debtor tells the creditor that he will pay once their company (3rd party) gives their salaries already.
C. Mixed condition
- Partly upon chance, partly on will of a 3rd party/person.
Debtor says that he will pay the creditor once he wins the lottery (chance); and the PCSO (3rd party) remits him the winnings already.
As to possibility of performance
A. Possible condition
- Valid. Capable of fulfillment, legally & physically.
- “I’ll pay you if you want me too.” (Also a suspensive & potestative condition)
B. Impossible condition
- Void condition, void contract.
- “Not to do” an impossible condition (valid) -> condition not considered as agreed upon
by parties and obligation becomes pure obligation.
- Physically impossible.
- Unrealistic to do the condition.
- Person#1 will give person#2 Php1M, if the latter would give the former a unicorn.
- Legally impossible.
- If the obligation/contract is making debtor do something illegal like delivering illegal
drugs.
- Physically possible, but illegal.
As to manner of performance
A. Positive condition
- the performance of an act.
- Generally valid.
- “I’ll pay if you deliver to me the goods first.”
B. Negative condition
- omission of an act.
- “I’ll give $100K if you don’t marry before 25 y/o.”
3. Obligation w/ a period
• Subject to a period. (Future & certain event)
Example: a debtor writes a promissory note that says “I will pay Php10,000 on 03/15/2005.” The debtor signed it too.
* it is valid, but the creditor can’t demand the amount before 03/15 because there is a period.
Kinds of periods determines obligation’s effect:
As to demandability
A. Suspensive period
- Creates obligation subject to it.
- “I’ll pay 30 days after 10/01/2019.”
B. Resolutory period
- Ends the obligation.
- “I’ll support you until you’re 21 y/o.”
As to source
A. Legal period
- provided under law like tax payment deadlines.
B. Conventional/voluntary period
- When agreed by parties like “I’ll pay on 11/22/2019.”
- Convention = people coming to an agreement.
C. Judicial period
- Fixed by court.
Instances when law provides that court is the one that should fix period:
1. Debtor binds self to pay when he has the means to do so. (More about this on page 17, “exception to the rule...”)
2. If it could be inferred from the agreement that the parties intend a period, but not specified.
• Like debtor saying “I’ll pay as soon as possible.”
• “...as soon as possible” = infers a period, but not fixed on a certain date.
3. Period is potestative and dependent on debtor’s will.
• “I’ll pay when I’m able.” -> w/ a period to be fixed by court. (Valid)
• “I’ll pay when I want to.” -> w/ a potestative period and dependent on debtor’s will. (Valid & to be fixed by court)
• “I’ll pay if I want to.” -> w/ a potestative condition depending on debtor’s will. (Void)
As to definiteness
A. Definite period
- fixed, or known when it’ll come.
- “I’ll pay on 01/01/2020.”
B. Indefinite period
- not fixed, or unknown when it’ll come.
- “I’ll support you until you die.”
Effects of obligations w/ period

1. Benefit of the period - intended for both the debtor & creditor.
Debtor says he will pay debt to creditor on 01/01/2020.
* debtor is benefited because he can refuse early payment.
* creditor is benefited because he can refuse early payment of debtor.
* More practical if there’s interest involved. If there is no interest involved, refusal of payment would be just theoretical (by the book/
compliance w/ law)
Debtor says he will pay debt to creditor on or before 01/01/2020.
* debtor is the only one benefitted.
2. Exception to #1 (debtor loses right to make use of period; creditor can demand early)
• Disappearance of guaranty/security (mortgage/pledge) due to fortuitous event.
• Impairment of guaranty/security after the establishment due to debtor’s fault.
• If due to creditor’s fault, not applicable. (Like creditor crashing a pledged car)
• Impairment = depreciate in value.
• Violation of any undertaking in consideration of w/c creditor agreed to the period.
illustration:
creditor doesn’t want to lend money because debtor’s preferred date (period) of payment is too late for him;
debtor says he will fix the creditor’s car so the latter would let former borrow & pay at his preferred date; creditor agrees,
debtor doesn’t fix the car. -> this exception is applicable.
• Insolvency of debtor. (Insolvency when debtor’s liabilities > total assets)

• Non-furnishment of guaranty/security w/c debtor promised to give creditor.
• Didn’t give the pledged or mortgaged object to creditor.
• Attempt to abscond by debtor. (Abscond = hide/conceal/absent oneself w/ intent to
frustrate creditors’ just demands.)
If a debtor leaves the the country and unpaid debts w/o leaving any provisions (like leaving money to someone who could give those
amounts to creditor/s) and w/o coming back to the country on or before due dates.
* Mortgage/pledge secures payment of a loan.

* Debtor can’t pay loan = creditor can sell mortgaged or pledged object to obtain payment from loan that they lent.
* Mortgage = usually in banks. Debtor still have possession of the mortgaged object, but the “papers” are w/ the creditor.
* Pledge = usually in pawnshops. Creditor have the possession of the pledged object.

II. As to number of prestations due (distributive character)

• Distributive = 1 or 2/more prestations are due.
1. Alternative obligation
• Several prestations are due, but performing one is sufficient already.
• Right of choice belongs to debtor, but may be given to creditor or a 3rd party.
• Lost of prestation due to fortuitous event
• 1/more (not all) = obligation isn’t extinguished. Still an alternative obligation and D/C
can still choose from the remaining. (If D/C right of choice)
• all = obligation extinguished. (If D/C right of choice)
• one was left = becomes simple obligation. (If D/C right of choice)
• Lost of prestation due to debtor’s fault
• 1/more (not all) = D may choose from the remaining. (If D right of choice) *not liable*
• 1/more (not all) = C may (1) claim any of the subsisting w/o damage or (2) claim price
of lost prestation + indemnity for damages. (If C right of choice)
• all = C may claim value of last thing to disappear w/ indemnity for damages. (If D right
of choice)
• all = C may choose price of any of the lost prestations + indemnity for damages. (If C
right of choice)
• Lost of prestation due to creditor’s fault
• 1/more (not all) = D may (1) choose from remaining w/o damage or (2) rescind
contract + damages. (If D right of choice)
• 1/more (not all) = no effect; C may still choose from remaining or if only 1, it becomes
a simple obligation. (If C right of choice)
• all = obligation is extinguished. (If D/C right of choice)
“I promise to deliver to Yvonne, my only parrot, or my only mynah bird, or my only duck.” Signed by debtor.
- many prestations
- deliver one of three things/alternatives
- No condition or period; demandable anytime.
• Limitations on debtor’s right of choice

• He can’t compel creditor to accept part performance of one prestation and part of
another. (If one promised to deliver 1-kg of rice and corn, he can’t compel the creditor
to accept half-kilo rice and half-kilo corn)
• He can’t choose alternatives that are illegal, impossible, and not obligation’s object.
• Right of choice is lost when only one prestation is practicable.
2. Facultative obligation
• Only one is due, but debtor may substitute another.
• Right of choice belongs only to debtor.
• If thing was lost due to fortuitous event, obligation is extinguished.
• If thing intended as sub was lost due to debtor’s fault, debtor isn’t liable.
• Once substitution was done, debtor is liable on accnt of his delay, negli, or fraud.
“I promise to deliver to creditor a carabao, or in substitution, a cow on 10/01/2019.” Signed by debtor.
- 1 prestation due.
III. As to existence of several debtors and/or creditors (collective character)

• Collective obligation = 2/more debtor or 2/more creditors, or both.
• Passive collectibility = numerous passive subjects (debtor), one active subject.
(creditor)
• Active collectibility = numerous active subjects (creditor), one passive subject.
(debtor)
• Mixed collectibility = both active (creditor) & passive (debtor) subjects are numerous.

1. Joint obligation
• One where the whole obligation is paid or fulfilled proportionately by the different
debtors and/or demanded proportionately by different creditors.
• Debt paid or demanded = amount of debt ➗ how many debtors or creditors.
• Joint by agreement
• Mentioned in the agreement, and agreed upon by the parties.
“We promise to pay Chylsea (creditor) P100K jointly.” Signed Sandra & Alyssa (debtors). (Passive collectibility)
- The 2 debtors are liable to the creditor P50K each. ‘We’ implied joint-ness.
• Joint by law
• Law provision. ‘Pro-rata’
One example is on cases of partnerships. (Passive collectibility)
If the partnership incurred a contractual debt and it cannot pay.
* concept of partners’ unlimited liability would take place so that debt would be paid.
* How would the debt payment be allocated to the partners?
* It would be allocated to them proportionately. (Payment of each partner = Amount of debt ➗ how many partners there are.)
The case when this is not applicable in case of partnerships.

* if one of the partners’ neglect hurt someone, the hurt party can sue the partnership for damages, however;
* It isn’t proportionate anymore -> solidary obligation. All partners are solidarily liable.
• Joint by presumption
• if obligation is collective, and there’s nothing in the agreement itself, and nothing in
the law that provides if it’s joint or solidary, it is presumed to be joint.
“I promise to pay Mr. Masangcay, Ms. Jusi, Ms. Sy (creditors) P15,000 on 09/03/2019.” Signed Mr. Calaunan (debtor) (Active
collectibility)
- the 3 creditors can only collect P5K each from debtor.
2. Solidary obligation
• One where each 1 of the debtors is bound to render, and/or each 1 of the creditors has
a right to demand from any of the debtors the entire compliance w/ prestation.
• Accdg to law: if solidary creditors, each creditor should act in ways that are
advantageous to the other creditors.
• Debt paid or demanded = whole amount of debt from any of the debtors or by any of
the creditors.
“I promise to pay Ms. Ang (creditor) P15,000 on 09/03/2019.” Signed Mr. Ong, Mr. Calaunan (debtors) (passive collectibility)
- the creditor can collect P15K from any of the debtors. ‘I’ implied solidarity.
• Conventional solidarity (agreed upon by parties)
“We promise to pay Ms. Ang (creditor) P15,000 solidary on 09/03/2019.” Signed Mr. Ong, Mr. Calaunan (debtors) (passive
collectibility)
- the creditor can collect P15K from any of the debtors; “solidary” mentioned connotes a solidary undertaking agreed upon by parties.
“I promise to pay Marcelo and Calimag (creditors) P102 solidarily” signed Yorme (debtor) (active collectibility)
- debtor can pay whole amount to any of the creditors.
• Legal solidarity (imposed by law)
One example is on cases of partnerships. (Passive collectibility)
The case when this is not applicable in case of partnerships.
* if one of the partners’ neglect hurt someone, the hurt party can sue the partnership for damages, however;
* It isn’t proportionate anymore -> solidary obligation. All partners are solidarily liable.
Principals, accomplices, and accessories liability for damages arising from crime.
• Solidarity is imposed by obligation’s nature
“I promise to pay Ms. Bondad (creditor) P15,000 on 09/03/2019.” Signed Ms. Billedo, and Ms. Matalog. (debtors) (passive
collectibility)
- the creditor can demand P15K from any of the debtors; used “I” instead of “we.”
Mixed collectibility and mixed solidarity & joint

1. Both debtor & creditor side are joint
Creditor 1
Debtor 1 • 120K debt ➗ 2 debtors = 60K ➗ 3 creditors = 20K -> amount one creditor can obtain.
2. Debtor side is solidary, while creditor side is joint
Debt = 120K Creditor 2
• 120K ➗ 3 creditors = 40K -> amount one creditor can demand from debtors.
Debtor 2 3. Debtor side is joint, while creditor side is solidary
Creditor 3
• 120K➗ 2 debtors = 60K -> amount one debtor is liable to pay to creditors.
4. Both debtor & creditor side are solidary
• 120K -> amount creditors can demand from debtors.

IV. As to whether capable of partial performance or not

• How to determine if #1 or #2? depends on the parties’ purpose or intention.
1. Divisible obligations
• Capable of partial performance.
• “I’ll pay 50K in 5 equal annual installments...”
2. Indivisible obligations
• Not capable of partial performance.
• “I’ll pay 50K tomorrow”
Concept of joint indivisible obligation

“We promise to deliver a specific car worth P3M to Mr. Ford (creditor) tomorrow.” Signed
Mr. Toyota, Mr. Honda, Mr. Mitsubishi. (debtors)
* real obligation (“to give”)
* Obligation w/ a period (“tomorrow”)
* Not distributive obligation.
* Collective obligation (joint & passive) -> 3 debtors.
* Indivisible obligation (delivery of one whole specific object)
- if one debtor can’t do his share, obligation becomes an obligation to be paid in money.
- Creditor’s remedy is he would demand money from the debtors.
- Joint; each debtor would pay equally their proportionate share on the P3M,
- But for the one debtor that caused the breach of obligation, he would pay his
proportionate share on the P3M + damages.
If “I promise...” instead
* still a collective obligation, but solidary now. (Still passive -> 3 debtors)
- if one debtor can’t do his part; creditor can still demand the car from any of the 2
debtors.
V. As to existence of an undertaking to assume greater liability (penal clause)

• Penal clause = accessory undertaking attached to an obligation to assume greater
liability in case of breach.
1. Obligation w/o penal clause
2. Obligation w/ penal clause

• Purpose: to ensure performance of obligation and to substitute penalty for damages to
be paid.
• Penalty clause constitutes an obligation by itself although an accessory obligation. It
becomes demandable if principal obligation wasn’t done.
• A condition doesn’t constitute an obligation by itself, and isn’t demandable.
• “I promise to construct your house w/in 1 month and if I’m not able to do so, I’ll pay
P10K”
• Principal obligation = construct the house.
• Penal clause = P10K. If the loss incurred by creditor is more than this, creditor can’t
ask for more than 10K, unless damages in addition to penal clause is recoverable.
• When are damages in addition to penal clause recoverable?
• Stipulated by party.
• Debtor refuses penalty payment.
• Debtor guilty of fraud.

• When can court reduce penalty?

• Partial or irregular performance.
• Penalty is iniquitous or unconscionable. (Penalty’s amount is “too much”)
Governing principles
1. Proof of actual damages suffered by creditor is not necessary to enforce penalty.
2. Unless otherwise agreed upon, debtor can’t exempt self from performing obligation by
paying penalty.
• Penalty is substitute for damages, but not substitute for principal obligation unless
creditor allows it.
3. Nullity of penal clause doesn’t affect validity of principal obligation, but principal
obligation’s invalidity invalidates penal clause.
• Principal obligation is invalid then penal clause is invalid.
• “Deliver shabu (illegal principal, hence invalid), if not pay P10K (PC is invalid too)
• If penalty clause is invalid, it won’t make principal obligation invalid.
• Pledging an item in a pawnshop to borrow money (valid principal), but pawnshop said
they’d own it if loan not paid. (Invalid PC, but principal is still valid)
• Pawnshop can only own the pledged item if it hasn’t been bought after it going
through 2 auctions, wherein no one bought it.
Modes of obligation extinguishment

- situations or incidents w/c would terminate or end an obligation.
Different modes of extinguishing an obligation

A. Enumerated in law (Art1231) [mnemonics: PRC RAP MNLF]
1. Payment or performance
2. Remission or condonation
3. Compensation
4. Rescission -> lesion/economic defect or loss
5. Annulment -> consent
6. Prescription -> time
7. Merger or confusion
8. Novation -> object [real obligation]
9. Loss of specific thing due or impossibility of performance
10. Fulfillment of resolutory condition
B. Other modes
1. Death of a party if obligation is personal in character
2. Waiver
3. Arrival of resolutory period
4. Mutual dissent
5. Compromise
Meaning of each mode of extinguishing an obligation

1. Payment or performance
• Delivery or giving of money, but the performance of the obligation in any manner
whatsoever. Hence it’s synonymous to “performance.”
• Paying debt in cash or in kind.
Debtor owes P500 to creditor, but debtor gave his watch worth P600 as payment.
* the obligation is extinguished by payment.
• Gratuitous abandonment by creditor of his right. (Sanchez Roman)
• Have to be accepted by debtor that he won’t pay anymore, hence gratuitous.

Debtor owes creditor P200 due on 03/29, on that day creditor tells debtor not to pay anymore. Debtor thanks the creditor for that.
* obligation is extinguished.
3. Compensation (Legal & voluntary compensation)

• 2 persons, in their own right, are creditors & debtors of each other. (Art 1278)
• It’s sort of balancing (cum pondere- ‘to weigh together between 2 obligations: it
involves a figurative operation of weighing 2 obligations simultaneously in order to
extinguish them to the extent in w/c amt. of 1 is covered by the other. (4 Paras, Civil
Code of the Phil. pg422 1989 ed.) citing Manresa)
Kate (debtor) owes money from Liann (creditor), and Liann owes money from Kate. (Equal amounts) they decided not to pay
anymore, and the obligation is extinguished.
4. Rescission
• Relief to protect one of the parties or a 3rd person from all injury and damages, w/c the
contract may cause, to protect some preferential right (Aquino vs. Tanedo, 39 Phil.
517). Its a legal remedy intended to restore things back to their original conditions prior
to making of contract w/c is defective primarily because of lesion (economic injury).
Kirsten (debtor) owes Sam (creditor) P100K. To avoid payment, Kirsten transferred her properties to Emilio (3rd party). Kirsten
declared self insolvent. Sam finds out about the transfer, and rescinds the contract. Once the transfer is rescinded, Sam could have
Kirsten’s properties sold so that she could be paid out of its proceeds.
* obligation is extinguished by rescission.
5. Annulment
• Legal remedy whose purpose is to make a voidable contract void, and ineffective.
• Defect is about consent.
Mateo deceived Joshua into buying a fake gold ring for P10K. If Joshua found out about the fraud, he can have the sale annulled.
* obligation extinguished by annulment.
6. Prescription
• Extinguishment of obligation thru lapse of time.
• The law provides for a time limit w/in w/c a party can sue in court to enforce an
obligation. If the said party doesn’t sue w/in the period provided by law, he can no
longer sue because the obligation by then is already extinguished by prescription.
• Prescriptive periods.
• Written contract like loan = 10 yrs from time the right of action accrues. (Art1144)
• Verbal contract = 6 years
• Quasi-contract = 6 years
• Defamation = 1 year
• Obligation created by law = 10 years
• Example: A vehicular accident leads to injury of victim (quasi-delict = fr. negligence).
* The victim only has 4 years left to sue the party at fault
• Meeting in 1 and same person of qualities of creditor & debtor w/ respect to one &
same obligation. (Sanchez Roman). This will happen if the same person becomes
creditor & debtor at the same time over one and the same debt.
Christine issued a check as payment to creditor.
Creditor gave the check to David, who then gave the check to Jenjade, who then gave the check to Allana. Allana knows the debtor
personally and one day she borrowed money from Christine. She used the check to pay debt to Christine. The check is signed by the
latter, so technically she’d be just paid out with her own money.
* obligation in the check is extinguished.
Check isn’t a “money”

* can refuse it if it’s being used as a mode of payment.
* Once accepted though, obligation isn’t extinguished by payment.
* It would be extinguished by payment by the time it’s encashed at the bank.
* a check is an order of depositor to bank to pay to person whose name is on the check, or to anyone possessing the check (if there
was no name written on the check).

An old millionaire (creditor) contracted a relative/family painter (debtor) to paint his mansion.
* millionaire dies.
* millionaire intended that the mansion be inherited by the painter.
* Painter’s obligation to paint is extinguished by merger.
* If he paints, he’d just be painting his own mansion.
8. Novation
• Substitution or changes of an obligation by another, w/c extinguishes or modifies the
1st, either changing its object or principal condition, or subsisting another in place of
the debtor, or subrogating a 3rd person in rights of the creditor. (Manresa)
• Novation doesn’t totally extinguish the obligation because the 1st obligation is just
replaced by a new one.
Chylsea (debtor) asks for extension for her debt from Alyssa (creditor). Original payment date = 09/26/2019. New date = 10/01/2019.
* obligation to pay on 09/26 is extinguished and replaced by obligation to pay on 10/01.
Debtor assigns her brother (3rd party) to pay debt to creditor. Creditor allows it.
* obligation of original debtor is extinguished and replaced by obligation of 3rd party.
Customer ordered A/C unit at an appliance store.

* he cancels it, instead of buying A/C (1st obligation gone), he’d buy an electric fan instead. (Replacing obligation) *store’s obligation.
9. Lost of thing due or impossibility of performance

• This will happen if the specific thing is lost due to fortuitous event (debtor not liable), or
debtor’s fault (obligation to deliver specific thing is extinguished but he’s still liable to
pay damages).
Specific car dealer sold to buyer by dealer. Car was stolen before delivery. Car dealer’s obligation to deliver car is extinguished by lost
of thing due.
Athlete was contracted to run in a competition abroad one month from now. He was injured and have to rest for more than one month.
His obligation to run abroad is extinguished by impossibility of performance.

• This happens if certain event (condition) to w/c an obligation is subject to, happens
thereby extinguishing that obligation.
Friend#1 tells friend#2 that the former will give the latter a monthly allowance of Php10,000, until #2 gets a job.
* once he gets a job, he can’t demand Php10,000 monthly allowance anymore. (Obligation to give 10K is extinguished by fulfillment of
resolutory condition.)
Requisites of the modes of extinguishment of obligations

1. Payment
• The one paying must have free disposal of the thing due and must have capacity to
alienate it. (Art. 1239)
• Payer should have legal capacity.
• These are people w/o legal capacity (mnemonics = IDIUT)
• Insane person (mentally incapacitated) -> insane is classified into absolute insanity
and partial insanity. Exception: lucid interval.
• Defective (physically incapacitated) -> cannot communicate well, so exceptions are
if they can write or use sign language they’re still w/ legal capacity.
• Idiots, morons, imbeciles, other mentally retarded persons. (Incapacity on
intelligence)
• Unemancipated minor -> less than 18 y/o. Subj to parental authority.
Emancipated = older than 18 and/or not subj to parental authority.
emancipated minor = less than 18 y/o but not subject to parental authority.
* if 2 parents allow.
* law about this isn’t being used because of our “sensitive” culture.
* dead written law.
• Those disqualified by other laws
• The 1 being paid must be the person in whose favor the obligation has been
constituted (meaning the creditor or obligee) or his successor in his interest, or any
person authorized to receive it. (Art. 1240)
• The one being paid must have capacity to administer or manage his property. (Art.
1241)
• Exceptions: (Art. 1241)
• If person being paid kept the thing delivered.
• Or insofar as the payment has been beneficial to him.
• Payment must be complete. (Art. 1233)
• Exceptions:
• In case there is substantial compliance in good faith of the obligation, the obligor may
recover less damages suffered by obligee. (Art. 1234)
• When obligee accepts the performance, knowing its incompleteness or irregularity,
and w/o expressing any protest or objection. (Art. 1235)
*payment in good faith to any person in possession of the credit shall release the debtor.
(Art. 1241)
• Must be gratuitous. (free or w/o consideration; a gift)
• Acceptance by obligor/debtor. (Example: Creditor: no need to pay. Debtor: thank you.)
• Parties should have capacity. (Not unemancipated minors, insane, demented, etc.)
• Must not impair legitimate of the compulsory heirs. (Not inofficious)
Legitime = portion of property; inheritance from a decedent parent; more important in taxation purposes; law’s reservation.
At moment of death -> properties are inherited, automatically. *decedent = “thing;” not human & in law ‘non-human’ can’t own assets.
Illustration:
Parent 1 and Parent 2 (married) has two children.

* parent 1 dies -> the one who would inherit automatically (compulsory heirs) are the parent 2 and the two children.
* Parent 1’s brother and parents aren’t compulsory heirs.
* Legitime would determine apportionment of inheritance:
Example:
* Parent 1 leaves P4M in assets to be inherited by them.
* According to the law the total assets (4M) would be divided by 2 (4M➗ 2 = 2M)
* The 2 children would share with the 2M (2M➗ 2 children = 1M inheritance obtained by each children)
* Parent 2 would inherit the same amount equivalent to how much one child would get. (1M)
* Legitime = 3M = 2M [inherited by 2 children in total] + 1M [inherited by parent 2]
* There is an excess of 1M not yet inherited.
* The excess can be inherited by ‘non-compulsory’ heirs if they’re indicated in the last will or testament.
* If there is no last will or testament; the three compulsory heirs would share it among w/ themselves too.
If heir gave threats to life = disinheritance -> won’t inherit anymore.
• There must be compliance w/ the forms of donation if made expressly.

• Obligation already demandable at time of remission.
• Basic rules on remission (implications; would apply when nothing is said)
• Art1271: the delivery of a private document evidencing a credit, made voluntarily by
the creditor to the debtor implies the renunciation of the action w/c the former has
against the latter.
• Art1272: whenever the private document in w/c the debt appears is found in the
possession of the debtor, it shall be presumed that the creditor delivered it voluntarily,
unless the contrary is proved.
• Art1273: the renunciation of the principal debt shall extinguish the accessory
obligations, but the waiver of the latter shall leave the former in force.
Example: loan (principal debt) and mortgage (accessory)
* creditor says debtor doesn’t have to mortgage his/her object anymore (accessory/mortgage gone), but he/she still have to pay the
loan (principal debt)

• See also Art1274: presumption of renunciation of pledge.
3. Compensation
• Art1279: for legal compensation to take place, the following requisites must be present:
• That each 1 of the obligor must be bound principally, & that he be at the same time a
principal creditor or the other;
If D can’t pay C, G agrees to pay C for D instead (obligor G not bound principally). Later on G lends money to C.
* not compensation. (Compensation can only happen between D & C)
• That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;
• That the 2 debts be due;
• That they be liquidated & demandable;
• That over neither of them there be any retention or controversy, commenced by 3rd
persons & communicated in due time to the debtor.
- When compensation takes place by law
• Basic rules on compensation

• Art1281: compensation may be total / partial. When the 2 debts are of the same
amount, there is total compensation.
Total = Dianne owes Nicole 100, Nicole owes Dianne 100.
Partial = Dianne owes Nicole 100, Nicole owes Dianne 90.
• Art1287: compensation shall not be proper when 1 or the debts arises from a
depositum or fr. obligation of a depository or of a bailee in a commodatum.
Depositum -> deposit Commodatum
- can’t use the thing; task is to take care of it w/ duty of - object is non-consumable and debtor doesn’t own it.
returning it. - Example: borrowing a phone, etc.
Loan
- commodatum and; Mutuum
- object is money or consumable equivalent to loaned amount.
- mutuum
- Most loans take this form.
- Give property > use > return it or its value
- Debtor owns the object.
Bank using “depositor” not accurate
- deposit = can’t use thing, but bank uses the thing (deposited
money) better term than depositor is creditor.
4. Rescission
• Art1380: there’s contract validly agreed upon by parties.
• Art1381: contract must be rescissible as provided for under the law.
• Art1383: there be no other remedy to obtain reparation for damage.
• Art1385: party seeking rescission must be able to return what he is obliged to restore
by reason of contract.
• Art1385: object of contract must not legally be in possession of 3rd persons who acted
in good faith.
• Art1389: Period to file a case for a rescission has not yet prescribed.
• Examples of contracts declared by law as rescissible:

• Contracts entered into by guardians whenever wards whom they represent suffer
lesion by more than 1/4 of the value of the things w/c are the object thereof.
• Contract undertaken in fraud of creditor when latter can’t in any manner collect claims
due to them.

*Not all economic defect results into a rescissible contract.

* Art1381: there must be a law backing it up. (If the law is silent, contract is still perfectly valid regardless of how much loss
you incur)
Example:
A 15 y/o (minor-aged) person inherits Php1M worth of land and you’re interested in buying the mentioned property.
*you shouldn’t buy it directly from the minor-aged person because that would lead into a voidable contract. (Can annul)
To buy it ‘cleanly’, you should go through the guardian.
Most (economic) loss / lesion the selling party can incur at most is Php250,000 (1/4 of Php1M value); if more than that and sale
contract still ‘goes through’ (There is a contract agreed upon [Art1380]) > rescissible contract.
The lowest price you can buy it is at Php750,000.00. (3/4 of Php1M) (Still valid contract)
If the 15 y/o person reaches legal age already he/she can avail for a rescission to reclaim the property. He/she still has to repay the
paid value.
Art1383
If the minor aged person upon reaching legal age expresses intent to rescind the contract, but the buyer (bought it @ less than 3/4 of
P1M) offered more cash, w/c makes the total earnings related to land sale P750K or more -> cannot rescind anymore.
Art1385
If the ‘rescinder’ can’t give back the amount paid or buyer can’t give back the land -> cannot rescind anymore.
Art1385
If 1st buyer sold it to other people -> cannot rescind anymore.
Art1389
Period to rescind is 4 years counting from the time minor aged “owner” reaches legal age.
5. Annulment
• The one annulling is the injured party. (not the party responsible for defect)
• Art1390: contract sought to be annulled is voidable. (Defect on consent)
• Art1391: action to annul has not yet prescribed.
Fraudulent sale -> prescription is 4 years from time fraud is discovered.
Forced to enter contract using fear -> prescription is 4 years starting from when fear subsided.
* more subjective (possibility = when the ‘scarer’ dies or becomes incapacitated; ‘scared’ party hires security)
• Art1396: defect in contract wasn’t ratified by an act whatsoever of the injured party.
Ratification = applicable to voidable and unenforceable contracts.
* removes contract’s defect.
* From voidable it becomes perfectly valid.
* Cleansing -> act done by injured party to remove defect -> can’t annul anymore.
Example:
Buyer buys laptop from minor-aged seller w/ check. (Buying asset from minor aged person -> voidable)
Seller en-cashed the check and spends it. (Ratification -> can’t annul anymore)
• Consent must be intelligently, voluntarily, & spontaneously given, otherwise consent

will be defective, and contract is voidable, and can be annulled.
• Examples of voidable contracts:
• Contracts in w/c one of the parties has no capacity. (Unemancipated minor, etc.)
• Contracts in w/c consent was vitiated by mistake, violence, intimidation, undue
influence or fraud such as when a person was forced to enter contract at gun point.
6. Prescription
• Law provides for a time-limit or period during w/c a party can sue in court to enforce
obligation.
• Period elapses w/o said party suing in court.
• Art1144: the following actions must be brought w/in 10yrs fr. time of right of action
accrues
• Upon written contract
• Upon obligation made by law
• Upon judgement
• Art1145: the following actions must be commenced w/in 6yrs
• Upon oral contract
• Upon quasi-contract
• Art1146: the following actions must be instituted w/in 4yrs

• Upon injury to the right of the plaintiff
• Upon quasi-delict
• Art1147: the following actions must be brought w/in 10yrs fr. time the right of action
accrues
• Upon written contract
• Upon obligation made by law
• Upon judgement
• Art1145: the following actions must be commenced w/in 6yrs

• Upon oral contract
• Upon quasi-contract
• Art1146: the following actions must be instituted w/in 4yrs
• Upon injury to the right of the plaintiff
• Upon quasi-delict
• Art1147: the following actions must be filled w/in 1yr
• For forcible entry & detainer
• For defamation
• Must take place between parties who are principal debtor & creditor to each other.
• Must be complete.
8. Novation
• Previous & valid obligation.
• Parties intended to change or extinguished the said obligation.
• Parties must have capacity to modify to extinguish the said obligation.
• There must be an act done by parties to change, modify, or extinguish the said
obligation.
• Change, modification, or extinguishment resulted in creation of new obligation.
9. Lost of thing due

• Object/s must be specific.
• Lost due to circumstance/s beyond obligor’s control. (Fortuitous event)
• Loss renders it impossible for obligor to still perform obligation.
• No FNDC on part of obligor.

• obligation is subject to condition.
• Resolutory condition.
• Condition was fulfilled.
Kinds of special payments (mnemonics: DCAT)

1. Dacion En Pago (Dation in Payment)
• Debtor conveys ownership of a thing in favor of his creditor for satisfaction of a debt
payable in money.
• Requisites
• Preexisting debt to be paid in money.
• The said debt is already due and demandable.
• Instead of money, property is offered by debtor for payment of his debt.
• Creditor accepts such form of payment.

2. Cession En Pago
• Assignment or abandonment of all properties of debtor for benefit of his creditors so
latter may sell the same & apply the proceeds thereof to satisfaction of their credits. (H.
De Leon)
• Requisites
• At least one debtor, 2/more creditor.
• Insolvent debtor.
• Debtor delivers all his remaining properties to all his creditors.
• Creditors sell properties & applied the proceeds of sale to their individual credits
proportionately.
3. Application of payment
• Designation of debt to w/c should be applied as payment made by a debtor who owes
several debts in favor of the same creditor. (Castan)
• Requisites
• One debtor, one creditor.
• Debtor owes several debts.
• Debts are of the same kind.
• All of them due, unless benefit of periods is given to debtor.
• Payment made insufficient to cover all debts.
Debtor owes debt 1 (P3000), debt 2 (P2000), debt 3 (P5000) from creditor;
* debtor pays P5000, and asked that it be applied to the first 2 debts.
4. Tender of payment & consignation

• Tender of payment = offering to creditor the money/amount due to him, w/ demand that
he accepts it.
• Consignation = act of depositing the thing due w/ court or judicial authorities whenever
creditor can’t accept or refuse to accept payment after tender of payment was made.
• Refuse to accept payment -> letter to compel creditor to accept -> still refuses ->
consignation.
• Requisites
• Valid preexisting indebtedness.
• Debt is due.
• Tender of payment.
• Tender of payment is valid, and creditor refuses unjustifiably the tender of payment.
• Notice of consignation before & later, also after consignation was made.
• Actual deposit of thing due in court or w/ judicial authority.
• When is tender of payment no longer necessary for a valid consignation (Art1256) *go
straight to consignation now.
• Creditor is absent, unknown, or doesn’t appear at place of payment.
• He is incapacitated to receive payment at time it’s due.
• W/o just cause, he refuse to give a receipt. [receipt = evidence of payment; creditor
signs it]
• 2/more persons claim the same right to collect.
• Title of obligation [promissory note = evidence of indebtedness] has been lost.
If debtor pays debt, and the promissory note is w/ the creditor; for a ‘clean’ payment:
1. Ask for receipt or acknowledgment that he/she paid.
2. Get back the promissory note.
• If not, the promissory note can be transferred to other people and they can ask payment from debtor too.

Effects of payment if made by a 3rd person (Art1236-1238)

- General example: P1 has debt on P2 worth P10,000.
- On due date, P1 paid P3. (3rd person)
- P2 is debtor of P3.
- P2 doesn’t have to pay P3 anymore, because the latter has the money already.
- Obligation is extinguished.
1. 3rd person, after paying, intends to be reimbursed

• W/ debtor’s consent (delegacion)
• 3rd person may demand from the debtor what he has paid & compel the creditor to
subrogate him in his rights. (Art1236-1237)
• Total reimbursement + subrogation.
• ‘To subrogate’ = substitute another in place of the creditor to whose rights he (other
person) succeeds in relation to the debt. (Gifts, Law Dictionary p.203)
Keely should pay P5000 to Xena, but Edrian paid the full amount to the latter for the former. (W/ consent of the former)
Keely already paid P2500, but Edrian still paid the full amount of P5000 because he didn’t know about the P2500 payment.
(Xena accepts the P5000 from Edrian, still)
Edrian could recover whole amount of P5000.
Solution indebiti -> Keely could get the excess payment from Xena .
Addt’l situation:
There was a mortgaged laptop to Xena.
* subrogation = Edrian can sell it too. (He has all rights of debtor too)
• W/o debtor’s knowledge against his will (expromision)

• 3rd person can only recover insofar as payment has been beneficial to the debtor &
he can’t compel creditor to subrogate him in his rights. (Art1236-1237)
• Only beneficial reimbursement.
Angeli should pay P5000 to kalimag , but Rhoda paid the full amount to the latter for the former. (W/o consent of the former)
Angeli already paid P2500, but Rhoda still paid the full amount of P5000 because she didn’t know about the P2500 payment.
(Kalimag accepts the P5000 from Rhoda, still)
Rhoda could recover amount of P2500 only. (The excess amount)
Addt’l situation:
There was a mortgaged laptop to kalimag
* no subrogation = Rhoda can’t sell it. (She doesn’t has the rights of debtor)
2. 3rd person, after paying, doesn’t intend to be reimbursed

• Art1238
• Consider payment as donation & must be accepted by debtor.
• In every case, payment is valid as to creditor accepting it.
Rules on legal tender

- kind of money w/c debtor can legally compel creditor to accept as form of payment.
1. Checks aren’t legal tender and can be refused as a form of payment.

2. If accepted, payment by way of checks doesn’t as yet extinguish the obligation. Such
payment is mere conditional payment & will extinguish the obligation to pay once the
check ‘becomes good.’
3. Not all money are legal tender. All paper currencies are legal renders, but not coins.
Coins are legal tenders for denomination of:
• 10, 5, 1 centavo = for debts not exceeding Php20.
• 25 and 50 centavo, and higher coin denominations = for debts not exceeding Php50.

4. Payment made to 3rd person shall be valid insofar as it has redounded to the benefit of
the creditor. Such benefit to creditor need not to be proved in the following cases:
• 3rd person acquires creditor’s right after payment.
• Creditor ratifies payment to 3rd person.
• By creditor’s conduct, debtor has been led to believe that 3rd person had authority to
receive payment.
5. Payment of debts in money shall be made in currency stipulated, & if not possible to
deliver such currency, then in currency w/c is legal tender in the Philippines.
6. In case of extraordinary inflation or deflation of currency stipulated should supervene,
value of currency (foreign exchange rate) at time of obligation establishment shall be
the payment’s basis, unless there’s an agreement to the contrary.
Source/s:
Atty. Jose Ngo Jr.’s lessons/handouts;
Atty. Ivan Bagayao’s Law on Obligation & Contract (for page 20; II. #1)
Law on contracts
Contract’s definition (accdg to Art1305)
- meeting of minds between two persons whereby one binds himself w/ respect to the
other, to give something or to render some service.
Elements of a contract
1. Essential elements
• Necessary for existence or validity of the contract. (Art1318)
A. Consent
- Manifested by meeting of the offer & acceptance upon the thing and the cause w/c
are to constitute the contract (Art1319). Its presence results into the meeting of
minds between the parties on the subject matter & cause constituting the contract.
- Example: in sale contract -> meeting of minds on what to buy & how much to pay.
B. Object
- Contract’s subject matter.
- Example: in sale contract -> the thing being sold.
- If object is unlawful, the contract is void.
- If the motive is the only one unlawful, contract is still valid.
- Motive isn’t an essential element of contract, though. It’s purely personal reason
or purpose w/c a party has in mind in entering into a contract.
Example:
“Deliver illegal drugs.”
- the object (illegal drugs) is unlawful. This makes the contract void.
Buying a gun for an unlawful purpose

- the object (gun) is lawful. Even though the motive (unlawful purpose) is unlawful, the contract is still valid.
C. Cause/consideration
- Essential or more proximate purpose w/c the contracting parties have in view at the
time of entering into the contract (Manresa).
- Example: in sale contract -> price.
2. Natural elements
• Elements presumed to be present in certain contracts, unless otherwise stipulated by
parties.
• Example: in sale contract -> warranty against hidden defect.
3. Accidental elements
• Exists only if agreed upon or stipulated by the parties in their contract.
• Example/s: period, condition, penal clause, stipulation to pay interest on a loan.
Kinds of contract
1. As to perfection (How it was created)
1.1 Consensual - perfected through consent only. (no written form, most contracts use
this form) (Art1315)
An example of this is transfer of ownership when buying a ball pen (contract of sale), driver/operator of public transportations being
responsible for his/her passengers (contract of transportation), contract of loan on form of mutuum, etc.
1.2 Formal/solemn - perfected through observation of formalities required by law.

(written form, fewer contracts use this form)
Examples:
* Sale of large cattle (horse, carabao, cow) - must be in public instrument. (Notarized)
* Small cattle sale = only consensual.
* Large cattles are important = they’re used for work, transportation, etc.
* More important than small cattle.
* Contract of agency authorizing an agent to sell land - must be in writing or else, the agency & sale is void.
* Representative in the Philippines if the one being represented is abroad. -> SPA or Special Power of Atty.
* Contract of partnership in w/c immovable is contributed - must be in public instrument & there must be written inventory of
immovable signed by the partnership & attached to partnership contract.
* Donation of an immovable - donation must be in public instrument & acceptance of donation also appear in public instrument.
A document is ‘in public instrument’ if it’s notarized.

Notary public should always ask for a copy of the document being notarized. (“Public” = accessible to all)
* after the year is over, the notary public will bring the notarized documents for that whole year to the city/municipal hall.
1.3 Real - perfected through delivery of the object. (Art1316)

An example of this is contract of pledge in pawnshop, contract of loan on form of commodatum, contract of deposit.
- surrender of one’s property like jewelries, gadgets, etc. for cash in pawnshops. - for safekeeping. (Bank
deposit isn’t a contract of deposit)
2. As to independent existence
2.1 Principal - can exist independently of other contracts. Most contracts take this form.
An example of this is contract of loan, sale, partnership, agency, lease.
2.2 Accessory - existence depends on another contract’s existence.

An example of this is contract of mortgage. (For it to exist, there should be a contract of loan)
Mortgage = security contract -> Secures that loan would be paid.
- If the loan isn’t paid, the mortgaged property would be sold so the sale proceeds would be the loan payment.
Symbiotic relationship of loan (can live w/o mortgage contract) & mortgage contract. (can’t live w/o loan)
Contract of pledge, mortgage, guaranty, surety.
3. As to cause or consideration
3.1 Onerous - for consideration. There’s mutual receipt of considerations for both
parties who are reciprocally obligated to each other.
Example/s of this are contract of sale, contract of barter, contract of loan (mutuum - w/ interest)
Contract of sale = buyer receives the property or goods; the buyer should give money equivalent to the property’s or goods’ value to
the seller.
Contract of barter = the parties involved giving property, for exchange of another property.
Contract of loan (mutuum) = if there’s stipulation to pay interest.
3.2 Gratuitous - w/o consideration. Cause is the mere liberality of benefactor/giver.

An example of this is contract of donation, commodatum loan, mutuum loan w/o interest.
Contract of donation = beneficiary receives something, but he/she has no obligation to give something in return.
3.3 Remunerative - consideration/cause is in form of services.

Example/s of this are contract of employment and contract of transportation.
Contract of employment = employee renders his/her services so his/her employer would pay him/her salaries.
Contract of transportation = passenger pays fare so the operator/driver would bring him/her to the destination.

Depositum -> deposit Mutuum
- can’t use the thing; task is to take care of it w/ duty of returning it. - object is money or consumable equivalent to loaned amount.
- Most loans take this form.
Loan - Debtor owns the object.
- commodatum and;
- mutuum
- Give property > use > return it or its value
Bank using “depositor” not accurate

- deposit = can’t use thing, but bank uses the thing (deposited money)
better term than depositor is creditor.
Commodatum
- object is non-consumable and debtor doesn’t own it.
- Example: borrowing a phone, etc.
4. As to whether it has a name or designation

4.1 Nominate - has a specific designation/name given by law which differentiates it
from other contracts. Most contracts use this form.
- its purpose can be determined by its name.
4.2 Innominate - has no special name to differentiate it from other contracts.
- it’s described by the obligation that arises from it.
Example/:
- Do ut facias (I give that you may do)
- Facio ut des (I do that you may give)
- Facio ut facias (I do that you may do)
*Do ut des (I give that you may give) isn’t innominate anymore because it has been named as “barter” already.
5. As to number of obligations created

5.1 Bilateral - both parties have obligations.
- most contracts are in this form.
Bilateral obligation is classified into two:
- Reciprocal = obligations done simultaneously.
- Non-reciprocal = not done simultaneously.
Example/s of this are contract of sale, transportation, and employment.
Contract of sale = seller should deliver the goods, buyer should pay.
*most are reciprocal = once paid, goods should be delivered already.
*exceptions: construction materials = if the buyer doesn’t have the equipment to transport such materials and the delivery truck of the
seller entity is available only the next day. (Buyer pays 1st before receiving any goods)
Contract of transportation = driver should drive safely to destination, passengers should pay fare. (Non-reciprocal)
*the passengers pay 1st before reaching the destination.
Contract of employment = worker should work, employer should pay wages. (Non-reciprocal)
5.2 Unilateral - only one party have an obligation.

An example of this is contract of loan.
Contract of loan = obliged party is the borrower only. (Only obligation of borrower = to pay)
6. As to existence of defect
6.1 Perfectly valid - no defect.
6.2 Defective - either imperfectly valid or void.*
6.2.1 Imperfectly Valid - defective but capable of producing legal effects.*
a. Rescissible - valid until rescinded (rescission). It has an economic defect.
*Not all economic defect results into a rescissible contract. -> lesion = incur loss in contract
* there must be a law backing it up. (If the law is silent, contract is still perfectly valid regardless of how much loss you incur)
Example:
A 15 y/o (minor-aged) person inherits land and you’re interested in buying the mentioned property.
*you shouldn’t buy it directly from the minor-aged person because that would lead into a voidable contract.
To buy it, you should go through the guardian.
Most loss the selling party can incur at most is Php250,000 (1/4 of Php1M value); if not > rescissible contract.
* if the 15 y/o person reaches legal age already he/she can avail for a rescission to reclaim
the property. He/she still has to repay the value.
If the sales price is Php1,000,000.00; the lowest price you can buy it is at Php750,000.00. (Still valid contract)
b. Voidable - valid until annulled. Its defect has to do with consent.
If the other party is minor-aged (less than 18y/o) they have no legal capacity. (Issue on consent)
*the minor-aged person, upon turning 18 y/o can avail annulment on the contract. (He/she can do it only w/in 4 yrs after he/
she turns 18 y/o)
Even if the other party is in his/her legal age, the contract is still voidable if the contract was done involuntarily.
*un-consented marriage -> can be subject to annulment (time allowance is 4 years after marriage)
c. Unenforceable - can’t be sued upon in court because they’re not in

writing, not authorized, or both parties are incapacitated. Defect is in form or consent.
Both parties are incapacitated like 2 minor-aged people.
*they enter into an unrealistic imaginative contract of buying a celestial object. > They think it’s valid but it really is not.
6.2.2 Void - non-existing and can’t produce any effect. (No obligations)
- worst contract.
*listed from least defective to most defective.
Stages of contract
1. Preparation (Conception)
• Parties are still negotiating contract creation.
• Mere offer (proposal/invitation to enter contract) exists but there’s no acceptance yet by
the other party. (Acceptance of offer = consent -> contract perfection *for consensual
contracts)
• Concept of an offer
• Offer = proposal/invitation to enter contract.
• Basic rules
• Offer must be certain or definite otherwise its acceptance will not result into a
perfected contract.
It must be clearly indicated that something is really for sale, how much is it, etc.
The acceptance must be absolute.
* if acceptance is conditional = might be a counter-offer.
* Contract is perfected only once seller accepts the counter-offer.
• The following aren’t definite offers & hence, if accepted will not result into a perfected
contract
• Business advertisements of things for sales (Art1325). They’re mere invitations to
make an offer.
• Exception: unless they appear otherwise such as when these advertisements are
complete in all particulars necessary for a contract.
• Ads for bidders constitute mere invitations to make proposals (Art1326).
Advertiser isn’t bound to accept the highest or lowest bid unless the contrary
appears. (Perfection of auction sale = fall of the hammer [symbolical])
• Withdrawal of the offer
• Art1324: right of offerer to withdraw offer.
• When offerer allowed offeree a certain period to accept, the offer may be withdrawn
anytime before acceptance by communicating such withdrawal, except when option
is founded upon a consideration, as something paid or promised.
• No consideration = option period is ‘free’ & may be withdrawn anytime.
• Option period = time w/in the offeree must decide if he/she would accept the offer.
• Option money.
• Option money = money paid or promised to be paid in consideration for an option.
• Effect: when paid or promised, can’t withdraw his offer before option period’s lapse,
otherwise he’ll be liable to pay damages.
example: seller selling a thing to a client.
* seller tells client he has 3 days (option period) to decide if he would buy or not.
* No consideration = seller can withdraw and sell to someone else.
* Php500 option money (consideration) was paid by client = seller would be liable if he withdrew.
• Option money & earnest money.

• Option money = not an evidence of perfected contract. Not part of purchase price.
• Earnest money = evidence of a perfected contract (Offer is already accepted). Partial
payment -> part of purchase price.
2. Perfection (Birth of contract)

• There’s already meeting of minds on subject matter & cause w/c are to constitute the
contract. Offeree already accepted offer.
• “Common mind”
• Contract is perfected once offerer knows that his/her offer was accepted.
• Perfection = parties already reached an agreement. Qualified offer is just a counter-
offer.
If parties are far away from each other
- law says contract perfection is done through the telegram or letter system.
- E-commerce law allowed this to be done through the internet.
• Basic rules on acceptance
• Acceptance may be expressed or implied (Art1320), but it must be absolute (Art1319,
2nd sentence)
• Acceptance made by letter or telegram doesn’t bind offerer, Art1319, 2nd paragraph:
“except from time it came to his knowledge.”
• Offer becomes ineffective upon death, civil interdiction [addt’l penalty imposed on a
criminal going to prison], insanity, or insolvency of either party before acceptance is
conveyed (Art1323).
• An offer made through an agent is accepted from the time acceptance is
communicated to the agent (Art1322).
Illustration:
Saturday: A supplier in Metro Manila wrote a letter to their client in Baguio City.
* contained price list of their products, contact information of the supplier, and other important information.
Monday next week: client makes letter of acceptance. (Contract is not yet perfected)
Wednesday: supplier received and reads the letter. (Contract perfection)
Art1323: if on Tuesday, client becomes insane, dead, insolvent or received civil interdiction, there is no contract perfection anymore.
* happened before supplier knows offeree’s (client) acceptance.
if on Tuesday, one of the parties got paralyzed (physically incapacitated)
* there is still contract perfection. (No “paralyzed” in provision of Art1323)
if supplier died, but after reading the letter -> contract is still perfected.
3. Consummation (termination of contract)

• “Contract is fully executed.”
• Parties have already completely performed their obligation arising from their contract.
• Delivery or tradition
• Not necessary for contract validity. (Art1318)
• It’s a mode of ownership acquisition, and it’s through this that ownership is
transmitted. Contract or agreement doesn’t transfer ownership.
• It gives real right to party whom the object, agreed upon in the contract, is delivered.
• Personal right = enforceable between the parties. Has definitive active & passive
subject.
• Real right = enforceable against all, whether parties to contract or not. Has definitive
active subject, but no definitive passive subject.
Basic principles / general characteristics of contracts (FORM-C)

1. Freedom to contract (contract’s autonomy or liberty to contract)
• Parties may establish such stipulations, clauses, terms, & conditions as they may
deem convenient, provided they’re not contrary to law, morals, good customs, public
order, & public policy.
• Contractual agreement will be inexistent & void from the beginning if its cause, object,
or purpose is contrary to law, morals, good customs, public order, & public policy.
(Art1409[1])
2. Obligatory force of contracts

• Art159: obligations arising from contracts have the force of law between the contracting
parties and thus, should be complied with in good faith.
• “Good faith” = follow the contract strictly.
Example: contract of pledge between borrower and the pawnshop
* if the loan wasn’t paid, the pawnshop have to sell the pledged item (the collateral item).
* They cannot claim ownership of the pledged item until it has been through 2 auction sales already wherein no one bought it.

• Void contract has no force of law between the parties because it doesn’t exist and
therefore, can’t produce any legal effects.
3. Relativity of contracts (most important)

• Art1311: except in case where rights & obligations arising from contract are
transmissible by their nature, or by stipulation or by provision of law, contracts take
effect only between the parties, their assigns, & heirs.
If a creditor dies -> his/her heirs receive the right to collect, but;
If a debtor dies -> his/her heirs doesn’t receive the obligation to pay.
Jeymie (debtor) has debt to Joymie (creditor) worth P5M.

- Jeymie died before Joymie got the chance to collect.
- Jeymie’s personality is gone -> transferred to his/her estate. (Dead person isn’t a “person” by law anymore)
- Estate = collectivity of assets left behind by decedent (one who died), those named to him/her.
- Joymie can “go after” the P5M from the estate.
- Once the heirs acquire/inherit their share from the estate, and none is left anymore, Joymie can’t collect anymore.
• Affects only the parties, but not their assigns, and heirs - if rights/obligations arising
from contract isn’t transmissible because of: (SLN)
• Stipulation (agreed upon by parties that those aren’t transmissible)
• Law (not allowed by law as transmissible)
• Nature (personal in nature; like contract to perform a concert, etc.)
• Party’s death extinguishes the contractual relationship in the following:
• Contract of agency = death of either principal or agent.
• Contract of partnership = general partner’s death.
• Contract of loan (mutuum) = death of either creditor/debtor.
• Affects even 3rd persons - among exceptional instances wherein this is legally possible
to happen are in the following cases:
• Art1311 2nd paragraph: stipulation in favor of 3rd persons. (Stipulation on Pour
Autrui) Example: creditor tells debtor to pay the 2 installments to a 3rd party who
agreed.
• Requisites of Stipulation on Pour Autrui
• There must be a stipulation clearly & deliberately confercing upon a 3rd person a
favor.
• Acceptance of 3rd person of such favor must’ve been communicated to the
obligor before its revocation by obligee or original parties.
• Character of stipulation must not have been conditioned or compensated by any
kind of obligation whatsoever.
• None of the contracting parties have legal representation or authorization of
benefited 3rd person.
• Art1312: Real rights are created by such contract.
Real rights = enforceable against all people.
By “registration” of the contract = it’s as if you told all people about the contract.
If a land is pledged as a collateral to a loan;

* if debtor sells it to a 3rd person,
* (if registered to Registry of Deeds) Then debtor can’t pay loan -> creditor can sell the land even though it’s been bought by a 3rd
person already.
* (if not registered to Registry of Deeds) debtor can’t pay loan -> creditor can’t sell land because it’s w/ the 3rd person already.
• Art1313: Defraud creditors is intention of parties entering into contract. (Going into
contract to commit fraud)
• Art1314: Inducement by 3rd person resulting in violation or breach of contract. (can
sue a 3rd party if they’re the cause of contract breach/violation)

4. Mutuality of contracts
• Art1308: contract must bind both contracting parties and that its validity or compliance
can’t be left to the will of anyone of the contracting parties. (Should be mutual =
common mind)
• Art1182: If fulfillment of condition depend upon the sole will of debtor, condition &
obligation shall be void. [potestative condition that’s accdg. to debtor’s will - “I’ll pay if I
want to.”]
• Related rules on mutuality of contracts:
• Art1309: determination of performance may be left to a 3rd person whose decision
shall not be binding until it has been made known to both contracting parties.
• Art1310: determination shall not be obligatory if it’s evidently inequitable. In such case,
courts shall decide what’s equitable under the circumstances.
• Example: contract of sale. Seller & buyer is involved in fixing the price. Their interests
are different. (Seller’s= earn, buyer’s= save) Fixing the price can’t be left to only 1.
5. Consensuality of contracts
• Generally, contracts are perfected by mere consent, & fr. that moment the parties are
bind not only to the fulfillment of what has been expressly stipulated, but also to all
consequences w/c, accdg to their nature, may be in keeping w/ good faith, usage, &
law. (Art1315)
• Exceptions are contracts w/c aren’t consensual.
• Real contracts = deposit, pledge, and commodatum, aren’t perfected until delivery of
object of obligation. (Art1316)
• Formal contracts = requires observance of certain legal solemnities/formalities for
their perfection like land donation, partnership, immovable is contributed to
partnership, & agency contract.
Essential elements or requisites & basic rules of contracts

1. Consent
• Meeting of the offer & acceptance upon the thing and the cause w/c are to constitute
the contract. (Art1319, 1st sentence)
Components of consent
- offer = must be certain.
- acceptance = must be absolute.
Requisites of a valid consent (VIS) - to be valid, consent must be:

- voluntarily (freely) given = no force, violence, or intimidation.
- intelligently given = must not be insane or retarded person; must be able to understand
“essence” of contract.
- Spontaneously (consciously) given = fraud or mistake is absent.
• The party should have legal capacity to enter into a contract

These are people w/o legal capacity (mnemonics = IDIUT)
- Insane person (mentally incapacitated) [Exception: Art1328-partially insane & he
entered contract during his lucid interval.]
- Deaf-mute (physically incapacitated) = cannot communicate well, so exceptions are if
they can write or use sign language, they’re still w/ legal capacity.
- Idiots, morons, imbeciles, demented, other mentally retarded persons. (Incapacity on
intelligence/mental aspect)
- Unemancipated minor -> less than 18 y/o. Subj to parental authority.
Emancipated = older than 18 and/or not subj to parental authority.
Exceptions:
Emancipated minor = less than 18 y/o but not subject to parental authority.
* if 2 parents allow.
* law about this isn’t being used because of our “sensitive” culture. (dead written
law)
Minor buying necessaries like food, clothing, meds, etc.
- Those disqualified by other laws. (Civil interdiction = disqualification from entering
contract. Additional penalty for criminals, aside the ‘usual’ jailing)
Vices of consent (VIDEU)

A. Violence (force)
- Use of physical force and physical contact to compel person to enter contract.
- Art1335, 1st paragraph says violence exists when in order to wrest consent, serious
or irresistible force is employed.
- Art1336: violence or intimidation shall annul the obligation, although it may have been
employed by a 3rd person who didn’t take part in the contract.
B. Intimidation (threat)
- Like violence, but w/o the physical contact.
- Art1335, 2nd paragraph: there’s intimidation when one of the contracting parties is
compelled by a reasonable & well-grounded fear of an imminent and grave evil upon
his person or property, or upon person/property of his spouse, descendants
(offsprings and “down”), ascendants (parents and “up”), to give his consent.
- 3rd part of art1335: to determine degree of intimidation, age, sex, and conditions of
person shall be borne in mind. [court will believe that a person is the ‘scarer’ if that
person has criminal records, physical capability to hurt, etc.]
- 4th part of art1335: threat to enforce one’s claim thru competent authority, if the claim
is just or legal, doesn’t vitiate consent. [“threat” to sell pledged item when a loan isn’t
paid is just & legal]
- Art1336: violence or intimidation shall annul the obligation, although it may have been
employed by a 3rd person who didn’t take part in the contract.
C. Deceit (fraud/dolo)
- Fraud = thru insidious words or machinations of one of the contracting parties, the
other is induced to enter contract w/c w/o them, he wouldn’t have agreed to. (Art1338)
- Consent is defective (can annul/contract is defective) only if fraud is causal. (Fraud
exists already prior to entering the contract)
- Incidental fraud (fraud existed after entering contract) only obliges the person
employing it to pay damages. -Art1344 *cannot annul.
- Art1344: in order that fraud may make a contract voidable, it should be serious &
shouldn’t have been employed by both contracting parties.
- Concept of Pari Delicto.
- “Employed by both...”; example: seller sells fake item, buyer pays w/ fake money.
- Art1339: failure to disclose facts, when there is duty to reveal them, as when the
parties are bound by the confidential relations, constitutes fraud.
- The following behaviors/actuations doesn’t constitute fraud:
- Art1340: “...usual exaggerations in trade, when the other party had an opportunity
to know the facts, are not in themselves, fraudulent.”
- Art1341: “...mere expression of an opinion does not signify fraud, unless made by
an expert, and the other...relied on the former’s special knowledge.”
- Art1342: “misinterpretation by a 3rd person does not vitiate consent, unless such
mispresentation has created substantial mistake & the same is mutual.”
- Art1343: “misinterpretations made in good faith are not fraudulent, but may
constitute error.”
Simulation
- Declaration of a fictitious will, deliberately made by agreement of the parties to produce,
for the purpose of deception, the appearance of juridical act w/c doesn’t exist or is
different from that w/c was really executed. (4 Tolentino, Commetaries & Jurisprudence
on the Civil Code of the Phil. 518 [1986])
Kinds of simulation
Absolute
- Art1345: no contract actually happened & parties don’t intend to be bound at all.
- Effect: void. (Art1346)
- “Let’s pretend I sold you this.” Later, the item was returned to the supposed to be seller.
Relative
- Art1345
- contract executed by parties is different from what they have actually agreed upon
- Parties conceal their true agreement.
- Art1346: “a relative simulation, when it doesn’t prejudice a 3rd person & is not intended
for any purpose contrary to law, morals, good customs, public order or policy, binds the
parties to their real agreement.”
- Teacher gave student a book for free, but tells student to tell others it was sold by the
teacher instead. Donation (actual) is concealed w/ sale (simulated).
D. Error (mistake)
- False notion of a thing or fact. (Caguioa, Reviewer in Civil Law 368 [1962]).
- Art1331: ...to invalidate consent, it must refer to the substance of the thing w/c is the
object of the contract, or to those conditions w/c have principally moved 1 or both
parties to enter contract.
- Not the quantity. Remedy for error on quantity is just correction.
- Art1331, 2nd paragraph: “mistake as to identity or qualification of parties will vitiate
consent only when such identity or qualification have been the principal cause of the
contract.
- Art1331, last paragraph: “simple mistake of account shall give rise to its correction.”
- Art1332: “...one of the parties is unable to read or if the contract is in a language not
understood by him, and mistake/fraud is alleged, the person enforcing must show that
the terms thereof have been fully explained to the former.”
- Art1334: “mutual error as to the legal effect of an agreement when the real purpose of
the parties is frustrated may vitiate consent.”
E. Undue influence
- Art1337: when a person takes improper advantage of his power over the will of
another, depriving the latter of reasonable freedom of choice.
- Circumstances to be considered to determine presence of undue influence:
confidential, family, spiritual, & other relations between the parties, or the fact that the
person alleged to have been unduly influenced was suffering from mental weakness,
or was ignorant or in financial distress. (Art1337, 2nd sentence)
- Art1330: “a contract where consent is given through (“VIDEU”) is voidable.”
- Effect of defective consent
- Consent doesn’t exist at all.
- Void contract = illegal object.
- Unenforceable = both has no legal capacity.
- Consent exists but isn’t voluntary or intelligent nor spontaneous. (VIDEU happened)
- Voidable contract -> only one party has no legal capacity.
2. Object of the contract

• Subject matter of contract. (Art1318(2))
• In contract of sale, object is the item bought; in contract of transportation, object is act
of bringing passenger to a place.
• 1st paragraph art1347: “all things...not outside the commerce of men incl. future things,
may be the object of a contract.”
• 2nd paragraph art1347: “no contract may be entered into upon the future inheritance
except in cases expressly authorized by law.”
• Last paragraph art1347: “all services w/c are not contrary to law, morals, good
customs, public order, or public policy may...be the object of the contract.”
• Art1349: “impossible things or services cannot be the object of contracts.”
Requisites of a valid object

- W/in commerce of men.
One can’t sell organs, but one can donate organs.
Children can’t be sold, but they can be adopted,
- Physically (can be actualized) & legally (not prohibited by law) possible.
Illustration:
* selling animals that are members of an endangered species.
* Physically possible, but;
* Not legally possible, because the law doesn’t allow such sale. (Invalid object)
- Determinate or determinable w/o need of a new contract between parties.
Determinate = specific. Can be lost, irreplaceable.
Determinable = a “kind” of generic, w/c is “less broad.” It could be made into a determinate object.
“I’m selling my only 1kg of lanzones fruits.” = specific, as shown by “only.”

“I’m selling 1kg of fruits.” = generic, very broad (not determinable). Don’t know what fruit, etc.
“I’m selling 1kg of lanzones.” = generic, but less broad; hence determinable.
- Existing or capable of coming into existence (can exist).
“can exist.”
- There is no object at the time the parties entered into a contract.
- The object is yet to be made. = future goods.
- However, it should exist on time of delivery to still be perfectly valid.
Example:
Buying an object, but it was still out of stock. Seller and buyer agrees on a certain object w/c would be made ASAP and w/c the buyer
can pick-up and pay for the object 2 days later. 2 days later = object delivered, valid contract. 2 days later = no delivery, contract not
valid anymore.
* if thing is the object of contract - all 4; if service is the object of contract - first 3 only.
3. Cause (or consideration) of the contract

• Essential reason w/c moves the parties to enter into contract. It’s the immediate, direct,
& proximate reason w/c justifies creation of an obligation thru the contracting parties’
will. (Tolentino)
• In contract of sale, cause is the cash payment; in contract of employment, cause is
wage.
• In onerous contracts, consideration is the prestation or promise of thing by the other.
• In remunerative contracts, consideration is the service or benefit remunerated.
• In gratuitous contracts, there is no consideration. Only the benefactor’s mere liberality.
Free. Nothing given in return. From Spanish word “gratis” w/c means “free.”
• Art1352: “contracts w/o cause, or w/ unlawful cause, produce no effect... cause is
unlawful if it is contrary to law, morals, good customs, public order...or policy.”
• Art1353: “...statement of a false cause in contracts shall render them void, if it should
not be proved that they were founded upon another cause w/c is true & lawful.”
• Art1354: “...cause is not stated in the contract, it is presumed that it exists, and is
lawful, unless the debtor proves the contrary.”
• Art1355: “except in cases specified by law, lesion, or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake, or undue influence.
Requisites of a valid cause

- must exist at time the contract is entered into,
- be lawful,
- be true/real.
Cause vs motive
- motive = purely personal or private reason the party has in mind in entering contract. It’s
psychological in character.
Cause
- essential requisite for valid contract.
- Absence of this = void contract.
- Immediate/direct reason.
- Always revealed/made known to other contracting party.
- Its illegality affects contract’s validity.
Motive
- not essential for valid contract.
- Absence... = valid contract.
- Not immediate/direct reason.
- May be known or unknown to other contracting party.
- Its illegality doesn’t affect contract’s validity.
Form of contracts
- manner by w/c parties made known their agreement. It may be executed verbally or
manifested in writing.
I. Must be in a public instrument (notarized) or else void. (Formal)

1. Contract of partnership in w/c immovable is contributed by partner.
• Generally, contract of partnership is consensual, except when immovable like land is
contributed.
2. Donation w/c the object is an immovable property.
• No need for writing, and public instrument when donating a moveable object.
(Consensual only if that’s the case)
3. Sale of large cattle, like cow & carabao.
• Member of bovine family w/c are large.
II. Must be in a public instrument, but if not, still valid. (Formal)

1. Acts & contracts w/c have for their object, creation, transmission, modification, or
extinguishment of real rights over immovable property. (Art1358)
2. Cession, repudiation or renunciation of hereditary rights or those of the conjugal
partnership of gains. (Art1353(2))
3. Cession of actions or rights proceeding from an act appearing in a public document.
(Art1358(2))
4. Power to administer property, or any other power w/c has for its object an act
appearing, or w/c should appear in public document, or should prejudice a 3rd person.
(Art1358(2))
5. Contract of partnership - capitalization of w/c is P3,000 or more. (Art1772, New Civil
Code)
• The minimum is only P3,000 because this law was made in 1950. The value of money
back then was higher.
• Notarized, written, registered to SEC.
6. Contract of limited partnership.
III. Must be in writing (public/private) or else unenforceable (art1403(2)).

1. Sale of real property or of an interest therein.
• However, if something was done about the contract already (like downpayment,
delivery, etc.), it would still be perfectly valid even if there’s no writing yet. This way it
isn’t solely executory anymore.
2. Sale of moveable property at not less than P500.
3. Lease agreement for a longer period than 1 yr.
4. Agreement that by its terms not to be performed w/in 1 yr. from the making thereof.
5. Special promise to answer for another’s debt, default, or miscarriage.
6. Agreement made in consideration for marriage, other than mutual promise to marry.
7. Representation as to the credit of a 3rd person.
IV. Must be in writing (but not necessarily public instrument), otherwise void.
1. Authority of agent to sell land.
• Contract of agency authorizing an agent to sell land - must be in writing or else, the
agency & sale is void.
• Representative in the Philippines if the one being represented is abroad. -> SPA or
Special Power of Atty.
• Authority to sell, but object is not land = verbal only.
2. Contract of Antichresis.
• Security contract, like real mortgage where pledged land would be sold if the loan
wasn’t paid.
• However, here, debtor will ‘give’ creditor a land and the benefits of the creditor from the
land would be applied to the interest & then the principal.
Example:
Debtor has loan of P1M (w/ P100k interest) to creditor.
Debtor gives a land w/c have apple trees to the creditor.
* creditor can have the right to sell / any way of benefiting from harvesting the trees.
* Those benefits would be applied to the interest,
* Once the interest is fully paid already, then it would be applied to the principal amount.
* Will continue until full payment of the whole debt, unless debtor pays his debt through another way such as early payment in
cash, etc.
Reformation of contracts
- court-ordered correction of a written instrument to cause it to reflect the parties’ true
intentions. (Black’s Law Dictionary p.1281, 6th Edition)
- Different from annulment, because there is no meeting of the minds when annulment is
being considered. Contract is vitiated by VIDEU (vices of consent).
- Art1359 2nd paragraph: “if (FAMI) has prevented a meeting of the minds...proper
remedy is...annulment...”
- Art1361: when a mutual mistake of the parties causes the failure of instrument to
disclose their real agreement, said instrument may be reformed.
- Art1355: there shall be no reformation in:
- Simple donations inter vivos wherein no condition is imposed (inter vivos means
“during lifetime”),
- Wills (last will/testaments; those are kept secretly until one who made it dies, can’t
change it),
- Real agreement is void.
- Art1367: when 1 of the parties has brought an action to enforce the instrument he
doesn’t subsequently ask for its reformation.
- Instances when instrument may be reformed (art1361-1365)
- Party who may ask for reformation (art1362, 1368)
- Art1364: when through ignorance, lack of skill, negligence, or bad faith on the part of the
person drafting the instrument or of the clerk or typist, the instrument doesn’t express
the true intention of the parties, the courts may order that the instrument be reformed.
Requisites for this to be a remedy

1. Meeting of minds of parties to a contract. (No VIDEU)
2. Contract or instrument as written fails to reflect what was actually agreed.
3. It doesn’t express their true/real agreement or the intentions of the parties.
Buyer is buying a car from a seller.
* they assigned a 3rd party to “make” / “write” the contract.
* 3rd party makes mistake and the contract was wrongfully ‘made’ into a contract of loan and the car is the pledged object. (It
should’ve been a contract of sale)
* Remedy is reformation.
4. Failure is due to fraud, accident, mistake, inequitable conduct of the parties (FAMI).
5. Clear & convincing proof of FAMI.
Defective contracts - General classifications (listed from least to most defective)

1. Imperfectly Valid - defective but capable of producing legal effects.
a. Rescissible - produces effects until rescinded (rescission). It has an
economic defect.-> lesion = incur loss in contract
b. Voidable - produces effects until annulled. Its defect has to do with
consent.
c. Unenforceable - produces effects but can’t be sued upon in court because
they’re not in writing, not authorized, or both parties are incapacitated. Defect is in form or
consent.
2. Void - non-existing and can’t produce any effect. (No obligations)

- worst contract.
Defective contracts
1. Rescissible contracts
• Least defective.
• Defect = economic/material damage or pecuniary prejudice. (“lesion”)
• Remedy = Rescission (to rescind); restoration of things to their original conditions prior
to contract making.
• Valid and produces legal effects until rescinded.
• Prescription = 4 yrs. (art1389)
• Art1382: payment made in state of insolvency for obligations to whose fulfillment the
debtor couldn’t be compelled at the time they were affected, are also rescissible.
• Art1383: action for rescission is subsidiary; it can’t be instituted, except when party
suffering damage has no other legal remedy...
• Art1384: rescission shall be only to the extent necessary to cover the damage caused.
• Art1385 1st paragraph: rescission creates the obligation to return the things w/c waive
the object of the contract, together w/ their fruits, & the price w/ its interests,
consequently, it can be carried out only when he who demands rescission can return
whatever he may be obliged to restore.
• Art1385 2nd & 3rd paragraph: “neither shall rescission take place when the things...are
legally in the possession of the 3rd person who didn’t act in bad faith. In this case,
indemnity for damages may be demanded from the person causing the loss.
• Art1387: “all contracts by virtue of w/c debtor alienated property by gratuitous title are
presumed to have been entered into a fraud of creditors, when donor didn’t reserve
sufficient property to pay all debts contracted before donation. Alienation by onerous
title are also presumed fraudulent when made by persons against whom some
judgment has been rendered in any instance or some writ of attachment need not have
been obtained by the party seeking the rescission. In addition to those presumptions,
be proved in any other manner recognized by law of evidence.
• Art1388: “whoever acquires in bad faith the things alienated in fraud of creditors,
indemnify the latter for damages suffered by them on accnt of the alienation.
Whenever, due to any cause, it should be impossible for him to return them. If there are
2/more alienations, the 1st acquirer shall be liable 1st, and so on...”
Kinds of rescissible contracts

- guardian’s contract involving property of his ward if lesion is more than 1/4. (Rescissible
or not? depends if approved by court [art1386])
- Art1386: “reformation may be ordered at the instance of either party or his successors
in interest, if the mistake was mutual; otherwise, upon petition of the injured party, or
his heirs and assigns.” (When rescinding, the one who bought back then offered more
cash so loss isn’t 1/4 anymore = can’t rescind anymore)
- Intention for entering contract is to defraud creditor.
- Under litigation, things are the object and the contract is w/o knowledge & approval of
the litigations or of judicial authority.
- Specially declared by law to be subject to rescission (GUARDS)
- Guardian sells ward’s property and lesion is more than 1/4.
- Under litigation, property is the object of sale or contract & not approved by court.
“Under litigation” = subject of a pending case.
* a sale will only be approved by the court if both the two parties “fighting” over it allows it to happen.
* If one party sold it, w/o the other giving permission (hence not approved by court also):
* If the one who sold is the one who wins the case = no problem anymore.
* If the one who isn’t allowing the sale wins the case = can rescind.
- Absentee is represented in the contract and lesion is more than 1/4.

- Real property is sold per sq. meter & lesion in area of the property sold is 1/10 or
more.
There are 2 ways of buying real property.
1. Lump sum
• Sell entire land w/o measuring area. Usually done for large lands like farmlands. Seller would just indicate boundaries. There
would still be a rough estimate of the area. If the estimate is wrong; there would be no price adjustment (if smaller than
advertised, buyer can’t ask for refund , etc.)
2. Per square meter
• Area is advertised.
• Example: land being sold is being advertised to have an area of 1000 sq. meter. After buying;
• When buyer measured it was only 950 sq. meter. (Can’t rescind, loss isn’t 1/10 of 1000 sqm, can ask for the amt equivalent to
50sqm tho [the ‘shortage of land’])
• ...it was only 900 sq. meter. (Can rescind, ‘shortage of land’ is 1/10 [1/10 of 1000sqm is 100sqm])
- Defraud creditor; the intention of contracting parties.
Example:
Lapuda will make a contract w/ Geeslaba, w/c will give the latter properties from the former.
* Lapuda has an existing debt w/ Rentosa (3rd party creditor).
* This transfer of properties from Lapuda (debtor of Rentosa, the creditor) to Geeslaba was done so Rentosa wouldn’t be able to
collect the property/ies due.
* Rentosa can rescind. (Exception to relativity of contracts)
- Specially declared by other laws.
Requisites of rescission (FRANC)

- Four-yr period to rescind is not yet prescribed (art1389),
- Rescissible status of the contract declared by law (art1381),
- Absence of any other legal remedy to obtain reparation (art1383),
- Not legally in the possession of a 3rd person who acted in good faith (referring to the
contract’s object), *no matter how they obtained it - thru sale, inheritance, donation.
- Capability of party seeking rescission to return what he is obliged to restore. (Art1385,
2nd paragraph)
2. Voidable contracts
• Defect = consent.
• Remedy = annulment (to annul).
• Valid and produces legal effects until annulled. Can be ratified.

• Prescription = 4 yrs. (IArt1391)
• Who may annul: May be instituted by all who are thereby obliged principally or
subsidiarily. (Art1398)
• Art1398: an obligation having been annulled, contracting parties shall restore to each
other the things w/c have been the subj. matter of contract, w/ fruits, and price w/ its
interest, except in cases provided by law.
• Art1399: when defect...consists in the incapacity of one of the parties, incapacitated
person isn’t obliged to make any restitution except insofar as he has been benefited by
the thing or price received by him.
• Art1400: whenever person obliged by decree of annulment to return the thing can’t do
so because it has been lost thru his fault, he shall return the fruits received & value of
the thing at the same time of the loss, w/ interest fr. the same date.
• Art1401: action for annulment of contracts shall be extinguished when the thing w/c is
the object thereof is lost thru fraud or fault of person who has a right to institute the
proceedings.
• Art1402: effect if a party can’t as yet restore what he is bound to return.
Kinds of voidable contracts

- One of the parties has no legal capacity. (IDIUT)
- Consent is vitiated by VIDEU.
- Contracts entered into where one of the parties are under:
- State of intoxicating or drugs;
- Hypnotic spell.
Requisites of annulment
- Brought by the injured party.
- IArt1391: 4-yr. prescription hasn’t yet elapsed.
- Art1392: no ratification.
- Art1390: declared by law as voidable.
- Art1401: object of contract to be annulled is still existing, & not lost thru fraud or fault of
the person who has right to annul.
Ratification
- Art1396: an act done by the injured party w/c “cleanses the contract fr all its defects
from the moment it was constituted.”
- Effects: Art1396 - cleanses contract of all its defects. Art1392 - extinguishes action to
annul voidable contracts.
- Art1392: manner of ratification may be effected expressly or tactically.
- Art1394: ratification may be effected by guardian of incapacitated person.
- Art1395: ratification doesn’t require conformity of contracting party has no right to bring
the action for annulment.
- Examples of ratification: paid check to minor selling something (can’t buy from minor),
but minor encashed the check and spent it, unconsented marriage but lived together for
more than 1 yr. and had kids.
3. Unenforceable contracts
• Defect = consent (both incapacitated or lack of authority to represent / act as an agent)
or not in writing. (Refer to pg. 11-12, III)
• Can be ratified. Cannot be sued upon in court.
• Manner of ratifying (art1405): by failure to object presentation of oral evidence to prove
said contract or by acceptance of benefits under them.
• Party’s right if contract is enforceable under statute of fraud (art1406): to compel other
party to execute the contract in a public doc. if the aid unenforceable contract has been
ratified.
• Art1407: instance when unenforceable become voidable.
• Art1408: 3rd person can’t assail unenforceable contract.
Kinds of unenforceable contracts (BUS)

- Both parties are incapacitated
- Unauthorized contracts
- Statute covered contracts w/c aren’t in writing & are executory. (pg 11-12, III)
4. Void contracts
• Worst defective contract.
• Defect = cause/object is defective, or absolutely simulated or fictitious or parties’
intention cannot be ascertained or expressly prohibited or declared void by law.
• Art1410: action or defense for declaration of the inexistence of a contract doesn’t
prescribe.
• Art1411: when nullity proceeds fr illegality of cause or object of contract, & the set
constitutes a criminal offense, both parties being in pari delicto, they shall have no
action against each other, & both prosecuted. Moreover, provisions of Penal Code
relative to disposal of effects or instruments of a crime shall be applicable to things or
price of contract.
• Art1412: if the act in w/c the unlawful or forbidden cause doesn’t constitute criminal
offense, following shall be observed: (1) when fault is on part of both contracting
parties, neither may recover what he has given by virtue of contract, or demand of
performance of other’s undertaking; (2) only one is at fault, he can’t recover what he
has given by reason of contract, or ask for fulfillment of what has been promised to
him. The other, who isn’t at fault, may demand return of what he has given w/o any
obligation to comply his promise.
• Art1413: interest paid in excess of interest allowed by usury laws may be recovered by
debtor, w/ interest thereon fr date of payment.
• Art1414: when money is paid or property delivered for an illegal purpose, contract may
be repudiated by 1 of the parties before purpose has been accomplished, or before any
damage has been caused to 3rd person. In such case, courts may, if public interest will
thus be subserved, allow the party repudiating the contract to recover money or
property.
• Art1415: where 1 of the parties to an illegal contract is incapable of giving consent,
courts may, if the interest of justice so demands, allow recovery of money or property
delivered by incapacitated person.
• Art1416: when agreement isn’t illegal per se but is merely prohibited,& the prohibition
by law is designed for protection of plaintiff, he may, if public policy is thereby
enhanced, recover what he has paid or delivered.
Art1409: kinds of void contracts

- Cause or object is:
- Contrary to law, morals, good customs, public order/policy
- Non-existing at time of transaction
- Object is outside commerce of men
- Contract w/c contemplates an impossible service
- Absolutely simulated or fictitious contracts
- Contracts where intention of parties relative to the principal object can’t be ascertained
- Contracts expressly prohibited or declared void by law.
Law on sales
Sale’s definition
- Involves exchange of property w/ money.
- Parties are seller (vendor) and buyer (vendee).
- Emphasis on parties’ obligations; the seller binds self to transfer object to buyer, while
buyer binds self to pay the price.
Characteristics of sale (NCR-COP)

1. Nominate
• W/ special name.
2. Consensual
• Perfected/created by mere consent. (Except sale of large cattle) Accept offer = created.
• Sale of land, if not written would be imperfectly valid accdg to statute of fraud (pg.
11-12, III)
3. Reciprocal
• Bilateral contract = requires simultaneous performance of obligation of both sides.
• No payment = no delivery.
• No need for demand to be put to legal delay; if buyer pays, but there is no delivery by
seller yet, seller is automatically in legal delay. (Compensatio Morae)
• Seller is obliged to deliver when buyer is ready to pay.
4. Commutative
• Value of thing sold and price paid for are deemed equivalent.
• Both buyer & seller are satisfied for what they got.
• Gross inadequacy of price will not affect validity of the sale. However, it may indicate
defect in consent (seller may have defective consent) or that a contract that was
intended by the parties aren’t a sale (may be a donation contract instead of sale).
• General rule only; exception: if the price is unusually very low.
5. Onerous
• For consideration.
• Exchange of things of value (money and property).
• No consideration = void sale. There’s partial simulation = valid as to the actual contract
agreed upon w/c may be a donation (actual), but void as a sale (simulation).
• Absolute rule.
6. Principal
• Independent existence.
Kinds of sale
1. Pacto De Retro Sale
• Sale w/ right to repurchase.
• Only if stated in the contract that there is this right.
• Difference from mortgage = mortgage is essentially a loan wherein if loan is not paid,
the pledged item would be sold, and the proceeds of such sale would be applied to the
loan.
Redemption period (Art1606)

- if not stipulated, it is 4 yrs.
- If stipulated, only less than 4 yrs, and if more, should be limited to 10 yrs only.
- Even if stipulation exceeds 10 yrs, period will always be 10 yrs.

- Redemption = buy back.
What to return in exercising right of redemption (art1616)

- Sales price.
- Contract expenses.
- Documentation, notarized, etc.
- Generally paid by seller, but still valid if buyer paid.
- Other legitimate payments by reason of sale.
- Only if buyer paid, because the seller is the one who usually pays, like capital gains
tax, document stamps, transfer tax.
- Necessary and useful expenses made on thing sold.
- Example: if bought thing is land, fencing cost is included even if not mentioned in
contract.
(No interest on the price paid, nor damages are to be paid in addition by the redemptioner)
When is pacto de retro treated as equitable mortgage (PRETRO)

- Price is unusually inadequate.
- Remains in possession of vendor (the thing sold) as lessee.
- Bought = buyer should have it already.
- In mortgage, if pledged thing is a house, debtor still lives in the pledged house. (The
creditor won’t live in the pledged house)
- Extension of period of redemption after its expiration.
- Extension of payment is for mortgage only.
- Taxes are still being paid by vendor on the property he already sold.
- If really a sale, buyer should be the one paying tax.
- Retention of the vendor of a part of purchase price.
- Other cases wherein it can fairly be inferred that real agreement intended is mortgage.
(These are characteristics that are peculiar to mortgage, not sale)
Equitable mortgage
- A loan
- has something common with sale
- in pacto de retro sale, one returns the money paid and would receive the sold thing
again.
- in mortgage, once loan is paid, pledged thing is returned.
2. Installment sale
• Form of a contract wherein buyer becomes owner of thing he bought upon full payment
of its price.
• Required form of sale for Recto Law and Maceda Law to apply.
Recto Law
- by Senator Claro M. Recto.
- Can’t recover deficiency, if mortgaged thing was sold.
Requisites for Recto Law to apply

- installment sale.
- bought thing is movable.
- bought thing is mortgaged to seller.
- defaulted in at least 2 installments.
If buyer can’t pay, seller has 3 remedies. (Can choose only one)
- Go after buyer for payment. (If paid, buyer can keep what was bought)
- Cancel/rescind sale. (Buyer can’t keep bought thing)
- Sell the mortgaged thing (thing bought).
- Recto Law will apply; if sale proceeds were deficient, the seller can’t ask for that
deficiency from the buyer.
Example:
Seller sold a thing for P50k to buyer who would pay it on an installment basis.
* if there are the complete requisites of Recto Law;
* Buyer can’t pay and defaulted 2 installments.
* Seller sold thing, but got to sell it for P40k only. (P10K deficiency)
* Before Recto Law = seller can go after the P10K still. Recto Law doesn’t allow that anymore.
Maceda Law
-by Senator Maceda.
-1 month grace period per one year of successfully paid installment/s.
-Can’t cancel the sale when installment not paid if there is a grace period.
-Can only be invoked by the buyer once every 5-yr. period only.
-Entitled to 50% refund = if cancelled after 5 or more yrs.
Requisites for Maceda Law to apply

- installment sale.
- immovable property is bought, even if NOT mortgaged.
- failure to pay installment.
If the immovable property is a condominium unit/subdivision unit.

- buyer’s protective decree. (Decree only = passed by president during martial law; no
congress)
- Rules in Maceda Law applies here too, w/ one difference;
- If buyer didn’t pay installment, not because of incapability to pay, but because
developer didn’t develop the area, sale cannot be cancelled (If justification is correct
and they really failed to develop).
3. COD (Cash on delivery) sale

• No right to examine goods, unless stipulated otherwise or examination is a customary
practice.
4. Credit (Sale on Credit)

• Usually done in fruit/veg seller in public markets.
• Unpaid seller’s possessory lien isn’t applicable to such sale.
• Commission agent can’t sell on credit w/o principal’s consent. If he does, he is deemed
to have sold in cash. W/o consent = agent will pay principal.
5. Public sale
• “Public” = open to all. “Subasta.”
• For foreclosure sale in mortgage and pledge.
• Not required in resale made by an unpaid seller w/c can be done in private or public
sale.
6. Auction sale - sale thru bidding

• Buying property = highest price wins.
• Choosing contractor for a gov’t project = lowest price wins.
• Perfection of contract = symbolic fall of hammer.

• Offer to bid = invitation to make bidding proposals. (Not a definite offer that’ll result in a
perfected contract if accepted)
• Mode of selling delinquent shares of stocks, gov’t projects.
Difference of sale from other contracts & juridical acts (DCBCP)

1. Dacion En Pago (Dation in payment)
• Not a contract, but a mode of payment in w/c property is used in paying monetary debt.
• A loan paid in property, instead of cash.
• It is still governed by law on sales, even if it’s never a sale.
2. Cession En Pago (Payment by cession)

• Form of payment wherein insolvent debtor cedes his remaining properties to his
creditors for them to sell & proportionately apply the proceeds to what is owed to them.
3. Barter
• Guidelines to differentiate:
• Consider parties’ manifest (easily determined) intention.
• If unclear intention, consider these: (If mentioned ‘exchange of property’ that is
unclear because it’s a “neutral” between barter and sale)
• Barter = Value of thing exceeds monetary component. Property = 15k (exchanged
for property worth 10k and money worth 5k).
• Sale = money component exceeds thing’s value. Property = 15k (exchanged for
property worth 5k and money worth 10k).
• Sale = money and thing component are equal in value. Property 15k (exchanged
for property worth 7.5k and money worth 7.5k).
4. Consignment contract (‘pabenta’)

• Agency to sell.
• One selling is just an agent and doesn’t own thing being sold.
• He returns property if it wasn’t sold.
5. Piece of work contract (‘pasadya’)

• Sale = if readily available in market to be bought and buyer makes order fr
manufacturer of such goods.
• Example: goods were sold out in outlets so buyer orders from manufacturer.
• Piece of work = not sold in market and specially manufactured for buyer.
• Example: buying t-shirt fr t-shirt designer, but buyer wants a design that isn’t in the
seller’s product line. (Custom design)
Essential elements of sale (w/o those = void sale)

1. Consent
• Acceptance of offer to buy/sell.
Characteristics of valid consent (VIS)

- voluntarily/freely given.
- intelligently given.
- spontaneously given.
(W/o VIS = voidable, w/o consent at all = void.)
2. Object
• Thing sold/bought.
Characteristics of valid object (PLDT)

- physically possible
- Licit/lawful
- Determinate or determinable (more info at pg. 10)
- True/existing
(W/o PLDT = void)
Things w/c can be object of sale

- Existing things
- Things w/ potential existence
- At time of buying = no object yet, but object existed and got delivered on agreed upon
date, still valid.
- Hope/expectancy
Example:
someone pays a landowner P70K so if the trees on the land owned bears fruit, that someone will have the rights to the harvest.
* if a fortuitous event happened and can’t harvest anymore, the money paid isn’t refundable.
Lotto/sweepstakes ticket
* bought the chance to win. Didn’t win = still valid and can’t ask for refund and still liable to pay.
- Future goods
Future inheritance sold = void.
Parents died, but the inheritance properties are still in their name.
* valid sale.
* Upon death, property can be sold validly regardless of whose name is in the title.
- Undivided interest on the thing owned by a sole owner

Example:
selling something even if it’s mortgaged is legally allowed.
* condition = the one selling will pay debt.
- Things subject to resolutory condition
3. Cause/consideration
• Price paid.
• Inadequacy of price doesn’t affect validity of sale. It may indicate defect in consent or
that another contract was intended, though.
Characteristics of valid cause (TEL)

- True
- Existing & certain
- Lawful/licit
(w/o TEL = void)
Perfection of sale
1. Time of perfection
• At moment that there is meeting of minds upon the thing w/c is the object of contract &
price.
• Payment of price isn’t required for sale contract perfection.
2. Legal significance of sale being consensual

• Written contract isn’t a requirement for perfection, consent is sufficient.
• Perfected, but defective sale;
• Sale of land, not in writing - unenforceable, but valid if w/ full or partial performance or
execution.
• Sale of land per sq m & deficiency is 1/10 or more - rescissible.
• Sale of movable not less than P500, not in writing - unenforceable, but valid if w/ full
or partial performance or execution.
3. Payment of earnest money as indication of a perfected sale

• Earnest money = Part of purchase price advanced indicating a perfected sale.
• Earnest vs option money.
• Option money = payment for option period and not yet for thing being sold.
4. Perfection in connection w/ price-fixing

• Art1473: Can’t be left to sole discretion of either seller nor buyer (Fixed by both of
them).
• Art1469: If not both of them,... may be left to discretion or judgement of a specified
person/s.
• However, if the price fixed by 1 of the parties was accepted by the other = sale
perfected. (Consent = meeting of minds)
Delivery
Legal significance
- not an essential element of contract.
- it transfers ownership.
Forms of delivery
1. Actual delivery
• “Hand to hand.”
2. Constructive delivery
2.1 Traditio Longa Manu
• “Long hand.”
• Pinpointing object.
2.2 Traditio Brevi Manu
• “Short hand.”
• Buyer has prior possession of object.
2.3 Traditio Constitutum Possessorium
• Seller still has possession of object sold as lessee/tenant.
2.4 Traditio Simbolica
• Use of tokens, like keys.
• Traditio Claviom is a kind of Traditio Simbolica.
• Bought rice, and seller gave buyer the key to the warehouse where the rice
are stored. Constructive delivery = when buyer had the key (he already owns
it). Actual delivery = when he goes to the warehouse and picks up those rice.
• Bought land. Documents of land were handed over to the buyer already.
2.5 Quasi-traditio
• Delivery of incorporeal things like shares of stocks.
• To sell shares of stocks, just sign the certificate of stock and give it to the buyer.
Risk of loss of the object (principle of res perit domino - the owner suffers loss)
- “Res perit domino” = “the thing perishes w/ the owner.”
1. Loss took place before perfection (in preparation stage) = risk belongs to seller.
• Seller still owns the object.
2. Loss during perfection = risk belongs to seller.
• Seller still owns the object, because there’s no delivery yet.
3. After perfection, but before delivery = risk belongs to buyer (exception to res perit
domino)
• The object is owned by seller, but this is an exception to principle of res perit domino.
4. After delivery = risk belongs to buyer.

• Buyer already owns the object.
Double sale & priority in ownership

- double sale = specific thing sold to many buyers.
1. If thing sold is movable

• Priority in ownership = first one to take possession in good faith.
• Good faith = wasn’t aware that the thing he/she bought was already sold to anyone
else.
2. If thing sold is immovable

• Priority in ownership;
• 1st to register the sale in good faith.
• If not yet registered, 1st to take possession in good faith.
• If registration and possession are both absent, the one w/ the oldest title in good faith
(1st to buy).
A buyer bought a land, w/o knowledge that it’s a double sale. (Acted in good faith)
* after several months, buyer learned about the double sale.
* Buyer went to Registry of Deeds (where the land is registered) & found out that no one registered yet.
* Buyer registered it, but still won’t be the owner.
* When buyer registered, it wasn’t done in good faith anymore because of his/her knowledge about the double sale.
* Actual owner = first buyer.
Risk of loss in sale or return & sale on trial

1. Sale or return
• Upon delivery to buyer = risk of loss is on buyer. Buyer becomes owner upon delivery
to him/her.
• Risk shifts to seller when buyer, w/in the time fixed in the contract, returns/tenders
goods.
2. Sale on trial
• Upon delivery to buyer = risk of loss is still on seller. Seller remains owner during trial
period.
• Risk shifts to buyer when,
• Before trial period ends; buyer signifies approval of the object, or does any other act
adopting the transaction.
• If trial period ends and buyer retains possession of object w/o giving notice of
rejection.
Legal capacity and rights of the parties

1. Buyer/vendee
Legal capacity
- general qualification for entering into all kinds of contract; must not be an IDIUT.
IDIUT
- Insane (except if not absolutely insane and has a lucid interval)
- Deaf-mute (except if he/she can communicate; can write or do sign language)
- Idiot/other retarded or demented persons
- Unemancipated minor (below 18y/o & subject to parental authority; except a minor who
buys necessities like food)
- Those disqualified by other laws

Relative disqualification (not qualified to purchase the thing) [JASPAGE]

Judges, justices, prosecuting lawyers, & court officials
- can’t buy thing under litigation in their courts.
Aliens or foreigners (not Filipinos)

- can’t buy land located in the Philippines. Void if bought, because it’s against public
policy (The Constitution).
- exception: condominium units.
Spouses (husband & wife)

- can’t buy properties belonging to each of them during subsistence of their marriage.
- protection for their creditors.
- exceptions: if marital property relationship is separation of property or if there has been
a judicial separation of property between them.
- If before marriage, person has a bank deposit, upon marrying, he/she will only have to
share the interest earned from when they got married.
- When married, husband and wife can’t be parties to each other in;
- Contract of sale
- Contract of donation
- Contract of irreversible partnership
Public officers & employees of the gov’t

- can’t buy properties of the gov’t entrusted to them w/c are to be sold.
- to avoid corruption.
- exceptions: judges & gov’t experts who, in any manner whatsoever, take part in the
sale. If the gov’t property being sold belongs to another gov’t office/agency.
Agents
- can’t buy properties whose administration or sale may have been entrusted to them by
their principals.
- exceptions: principal gives prior consent for agent to buy.
- Whatever agent does, w/ authorization, it’s as if the principal did it.
- If agent buys the property entrusted, it would be like the principal buying from him/
herself.
Guardian
- can’t buy ward’s property.
- Even if ward gave consent.
Executor or administrator
- can’t buy properties w/c are part of the estate under their administration.
- Executor/administrator takes care of the estate.
- Executor is appointed in the last will/testament.
- Administrator is appointed by the court.
- When a person dies, he/she loses natural personality.
- Start of being a person = from cutting of the umbilical cord.
- The assets left behind would be in the estate. Estate replaces natural personality.
- Estate = all properties left behind by the decedent. An extension of personality.

Rights of the buyer (DFRIENDS)

- Documentation & registration of the contract of sale w/c must be at the seller’s expense.
- Fruits of the thing he bought from time of contract perfection.
Fruit formed before/after contract perfection.
- A seller & buyer are talking about puppies from a mother dog. (Principal)
- If the puppies were born (fruit formed) before contract perfection; buyer doesn’t own the fruits yet, so he should pay additional if
he wants the fruits too.
- If the puppies were born (fruit formed) after contract perfection; buyer owns the fruits already, so he doesn’t need to pay
additional if he wants the fruits too.
- Recto Law & Maceda Law protection

- RLaw = not allowed to go after deficiency; MLaw = grace period.
- Reject short delivery
Short delivery = buyer received delivery of goods, but was not in the right amount (deficient).
* if buyer accepted it and it was assured that the deficiency can’t be delivered to him anymore as follow-up = his right is to pay for the
actual amount that was delivered to him at the contract price.
* if buyer accepted it, but there’s no assurance if the deficiency can be delivered to him or not anymore = his right is to pay at
prevailing fair market price.
* buyer can reject the whole delivery.
* in excess delivery, it’s not allowed to reject whole delivery. One can just reject the overage amount only, or pay for the overage too.
- Rescind sale if land was sold on per sq m basis and area deficiency is 1/10 or more
- Similar to short delivery.
- Implied warranties (made by law); warrant against
- Hidden defect
* Not applicable if one knows about defect already like willingly buying an obviously
slightly damaged book for a lower price.
* “No return/no exchange” policies doesn’t apply to this.
- Unknown encumbrance
* Encumbrance = gov’t project, like road constructions, would affect an immovable
property like a land.
- Merchantability or fitness
* When selling, seller indicated object, intended use, and its capabilities.
* Object should be able to do those mentioned use and capabilities.
* Can’t do intended use = “unfit.”
- Eviction
* Derive of possession.
* One can continually use what he/she bought. Present in court judgement.
* Example: buying a car and buyer didn’t know it was stolen. It was under a court case
and it was confiscated from buyer. This warranty would apply.
- Express warranties of the seller (made by seller)
- Buyer bought because of what the seller said about warranty, guarantees, etc.
- Examine the good/s he is buying. Exception: Cash-on-delivery, unless stipulated that it’s
allowed to examine or examination is permitted by usage. (Art1584)
- Not to pay if seller isn’t ready yet to deliver
- Sale as a bilateral contract that creates a reciprocal obligation on both parties (buyer
and seller).
- Delivery of object he bought and the transfer of its ownership in his name
- Suspend payment, when;
- He is disturbed in the possession or ownership of the thing bought,
- He has well-grounded fear that his possession or ownership would be disturbed by a
vindicatory action or foreclosure of mortgage (Art1590).
- Buying house from a seller who was then sued because he is alleged to have no
right to sell that house.

2. Seller/vendor
• Must be able to transfer ownership of thing sold at time agreed upon for its delivery.
• Perfection of sale contract = time when thing sold is to be delivered.
Legal capacity
- not IDIUT (like in pg. 23, #1)
• Legal consequences of sale being derivative (can only sell an object if object belongs
to seller, or at least seller has the authorization to sell it, if not sale will be void).
Exceptions to “can’t sell what you don’t own”

- Judicial sale = court sells property, even if they don’t own it, to settle a judgement debt.
- Agent = if authorized to sell by his principal.
- Merchant store, fairs, or markets are where the thing was sold.
- Estoppel prevents owner of thing sold from questioning the sale.
After misrepresentation, if the one who misrepresented would tell the truth, but the “lied to” person would be harmed, he can’t “take
back” the lie anymore.
Example:
* laptop owner’s laptop got stolen by his brother.
* Brother tries to sell it to someone they know, telling he was authorized by the actual owner.
* That buyer verified w/ owner and says that he authorized the brother, even if he didn’t (a misrepresentation). Buyer bought it.
* Owner can’t tell the buyer anymore that he’d take back the laptop because it was stolen from him.
- Subsequent acquisition of ownership or right to sell of thing sold by seller.
Rights of the seller (BURN)

- Buy back or redeem thing sold if sale is pacto de retro.
- Unpaid seller’s rights;
- If ownership already passed to buyer and buyer becomes insolvent:
- Stoppage in transitu
- Possessory lien
- Right of resale
- Rescission
- Rescind sale.
- Not deliver if buyer can’t pay yet.
Source/s:
Atty. Jose Ngo Jr.’s lessons/handouts

Law On Obligations & Contracts: PH Laws Governing Obligations

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Law On Obligations & Contracts: PH Laws Governing Obligations

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1st SEMESTER (UST AMV Academic Yr 2019-2020) @edrian1011

Copy made for: © Edrian V. Masangcay

Law on Obligations & Contracts

Essential elements that make an obligation civil

Finalized on 12/12/2019 Page 1

- Principal source of obligations. Most obligations are derived from this.

General principles/concepts of law

Finalized on 12/12/2019 Page 2

Examples of obligations arising from law:

1.3 Real - perfected through delivery of the object

2.2 Accessory - existence depends on another contract’s existence.

3.2 Gratuitous - w/o consideration.

3.3 Remunerative - consideration is in form of services.

4. As to whether it has a name or designation

5. As to number of obligations created

Example/s of this are contract of sale, transportation, and employment.

Finalized on 12/12/2019 Page 4

b. Voidable - valid until annulled. Its defect has to do with consent.

c. Unenforceable - valid, but can’t be sued upon in court.

General principles/concepts of contract

2. Most contracts are consensual in form.

Examples of obligations arising from contract:

2. Solution Indebiti (Mistake in the Payment)

General principles/concepts of quasi-contract

Examples of obligations arising from quasi-contract:

Finalized on 12/12/2019 Page 6

2. Mala Prohibita (Wrong because prohibited by law)

General principles/concepts of delict

The assisting person, however could go to jail.

2. Delict gives rise to civil and criminal obligations.

Requisites of self defense:

Examples of obligations arising from delict:

General principles/concepts of quasi-delict

2. Contributory negligence doctrine

3. Doctrine of last clear chance

Examples of obligations arising from quasi-delict:

Nature & effects of obligations (Art1163-1178)

Specific performance can’t be used for “to do”

Finalized on 12/12/2019 Page 8

Object of obligation to give

Concomitant obligations to obligation to give if object is specific

Is driving at a high speed a case of negligence?

• Arose w/o anyone doing anything.

4. To deliver the thing itself

Finalized on 12/12/2019 Page 10

Concomitant obligations to obligation to give if object is generic

2. To be liable for damages in case of fraud, negligence, or delay in the performance of

3. To bear expenses of giving if he fails to give.

2. To bear the expenses of doing the obligation if he fails to perform (Art1167)

3. To undo what was poorly done (Art1167)

4. To pay damages in cause of fraud, negligence, delay, or contravention of tenor of

2. To pay damages in case of fraud, negligence, or contravention... (Art1170)

II. Instances when a party is liable to pay damages (Art1170) (FNDC)

Finalized on 12/12/2019 Page 11

1.2 Causal Fraud (“Dolo Causante”)

2.2 Future Fraud

Difference from negligence

- Liability from this can be reduced.

General principles/concepts of fraud

To be able to claim for damages, there should be:

2. Civil negligence (“Culpa Aquiliana”)

Illustration of kinds of negligence