Obligations and Contracts Short Notes by Mama Gie

MAMA GIE NOTES | SHORT OBLICON NOTES | DEAN ULAN | 2ND SEMESTER, AY 2021-2022
REQUISITES OF MODES OF EXTINGUISHMENT OF OBLIGATIONS

1) Payment/performance – 1232-1255
a) Requisites of Payment:
a. Must be complete
b. Tendered by the proper party
c. Party must have capacity to pay
d. Paid to proper person
e. Capacity of recipient
f. Identity of prestation preserved
g. Made in proper place
b) Requisites of valid payment
a. Identity
b. Integrity
c. Indivisibility
c) Dacion en Pago – transmission of property to the creditor
a. Existence of money obligation
b. Transfer to creditor of the property by debtor
c. For satisfaction of a money obligation
d) Application of payment
a. There must be only one debtor and only one creditor;
b. There must be two or more debts of the same kind;
c. All the debts must be due except if there is stipulation to the
contrary OR application of payment is made by the party for
whose benefit the term has been constituted (Art. 1196); and
d. Amount paid by the debtor is insufficient to cover the total amount
of all the debts.
e) Cession – 1255, debtors property sold at auction, money earned used to
pay off creditor, any excess is returned to the debtor
a. Plurality of debts
b. Partial or relative insolvency of the debtor
c. Acceptance of cession by a creditor
f) Tender of payment and consignation (TOPAC)
a. Tender of payment (1256, 2209) – Manifestation of the debtor to
the creditor to comply immediately with an obligation;
preparatory act and extrajudicial in character; forced payment
b. Consignation (1256 par 1) – Deposit of the object in a competent
court after refusal or inability of the creditor to accept the tender
of payment; principal act and judicial in character
i. Existence of a valid debt that is due;
ii. Tender of payment by the debtor; creditor’s refusal without
just cause to accept it or any of the cases provided in Art.
1256, par. 2 exists
1. Tender must be preceded consignation;
2. It must have been unconditional;
3. The refusal must be without just cause
iii. Previous notice of consignation to creditor and others
interested to give the creditor the opportunity to reconsider
and accept payment
SOURCES INCLUDE: LECTURE NOTES, DEAN ULAN’S OBLICON BOOK, AND OTHER REVIEWERS. THERE MAY BE ERRORS. USE AT YOUR OWN
RISK. 1
1. Lack of previous notice does not invalidate the

consignation but simply makes the debtor liable for
the expenses occasioned, thereby
2. Concerning the creditor, this notice can be made
simultaneously with the tender of payment.
Separate notices must be given to other interested
parties, such as guarantors.
iv. Consignation – amount or thing due placed at the disposal
of the court
v. Subsequent notice of consignation to enable the creditor to
withdraw the goods or money deposited
1. It would be unjust to make the creditor suffer the
risk of deterioration, depreciation, or loss of such
goods or money because of lack of knowledge of the
consignation
2) Loss of the thing due - 1263

a) It perishes
b) Whereabouts could not be determined, and impossible to retrieve
c) The thing goes out of commerce of man
d) Impossibility of performance
a. The event or change of circumstances could not have been
foreseen at the time of the execution of the contract
b. It makes performance extremely difficult, NOT impossible
c. The event must NOT be due to the act of any of the parties
d. The contract is for an extended period of time or successive
performances.
3) Condonation or remission of debt - 1270

a) Condonation – forgiving debtor of the debt
a. Types
i. As to the form
1. Express
2. Implied – article 1271, 752
ii. As to effectivity
1. Inter Vivos – during the lifetime of the creditor
2. Mortis causa – after the death of the creditor
iii. Extent of condonation
1. Partial
2. total
b) Remission/condonation – below is the express form
a. It must be gratuitous.
b. The obligor must accept it;
c. The obligation must be demandable;
d. Parties must have the capacity;
e. Not void; and
f. Must comply with the forms of donation SHOULD IT BE EXPRESS
(Arts. 748 and 749)
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c) Condition if valid donation – articles 748 and 749

a. Requisites of a valid donation, list under Article 1318 must
concur
i. Consent of the contracting parties, that is consent to
donate the subject land to petitioners;
ii. object certain which is the subject matter of the contract;
iii. cause of the obligation which is established.
4) Confusion or merger
a) Merger – a merger of the characters of the creditor and the debtor in the
same person by which the obligation is extinguished.
b) Requisites of merger:
a. The merger of the characters of the creditor and debtor must be
in the same person;
b. Must take place in the person of either the principal creditor or
the principal debtor.
c. Whether the merger refers to the entire obligation or only part
thereof, there must be a complete and definite meeting of all
qualities of creditor and debtor in the obligation, or the part
thereof affected by the merger.
5) Compensation – article 1278, quits na

a) Requisites
a. There must be two parties who, in their own right, are principal
creditors and principal debtors of each other except in the case
of a guarantor (Art. 1280);
b. Both debts must consist of sum of money, or if the things due
are fungibles (consumables), they must be of the same kind and
quality.
i. General Rule: Compensation is not possible in obligations
to do because of the difference in the respective capacities
of the obligors.
c. Both debts must be due; Except for Voluntary compensation
(Art. 1282)
d. Both debts must be liquidated and demandable.
e. There must be no retention or controversy commenced by third
persons over either of the debts and communicated in due time
to the debtor;
f. The compensation must not be prohibited by law.
b) Types
a. Legal
b. Voluntary
c. Judicial
d. Facultative
6) Novation – 1291, establish new, extinguish old.

a) Meaning – obligations modified: changing object or conditions,
substituting debtor, subrogating a 3rd person in the rights of the creditor
RISK. 3
b) Types
a. Real - change in object or condition
b. Personal – substitute debtor
c. Mixed
c) Requisites as per the video
a. Previous valid and existing obligation;
i. Except:
1. When annulment may be claimed only by the
debtor, and he consented to the novation as in a
new contract, recognizing and assuming a
prescribed debt would be valid and enforceable. The
prescription, being available to the debtor, can be
waived by him. The novation of a prescribed debt is
thus valid.
2. When ratification validates voidable acts.
b. The capacity of the contracting parties (to the new contract)
c. Animus novandi or intent to novate (especially for implied
novation and substitution of debtors);
d. The substantial difference between the old obligation and the
new obligation (especially for implied novation), consequently,
extinguishment of the obligation; and
e. Validity of the new obligation
i. Except: If parties clearly intended that the old obligation
be extinguished
d) Requisites as per SC
a. Existence of previous, valid obligation
b. Agreement of the parties concerned to the new contract
c. Extinguishment of the old contract
d. Validity of new contract
7) Annulment – read a defective contracts

a) The contract was not validly entered into when their minds did not meet
or if the consent was vitiated.
b) Involves a complete nullification of the contract
8) Rescission – read defective contracts, but in reciprocal obligations…

a) If one of the parties fails to comply with what is incumbent upon him,
there is a right on the part of the other to rescind (or resolve) the
obligation (tacit resolutory condition)
9) Fulfillment of a resolutory condition – Extinguishment of obligation depends

upon the condition's fulfillment.
a) When it depends exclusively upon the will of the debtor in case of a
resolutory condition
a. condition and obligation is valid; the position of the debtor is
exactly the same as the creditor in a suspensive condition and
does not render the obligation illusory
10) Prescription
RISK. 4
RES PERIT DOMINO V RES PERIT CREDITORI

• Res perit domino – risk is with the debtor
o Article 1191 applicable
o If an obligation is extinguished by the loss of the thing or impossibility
of performance through fortuitous events, the counter-prestation is also
extinguished. The debtor is released from liability but he cannot demand
the prestation which has been stipulated for his benefit. He who gives
nothing has no reason to demand
o Law requires Res Perit Domino
§ Art. 1504 – Sale of Personal Property
§ Art. 1655 – In Lease Contracts
§ Art. 1717 – Contract for a Piece of Work
• Res perit creditori – risk is with the creditor
o If fortuitous
o Generally, this applies unless domino required by law
o The loss or impossibility of performance must be due to the fault of the
debtor. In this case, the injured party may ask for rescission under Art.
1191 plus damages. If the loss or impossibility was due to a fortuitous
event, the other party is still obliged to give the prestation due to the
other
o Example article 1504, sale of personal property
EXPROMISSION V DELEGACION
• Part of personal novation/substitution of debtors
• Expromission - 1294
o effected with the consent of the creditor at the instance of the new debtor
even without the consent or even against the will of the old debtor
(beneficial reimbursement)
o new debtor’s insolvency doesn’t retroact to old debtor
o Requisites:
§ Initiative for substitution must emanate from the new debtor;
§ Consent of the creditor to the substitution; and
§ Old debtor must be released from obligation.
o Creditor’s consent cannot be presumed. It must be given expressly.
o Kinds of Substitution by Expromission
§ Substitution with the knowledge and consent of the old debtor;
§ Substitution without the knowledge or against the will of the old
debtor. – reimbursement only
• Delegacion – 1295
o effected with the consent of the creditor at the instance of the old debtor
(delegante), with the concurrence of the new debtor (delegado)
(reimbursement and subrogation)
o Requisites:
§ Initiative for substitution must emanate from the old debtor;
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§ Consent of the new debtor;

§ Acceptance by the creditor; and
§ Old debtor must be released from obligation.
FORTUITOUS EVENTS
1) When a person is prevented from fulfilling the obligation due to an event that
is unforeseen or that may have been foreseen but was inevitable, will not hold
him liable for the damages
2) As a defense, Fortuitous event (Art. 1174)
a) Acts of God
b) Acts of Man
3) Requisites:
a) Event must be independent of the will of the obligor;
b) It must be either unforeseeable or inevitable;
c) Must be of such a character as to render it impossible for the obligor to
fulfill his obligation in a normal manner; and
d) Obligor must be free from any participation in the aggravation of the
injury resulting to the obligee.
4) Liability in case of fortuitous event: NO LIABILITY
a) Except:
a. When expressly declared by law (e.g. Arts. 552 (2), 1165 (3),
1268, 1942, 2147, 2148 and 2159 NCC)
b. When expressly declared by stipulation or contract
c. When the NATURE of the obligation requires the assumption of
risk
d. When the object of the prestation is generic
5) Effects of Loss of Objects of Alternative Obligation (Arts. 1204-1205)
a) When choice belongs to debtor
a. Due to fortuitous event
i. All are lost – debtor is released from the obligation
ii. Some but not all are lost – deliver that which he shall
choose from among the remainder
iii. Only one remains – deliver that which remains
b) When choice belongs to creditor
a. Due to fortuitous event
i. All are lost – debtor is released from the obligation
ii. Some but not all are lost – deliver that which he shall
choose from among the remainder
iii. Only one remains – deliver that which remains
JOINT DIVISIBLE OBLIGATIONS

• Divisible Obligation
o Those which have as their object a prestation which is susceptible of
partial performance without the essence of obligation changed
• Joint Obligation (Obligacion Mancomunada)
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o The whole obligation is to be paid or fulfilled proportionately by different

debtors or demanded proportionately by different creditors
o If not specific if solidarily or jointly liable, assume jointly liable
• Joint Divisible Obligation
o Pwede chop cop
o Proportion of shares/ if no proportion given, assume eqial
ESSENTIAL REQUISITES OF CONTRACTS

1) Consent – 1319
a) conformity of the parties to the terms of the contract; the acceptance by
the offeree of the offer made by the other
b) Requisites:
a. Must be manifested by the concurrence of the other and
acceptance; (Arts. 1319-1326)
b. Parties must possess the necessary legal capacity; (Arts. 1327-
1329) and
c. Must be intelligent, free, spontaneous, and real. (Arts. 1330-
1346)
c) Elements
a. Offer - Unilateral proposition which one party makes to the other
for the celebration of a contract
i. Requisites:
1. It must be defined.
2. It must be intentional.
3. It must be complete.
4. It must be directed to person or persons with whom
the other offeror intends to enter into a contract
except definite offers which are not directed to a
particular person but to the public in general
ii. Complex offer – When a single offer involves two or more
contracts, the perfection, where there is only partial
acceptance, will depend upon the relation of the contracts
between themselves, whether due to their nature or due to
the intent of the offeror.
1. Rule on Complex Offers
i. Offers are interrelated – contract is perfected
if all the offers are accepted
ii. Offers are not interrelated – single
acceptance of each offer results in a
perfected contract unless the offeror has
made it clear that one is dependent upon the
other and acceptance of both is necessary
b. Acceptance - Must be certain or definite and absolute in
character. A qualified acceptance constitutes a counter-offer.
(Art. 1319), may be express or implied (1320)
i. Requisites
1. Absolute (no vitiation)
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2.Directed to the offeror

3.Made with the intention to be bound
4.Made within a prior or reasonable time
5.Communicated to the offeror and learned by him
unless the offeror knows of the acceptance
ii. Amplified acceptance - Under certain circumstances, a
mere amplification on the offer must be understood as an
acceptance of the original offer, plus a new offer which is
contained in the amplification.
2) Object - 1347
a) The thing, right or service which is the subject matter of the obligation
arising from the contract.
b) In obligation – to do, to give, not to do
c) In contracts – actual thing
d) Requisites:
a. Must be within the commerce of man;
b. Should be real or possible;
c. Should be licit; and
d. Should be determine, or at least possible of determination as to
its kind.
e) Things Which Cannot Be the Object of Contracts (Art. 1347-1349)
a. General Rule: All things or services may be the object of
contracts.
b. Exceptions:
i. Things outside the commerce of men;
1. Requisites to be inside commerce of man
i. Susceptible to appropriation or private
ownership
ii. transmissible
ii. Intransmissible rights;
iii. Future inheritance except in cases expressly authorized by
law:
1. The object of the contract forms part of the
inheritance;
2. The promissor has an expectancy of a right which is
purely hereditary in nature.
iv. Services contrary to law, morals, good customs, public
order or public policy;
v. Impossible things or services;
vi. Objects not possible of determination as to their kind.
f) In order that a thing, right or service may be the object of a contract, it
should be in existence at the moment of the celebration of the contract,
or at least, it can exist subsequently or in the future:
g) Future thing may be the object of a contract. Such contract may be
interpreted in two possible ways:
a. Conditional contract – if its efficacy should depend upon the
future existence of the thing
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b. Aleatory contract – if one of the contracting parties should bear

the risk that the thing will never come into existence
3) Cause – 1350
a) It is the immediate, direct or most proximate reason which explains and
justifies the creation of an obligation through the will of the contracting
parties.
b) Essential requisites of cause:
a. Existing at the time of the celebration of the contract;
b. Licit or lawful; and
c. True
c) Differentiations
d) Effect of Lack of Cause, Unlawful Cause, False Cause and Lesion (Arts.
1352-1355)
CONTRACTS CREATING REAL RIGHTS

• Article 1312. In contracts creating real rights, third persons who come into
possession of the object of the contract are bound thereby, subject to the
provisions of the Mortgage Law and the Land Registration Laws.
• Real rights (also known as jus in re or jus in rem) are those enforceable against
the whole world.
VICES OF CONSENT – 1330

1) Vices of the will (vicios de la formacion de la voluntad)
2) Violence – 1335, serious or irresistible force is employed

a) Requisites
a. Must be serious or irresistible
b. Must be the determining cause for the party upon whom it is
employed in entering in the contract
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c. It is not justified
d. It is sufficient
b) Physical compulsion
c) External or prevents the will to manifest itself
3) Intimidation – 1335 par 2, compelled by reasonable and well-grounded fear

a) Requisites
a. One party is compelled to give his consent by a reasonable and
well-grounded fear of an evil;
b. The evil must be imminent and grave;
c. The evil must be upon his person or property, spouse,
descendants, or ascendants; and
d. It is the reason why he enters the contract.
e. The evil must be unjust.
b) Moral compulsion
c) Internal or induces the performance of an act
4) Mistake – 1331
a) It must refer to the substance of the thing which is the object of the
contract, or to those conditions which have principally moved one or both
parties to enter into the contract.
b) Requisites of Art. 1334 which will vitiate consent:
a. It must be of a past or present fact;
b. It must not be imputable to the party mistaken,
i. i.e. mistake is not inadvertent and excusable;
c. Mistake must be with respect to the legal effect of an
agreement;
d. It must be mutual; and
e. Parties’ real purpose must have been frustrated.
f. NOTE: There is NO MISTAKE in the party alleging it knew the
doubt, contingency or RISK affecting the object of the contract
(Art. 1333)
c) Classification
a. Mistake in manifestation – error obstantivo
b. Mistake as to the identity or qualification of the parties
i. Article 1331 par 2 – will vitiate consent only when such
identity or qualification is the principal cause of the
contract
ii. Requisites
1. Mistake is with regard to either the identity or
qualification of one of the contracting parties
2. Identity or qualification must have been the
principal consideration in the celebration of the
contract
c. Mistake in formation/content of volition
i. Mistake of fact – vitiates consent
1. One or both contracting parties believe that a fact
exists when in reality it does not or vice versa.
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ii.
Mistake of law – Does not vitiate consent except when it
involves mutual error as to the effect of an agreement
when the real purpose is frustrated
1. One or both parties arrive at an erroneous
conclusion regarding the interpretation of a question
of law or legal effects of a certain act or transaction.
d. Mistake as to the object of the contract
i. Error in corpore – mistake over the identity of the thing
1. Contract is void
ii. Error in substancia – error over the essence or the
substantial qualities of the thing which affect the
materials which compose the thing
1. Contract is voidable
iii. Error over determining attributes or characteristics of

the thing which is actually foreign to its matter
1. Mistake is in the intrinsic characteristic of the thing
iv. Error in quantitative
1. Mistake as to the amount which refers to the
mistake as to the dimension of the object and differs
from mistake of account which is mistake in
computation
v. Note for errors in subtsancia, determining attributes, and
quantitative
1. Needs to be present in order to be void
i. Must be present or past fact
ii. Must have induced the parties to enter into
contract
iii. Must not be imputable to the party mistaken
(dapat good faith or excusable mistake)
iv. Must have been inadvertent (di sinasadya)
v. Must be mistake of fact and not of law
5) Fraud – 1338
a) When, through insidious words or machinations of one party, the other
is induced to enter into a contract which without them, he would not
have agreed to.
b) Requisites of Fraud under Art. 1338:
a. One party must have employed fraud or insidious words or
machinations
b. It must have been serious;
c. It induced the other party to enter into a contract;
d. It must have been employed by one contracting party upon the
other and not employed by both contracting parties or by third
persons;
e. Damage or injury resulted to the other party;
f. It must be made in bad faith, i.e. with knowledge of its falsify
RISK. 11
c) Kinds of fraud:
a. Fraud in the PERFECTION of the contracts
i. Causal Fraud (Dolo Causante) – 1338
1. Refers to those deceptions or misrepresentations of
a serious character employed by one party and
without which the other party would not have
entered into the contract
2. Fraud which is serious in character
3. It is the cause which induces the party to enter into
a contract
4. Renders the contract voidable
ii. Incidental Fraud (Dolo Incidente) - 1344
1. Refers to those deceptions or misrepresentations
which are not serious in character and without which
the other party would have still entered the
contract.
2. Not serious in character
3. Not the cause
4. Liability for damages
b. Fraud in the PERFORMANCE of an obligation (Art. 1170)
i. Contract already exists
ii. Causes of action
1. Insist on performance
2. Sue for damages
c. Note: Failure to disclose facts, when there is a duty to reveal
them, constitutes fraud. (Art. 1339)
d) Fraud by third person does not vitiate consent UNLESS:
a. It has created a substantial mistake and the same is mutual.
b. Third person makes the misrepresentation with the complicity,
or at least with the knowledge but without the objection, of the
favoured contracting party.
6) Undue Influence – 1337

a) When a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice.
b) Test of undue influence:
a. Whether or not the influence exerted has so overpowered or
subjugated the mind of a contracting party as to destroy his free
agency, making him express the will of another rather than his
own.
b. NOTE: Reverential fear is fear of displeasing a person to whom
respect, and obedience is due. Here, there is NO unreasonable
restraint in the choice of the party and HENCE NOT VITIATE
CONSENT.
c) Requisites
a. Person who can be influenced
b. The fact that improper influence was exerted
c. Submission to the overwhelming effect of such unlawful conduct
RISK. 12
THEORIES OF PERFECTION OF CONTRACTS

1) Manifestation Theory – perfected from the moment the acceptance is declared
or made.
a) Adhered to by the Code of Commerce
2) Expedition Theory – perfected from the moment the offeree transmits the
notification of acceptance to the offeror.
3) Reception Theory – perfected from the moment that the notification is in the
hands of the offeror in such a manner that he can, under ordinary conditions,
procure the knowledge of its contents, even if he is not able to actually acquire
such knowledge.
4) Cognition Theory – perfected from the moment the acceptance comes to the
knowledge of the offeror.
5) Note: Acceptance by silence

a) Silence can be construed as consent.
a. Requisites:
i. There is a duty or possibility to express oneself;
ii. The manifestation of the will cannot be interpreted in any
other way;
iii. There is a clear identity in the effect of the silence and
the undisclosed will (Arts. 1670, 1870-1873)
OPTION CONTRACT
• preparatory contract in which one party grants to the other for a fixed period
under specified conditions, to decide whether or not to enter into a principal
contract.
• Requisites:
o It is supported by an independent consideration; and
o It is exclusive.
• If the option is not supported by a consideration which is distinct from the
purchase price, the offer may still be withdrawn even if the offeree has already
accepted it an option contract, which requires, among others, a clear certainty
on both the property and the purchase price of the envisioned contract of sale,
the exercise of a right of first refusal depends on the purchase price and other
terms that the owner-lessor have yet to agree upon.
• "Earnest money" and "option money" are not the same but distinguished thus:
(a) earnest money is part of the purchase price, while option money is the
money given as a distinct consideration for an option contract; (b) earnest
money is given only where there is already a sale, while option money applies
to a sale not yet perfected; and, (c) when earnest money is given, the buyer is
bound to pay the balance, while when the would-be buyer gives option money,
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he is not required to buy, but may even forfeit it depending on the terms of the
option
CHARACTERISTICS OF CONTRACTS
1) Obligatory – 1306, parties to establish stipulations just not contrary to law
a) It is a rule that once the contract is perfected, it shall be of obligatory
force upon both of the contracting parties
b) Requisites
a. Perfected
b. Valid
c. Enforceable
c) Laws that must not be disregarded
a. When law expressly declares the obligatory character
b. Those laws that are prohibitive
c. Express fundamental principles of justice
d. Laws that impose essential requirements w/o which the contract
can’t exist
2) Mutuality – 1308, binds parties together
a) The validity or fulfillment of a contract cannot be left to the will of one of
the contracting parties.
b) Validity or fulfillment may be left to (1) the will of a third person, whose
decision shall not be binding until made known to both the contracting
parties (Art. 1309) or (2) chance.
3) Autonomy – 1306, contracting parties may establish such stipulations,

clauses, terms and conditions as they deem convenient
a) Limitation to the principle of autonomy:
a. Stipulations should not be contrary to law, morals, good
customs, public order, or public policy.
b. Exercise of Parens Patriae – weakening the consensual nature
of contracts giving undue advantage to one of the contracting
parties
4) Relativity – 1311, Contracts take effect only between parties, their assigns
and heirs.
a) Limitations: HOWEVER with respect to assignees or heirs, the general
rule under Art. 1311 is not applicable if the rights and obligations arising
from the contract are not transmissible or purely personal.
b) Exceptions:
a. Beneficial stipulation/stipulation pour autrui – A stipulation in
favour of a third person.
b. When the third person comes into possession of the object of a
contract creating real rights; (Art. 1312)
c. Where the contract is entered into in order to defraud a creditor;
(Art. 1313)
i. Here, the creditor may ask for its rescission.
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d. Where the third person induces a contracting party to violate his

contract (Art. 1314). Such third person can be held liable for
damages.
e. Contracts creating “status” (marriage contract)
f. In suspension of payments and compositions under the
Insolvency Law
g. CBA
h. Negotiorum gestio (Art. 2150-2151)
i. Violence & intimidation employed by 3P (Art. 1336)
j. Accion direct – 1729, 1652, 1893, 1608a
POUR AUTRUI AS ACCESSORY CONTRACT – article 1311, par 2

• Stipulation in favor of a 3rd person that is not a party to the contract, expressly
and clearly conferring the benefit to such person
• An accessory contract that is not dependent on a principal contract;
extinguishment of principal contract does not extinguish pour autrui contract
• Parties
o Promisor
o Promisee
o Beneficiary
• Requisites
o Clear and deliberate intention of conferment of favor to a 3rd person
o No compensation
o Stipulation is not the entire contract
o Parties do not have any legal representation or authorized by the 3rd
party
o 3rd party which is the beneficiary must accept and communicate
acceptance to both parties
• Kinds of beneficiary
o Done beneficiary – gratuitous
o Creditor beneficiary – obligation is due from the promise to the 3rd party
which the former seeks to discharge by means of such stipulation
o Incidental beneficiary – there is absence of intent to benefit a 3rd party
§ Not contemplated in the civil code
RIGHT OF 1st REFUSAL

• Doctrine: A right of first refusal is a contractual right that gives its holder the
option to enter a business transaction with the owner of something, according
to specified terms, before the owner is entitled to enter into that transaction
with a Third party
• Preparatory judicial relation
• Because an ROFR is a contract right, the holder’s remedies for breach are
typically limited to recovery of damages. In other words, if the owner sells the
asset to a third party without offering the holder the opportunity to purchase it
first, the holder can then sue the owner for damages but may have a difficult
time obtaining a court order to stop or reverse the sale. However, in some cases
RISK. 15
the option becomes a property right that may be used to invalidate an improper
sale.
• When a lease contract contains a right of first refusal, the lessor is under a legal
duty to the lessee not to sell to anybody at any price until after he has made
an offer to sell to the latter at a certain price and the lessee has failed to accept
it.
• Similar to the rent-to-own scheme is a lease agreement containing a right of
first refusal. Under this agreement, the owner-lessor is under a legal duty to
the lessee not to sell anybody at any price until after: (a) he has made an offer
to sell to the latter at a certain price; and (b) the lessee has failed to accept it.
In this regard, the Supreme Court ruled that the grant of the right of first refusal
is a means to protect the lessee’s interest over the leased premises.
ADVERTISEMENT/ AUCTION SALES

• Article 1325 – anot offers except if expressly and clearly provided
• Merely an invitation
• Article 1326 – advertisement for bidders are simply invitations to make
proposals, the advertiser is not bound to accept the highest or lowest bidder,
unless the contrary appears
o Exception – public biddings/auctions where offer bidder will be bound by
law to accept the highest or lowest bids
FORMAL CONTRACTS
1) General Rule: Contracts shall be obligatory, in whatever form they may have
been entered into, provided all the essential requisites for their validity are
present (Art. 1356).
2) Exceptions:
a) When the law requires that the contract be in a certain form to be valid
(Art. 1356) – these must be in writing
a. Donation of personal property whose value exceeds five
hundred pesos (Art. 748)
b. Sale of a piece of land or any interest therein through an agent
(Art. 1874) –
i. Preparatory contract of agency – must be in writing or
else void
ii. Principal contract also need to be in writing, if oral
contract only it is valid but unenforceable
c. Donation propter nuptias
d. Negotiable instruments
e. Art 1174 on the sale of large cattle, needs to be registered
f. Chattel mortgage – art 2140, also needs to be registered
g. Agreements regarding payment of interest in contracts of loan
(Art. 1956);
h. Antichresis (Art. 2134) – accessory contract
i. Usually found in loans or pledges
ii. The fruits earned will go to the creditor
RISK. 16
i.
In regard to partnership, when a party/partner donates real
property to the partnership
j. Stipulation limiting common carrier’s duty of extraordinary
diligence to ordinary diligence (Art. 1744)
k. Art 1956 – no interest shall be due unless it has been expressly
stipulated in writing
b) When law requires that the contract be in a certain form to be
enforceable (Statute of Frauds)
a. Art 1403 in relation to art 1358
i. Statute of fraud = requirement of form = ethod by which
the contracts may be proved but does not declare them
invalid because they may not be in the form
b. Cant be availed of by 3rd party
c. Defense of statute of fraud can be waived
i. Expressly through ratification
ii. Impliedly through ratification
1. By failing to object at the proper time upon
presentation of oral evidence of the oral contract
d. Types of contracts where statute of fraud does not apply
i. An agreement creating an easement of right of way
ii. Agreement for setting up boundaries
iii. Oral partition of real property
iv. Promise to give a party of the right of first refusal
v. Commitment
e. Contracts covered by the statute of fraud

i. Agreements to be performed within a year
ii. Special promise to answer for debt of another
iii. Agreement in consideration of marriage, except donation
propter nuptias
iv. Lease of real property for more than a year
v. Sale of real property or interest therein
c) Those that must appear in a public instrument to enhance binding
efficacy (Art. 1357-1358
a. Valid and enforceable, but may not necessarily affect 3rd parties
b. R.A. 8792 (E-Commerce Act) – It provides that the formal
requirements to make contracts effective as against third
persons and to establish the existence of a contract are deemed
complied with provided that the electronic document is
unaltered and can be authenticated as to be usable for future
reference
c. Donation of immovable properties (Art. 749);
d. Acts/contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property (Arts. 1358 (1), 1403 (2), 1405);
e. The cession, repudiation or renunciation of hereditary rights or
of those of the conjugal partnership of gains (Art. 1358 (2);
f. The power to administer property or those which should
prejudice a third person (Art. 1358 (3);
RISK. 17
g. The cession of actions or rights proceeding from an act

appearing in a public document (Art. 1358 (4)
DEFECTIVE CONTRACTS
1) RESCISSIBLE Contracts
a) Contracts which are valid but are defective because of injury or damage
to either of the contracting parties or to third persons, as a consequence
of which it may be rescinded by means of a proper action for rescission.
b) Requisites of rescission:
a. Contract must be rescissible under Arts. 1381 and 1382.
b. Party asking for rescission must have no other legal means to
obtain reparation for the damages suffered by him (Art. 1383)
c. Person demanding rescission must be able to return whatever
he may be obliged to restore if rescission is granted (Art. 1385)
d. Things which are the object of the contract must not have
passed legally to the possession of a third person acting in good
faith (Art. 1385); and
e. Action must be brought within four years (Art. 1389)
c) Contracts that are rescissible (Arts. 1381-1382)
a. Lesion
i. Those entered into by guardians where the ward suffers
lesion of more than ¼ of the value of the things which
are objects thereof.
ii. Those agreed upon in representation of absentees, if the
latter suffer lesion by more than ¼ of the value of the
things which are subject thereof.
iii. Requisites
1. Contract was entered into by a guardian in behalf of
his ward or by a legal representative in behalf of an
absentee;
2. It was entered into without judicial approval;
3. Ward or absentee suffered lesion of more than ¼ of
the value of the property which is the object
contract.
4. There is no other legal means of obtaining
reparation for the lesion;
5. Person bringing the action must be able to return
whatever he may obliged to restore; and
6. Object of the contract must not be legally in the
possession of a third person who did not act in bad
faith
b. Fraud
i. Those undertaken in fraud of creditors when the latter
cannot in any manner claim what are due them. (accion
pauliana)
RISK. 18
ii. Accion pauliana presupposes a judgment and unsatisfied

execution which cannot exist when the debt is not yet
demandable at the time the rescissory action is brought.
iii. Even secured creditors are entitled to accion pauliana
iv. Fraud needs to be proven, not presumed
v. Requisites
1. Creditor asking for rescission has a credit prior to
the alienation; meaning the debtor who made the
alienation through a contract already had an
outstanding due and demandable obligation
2. Debtor has made a subsequent contract conveying
a patrimonial benefit to a 3rd party
3. The creditor has no other legal remedy to satisfy his
claim
4. The act being impugned is fraudulent, that is the
contract that the debtor entered into is proven to be
fraudulent in the effect that it deprives the creditor
from fully satisfying his judgment claim
5. The 3rd party who receives the property conveyed,
if it is by onerous title has been an accomplice in the
fraud
vi. Ratification of Contracts Infringing the Statute of Frauds
(Art 1405)
1. Failure to object to the presentation of oral evidence
to prove such contracts; or
2. Acceptance of benefits under these contracts
vii. Requisites before a contract entered into in FRAUD OF

CREDITORS may be rescinded:
1. There is a credit existing prior to the celebration
contract;
2. There is fraud, or at least, the intent to commit fraud
to the prejudice of the creditor seeking rescission;
3. Creditor cannot in any legal manner collect his
credit; and
4. Object of the contract must not be legally in the
possession of a third person who did not act in bad
faith
5. Note: The action to rescind contracts in fraud of
creditors is known as accion pauliana.
viii. Those which refer to things under litigation if they have
been entered into by the defendant without the
knowledge and approval of the litigants and the court.
ix. Payments made in a state of insolvency for obligations
whose fulfillment the debtor could not be compelled at
the time they were effected
1. Requisites before payment made by insolvent can
be rescinded:
i. It was made in a state of insolvency; and
RISK. 19
ii. Obligation must have been one which the

debtor could not be compelled to pay at the
time such payment was effected.
x. Parties who may institute action:
1. The creditor who is defrauded in rescissory actions
on ground of fraud, and other person authorized to
exercise the same in other rescissory actions.
2. Their representatives
3. Their heirs
4. Their creditors by virtue of the subrogatory action
define in Art. 1177 of the NCC
c. Other Causes Stated By Law
i. Art. 1098 – partition of inheritance where an heir suffers
LESION of at least ¼ of the share to which he is entitled
ii. Art. 1189 (4) – deterioration of the thing through the
fault of the debtor
iii. Art. 1526 (4) – right of unpaid seller to rescind
iv. Art. 1538 – deterioration of the object of the sale
v. Art. 1539 – sale of real estate with a statement of its
area at the rate of a certain price for a unit of measure
or number and the vendor failed to deliver the area
stated, which should be not less than 1/10th of that
stated
vi. Art. 1542 – the vendee does not accede to the failure to
deliver what has been stipulated
vii. Art. 1556 – when through eviction, the vendee loses a
part of the thing sold of such importance, in relation to
the whole, that he would not have bought it without the
said part
viii. Art. 1560 – if immovable sold is encumbered with any
non-apparent burden or servitude of such nature that it
cannot be presumed that the vendee could not have
acquired it had he been aware thereof
ix. Art. 1567 – election of the vendee to withdraw from the
contract in the cases under Arts. 1561-1566
x. Art. 1659 – rescission by the aggrieved party in a
contract of lease when the other party does not comply
with Arts. 1654 and 1657
d) Effect of Rescission (Art. 1385)
a. As to the parties – mutual restitution together with the fruits
and interest
i. Note: This is applicable only to rescissory actions on the
ground of lesion and not to rescissory actions on the
ground of fraud.
b. As to third person
i. Bad faith or not legally in possession – obliged to return
ii. Legally in possession and not in bad faith – no rescission;
however, indemnity for damages may be demanded
from the person causing the loss.
RISK. 20
e) Prescriptive Period: Action for Rescission (Art. 1389)

a. Under Art. 1381 (1)– within 4 years from the time of the
termination of the incapacity of the ward
b. Under Art. 1381 (2)– within 4 years from the time the domicile
of the absentee is known
c. Under Art. 1381 (3) and (4) as well as Art. 1382 – within 4 years
from the time of the discovery of fraud
d. In certain contracts of sale especially declared by law to be
rescissible – 6 months or even 40 days counted from the day of
delivery (Arts. 1547, 1571, 1577)
2) VOIDABLE Contracts
a) Those which possess all the essential elements for validity but the
consent is vitiated either by lack of legal capacity of one of the
contracting parties or by mistake violence, intimidation, undue influence
or fraud even though there may have been no damage to the contracting
parties
b) Cause
a. The following contracts are voidable or annullable:
i. Those where ONE of the parties is incapable of giving
consent to a contract;
ii. Those where the consent is vitiated by mistake, violence,
intimidation, undue influence of fraud (Art. 1390)
c) Prescriptive Period: Action for Annulment (Art. 1391):
a. Contracts entered into by incapacitated person – within 4 years
from the time guardianship ceases;
b. Where consent is vitiated by violence, intimidation or undue
influence – within 4 years from the time such violence,
intimidation or undue influence ceases;
c. Where consent is vitiated by mistake or fraud – within 4 years
from the time of the discovery of such mistake or fraud
d) Who May Institute Action for Annulment (Art. 1397)
a. General Rule: Action for annulment may be instituted by all who
are thereby obliged principally or subsidiarily. A stranger to the
contract cannot institute an action for annulment.
b. Requisites:
i. Plaintiff must have interest in the contract;
ii. The victim and not the party responsible for the vice or
defect must assert the same.
c. Exception: If a third person is prejudiced in his rights with
respect to one of the contracting parties, and can show
detriment which would positively result to him from the contract
in which he has no intervention
e) Effects of Annulment
a. In contract has not yet been consummated parties shall be
released from the obligations arising therefrom;
b. If contract has already been consummated rules provided in
Arts. 1398-1402 shall govern
RISK. 21
i. Arts. 1398-1399 – Obligation of mutual restitution

ii. Arts. 1400-1402 – Effect of failure to make restitution
3) UNEFORCEABLE Contracts
a) Those which cannot be enforced by proper action unless they are ratified,
because, either:
a. They are entered into without or in excess of authority (Art 1403
(1); Art. 1317);
i. Ultra vires
ii. Nothing in the civil code that requires the 3rd party be in
good or bad faith
b. They do not comply with the statute or frauds (Art. 1403 (2);
i. Statute of fraud required for enforceability
1. Agreements to be performed within a year
2. Special promise to answer for debt of another
3. Agreement in consideration of marriage, except
donation propter nuptias
4. Lease of real property for more than a year
5. agreement for sale of goods no less than Php 500
6. representation as to the credit of a 3rd aprty
ii. applicable only to executory contracts and not those that
are totally or partially performed
iii. cant be applicable where the contract is admitted to
relieved the necessity of the form required for purposes
of evidence in cases where there is denial
iv. not applicable where the writing does not express the
true intent of the parties
v. statute of frauds only make it unenforceable
vi. doesn’t determine the credibility but merely regulate the
admissibility of evidence
vii. defense of statute of fraud is subject to a waiver
viii. defense is personal to the parties, not available to 3rd
party
c. Both contracting parties do not possess the required legal
capacity.
4) VOID OR INEXISTENT Contracts

a) In general, they are those which lack absolutely either in fact or in law
one or some of the elements essential for its validity.
b) Note: The defense of illegality of contract is not available to third persons
whose interests are not directly affected (Art. 1421)
a. A contract which is the direct result of a previous illegal contract,
is also void and inexistent (Art. 1422)
c) Contracts which are INEXISTENT and VOID AB INITIO (Art. 1409)
a. Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
b. Those which are absolutely simulated or fictitious;
c. Those whose cause or object did not exist at the time of the
transaction;
RISK. 22
d. Those whose object is outside the commerce of men;

e. Those which contemplate an impossible service;
f. Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained;
g. Those expressly prohibited or declared void by law.
d) Void and Inexistent Contracts
RESCISSIBLE VOIDABLE UNENFORCEABLE
Valid But Defective/ Valid But Defective/ Valid But Defective/

Unenforceable Unenforceable Unenforceable
Can NOT be ratified Can be ratified Can be ratified
Defect is extrinsic Defect is intrinsic Defect is intrinsic
Can be assailed by 3rd Can be assailed only by Can be assailed only by

party contracting parties contracting parties
Not subject to
Prescription – 4 years Prescription – 4 years
prescription
IN PARI-DELICTO
1) The principle of in pari delicto is applicable ONLY TO VOID CONTRACTS and not
to inexistent contracts.
2) Does not apply if it violates public policy and to disbarment proceedings
3) General Rule: When the defect of a void contract consists in the illegality of the
cause or object of the contract and both of the parties are at fault or in pari
delicto, the law refuses them any remedy and leaves them where they are.
4) Exceptions:
a) Payment of usurious interest (Art. 1413);
b) Payment of money or delivery of property for an illegal purpose, where
the party who paid or delivered repudiates the contract before the
purpose has been accomplished, or before any damage has been caused
to a third person (Art. 1414);
c) Payment of money or delivery of property made by an incapacitated
person (Art. 1415);
RISK. 23
d) Agreement or contract not illegal per se but merely prohibited by law,

and the prohibition is designed for the plaintiff’s protection (Art. 1416);
e) Payment of any amount in excess of the maximum price of any article or
commodity fixed by law (Art. 1417);
f) Contract whereby a labourer undertakes to work longer than the
maximum number of hours fixed by law (Art. 1418);
g) Contract whereby a labourer accepts a wage lower than the minimum
wage fixed by law (Art. 1419);
h) In case of divisible contracts, the legal terms may be enforced separately
from the illegal terms (Art. 1420);
i) One who lost in gambling because of fraudulent schemes practiced on
him. He is allowed to recover his losses. [Art. 315, 3(b), RPC] even if
gambling is prohibited.
5) Rules in cases of illegal cause or object
a) Article 1411 – if the act constitutes a criminal offense
a. No action against each other and both may be prosecuted
b. If only one is guilty, no action still against each other. Guilty
party will be prosecuted and the innocent party may claim what
he has given and shall not be bound to comply with his promise
b) Article 1412 – if the act does not constitute a criminal offense
a. If both at fault, neither may recover or demand performance
b. If only one is at fault, the party at fault cant recover and the
party not at fault may demand the return of what he has given
without obligation to comply with his promise
RISK. 24

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MAMA GIE NOTES | SHORT OBLICON NOTES | DEAN ULAN | 2ND SEMESTER, AY 2021-2022

REQUISITES OF MODES OF EXTINGUISHMENT OF OBLIGATIONS

1. Lack of previous notice does not invalidate the

2) Loss of the thing due - 1263

3) Condonation or remission of debt - 1270

c) Condition if valid donation – articles 748 and 749

5) Compensation – article 1278, quits na

6) Novation – 1291, establish new, extinguish old.

7) Annulment – read a defective contracts

8) Rescission – read defective contracts, but in reciprocal obligations…

9) Fulfillment of a resolutory condition – Extinguishment of obligation depends

RES PERIT DOMINO V RES PERIT CREDITORI

§ Consent of the new debtor;

JOINT DIVISIBLE OBLIGATIONS

o The whole obligation is to be paid or fulfilled proportionately by different

ESSENTIAL REQUISITES OF CONTRACTS

2.Directed to the offeror

b. Aleatory contract – if one of the contracting parties should bear

CONTRACTS CREATING REAL RIGHTS

VICES OF CONSENT – 1330

2) Violence – 1335, serious or irresistible force is employed

3) Intimidation – 1335 par 2, compelled by reasonable and well-grounded fear

iii. Error over determining attributes or characteristics of

6) Undue Influence – 1337

THEORIES OF PERFECTION OF CONTRACTS

5) Note: Acceptance by silence

3) Autonomy – 1306, contracting parties may establish such stipulations,

d. Where the third person induces a contracting party to violate his

POUR AUTRUI AS ACCESSORY CONTRACT – article 1311, par 2

RIGHT OF 1st REFUSAL

ADVERTISEMENT/ AUCTION SALES

e. Contracts covered by the statute of fraud

g. The cession of actions or rights proceeding from an act

ii. Accion pauliana presupposes a judgment and unsatisfied

vii. Requisites before a contract entered into in FRAUD OF

ii. Obligation must have been one which the

e) Prescriptive Period: Action for Rescission (Art. 1389)

i. Arts. 1398-1399 – Obligation of mutual restitution

4) VOID OR INEXISTENT Contracts

d. Those whose object is outside the commerce of men;

RESCISSIBLE VOIDABLE UNENFORCEABLE

Valid But Defective/ Valid But Defective/ Valid But Defective/

Defect is extrinsic Defect is intrinsic Defect is intrinsic

Can be assailed by 3rd Can be assailed only by Can be assailed only by

d) Agreement or contract not illegal per se but merely prohibited by law,

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