MODULE 1 Judicial power is the duty of the courts of justice to settle

actual controversies involving rights which are legally

OBLIGATIONS AND CONTRACTS
demandable and enforceable and to determine whether or
WHAT IS LAW? not there has been a grave abuse of discretion amounting
to lack or excess of jurisdiction on the part of any branch or
Law is a rule of conduct, just, obligatory promulgated by instrumentality of the Government. (Sec. 1 Par , Art. VIII,
legitimate authority, and of common observance and 1987 Constitution)
benefit.
The power to interpret laws.
- Sanchez Roman
Judicial Power is vested in the Supreme Court and in such
Law is a science of principles by which the civil society is lower courts as may be established.
regulated and held together, by which right is enforced, and
wrong is detected and punished. Judicial system in the Philippines

- Justice Bradley, US Supreme Court 1. LOWER COURTS

• Municipal Trial Courts and Municipal Circuit
Characteristics of law Trial Courts
• Metropolitan Trial Courts and Municipal Trial
1. It is a rule of human conduct.
Courts in Cities
2. Promulgated by a competent authority.
• Regional Trial Courts
3. Obligatory
• Sharia’s Court (Muslim Code and Personal
4. Applicable to Public in General
Laws)
• Court of Tax Appeals
General divisions of law
• Sandigan Bayan
1. General Or Public Law
• Court of Appeals
• International Law
•
• Constitutional Law
2. THE HIGHEST COURT
• Administrative Law
• Supreme Court
• Criminal Law
2. Private Law
• Civil Law
MODULE 2
• Mercantile Law
• Remedial Law WHAT IS OBLIGATION?

3 BRANCHES OF THE GOVERNMENT Under Article 1156 of the Civil Code, an obligation is a
juridical necessity to give, to do or not to do.
1. Legislative Department
2. Executive Department Article 1156 pertains to “civil” obligations which give a right
3. Judicial Department of action to compel the performance or fulfillment of an
obligation. In this sense, there is juridical necessity.
LEGISLATIVE DEPARTMENT
In 1156, there are two persons involved, namely the one
The power to propose, enact, amend, and repeal laws.
who renders the obligation, and the one to whom it is
In a limited capacity, this power can be delegated to other rendered.
branches of the government.
Obligation encompasses both sides of the equation the
The Legislative Power is vested in the Congress (Senate and debt and the credit.
House of Representatives)
Elements of obligations
EXECUTIVE DEPARTMENT
• Active subject (the creditor) – obligee
The power to execute, administer and carry out laws into • Passive subject (the debtor) – obligor
practical operation and enforce their due observance. • Prestation – subject matter of obligation – object
• Vinculum Juris (efficient cause/juridical tie) – the
The executive power is vested in the President of the reason why the obligation exists.
Philippines.

Power can be delegated to other government units.

VINCULUM
 Is that which binds the parties to the object of the
JUDICIAL DEPARTMENT obligation, without which, no obligation may exist.
 This is what lacking in natural obligations.

PRESTATION/OBJECT
 The object of every obligation is always a
prestation. Prestation is defined as the particular
conduct required to be observed by the debtor
(obligor) and which can be demanded by the
oblige (creditor)
 Is not a thing, rather is the 3 act in the meaning of
obligation (to give, to do, or not to do)
 Giving and doing are not the same. Giving is
connected with the thing to be delivered (real
obligations) while in obligations to do, compliance
with the obligation is incumbent upon the person
obliged.
ACTIVE/PASSIVE SUBJECT
 Obligee (Creditor) – Denominated as the active
subject. The one who has the power to demand
the performance of the prestation.
 Obligor (Debtor) – Passive Subject. The one
required to perform the prestation.
 From the viewpoint of the active subject, the
obligation is a right or credit; from that of the
passive subject, it is a debt.
Sources of obligations
1. Law
2. Contracts
3. Quasi-Contracts
4. Acts or Omissions punishable by law
5. Quasi-delicts
I. LAW
• Obligations arising from law are not presumed.
(Article 1158)
• In order to be demandable or enforceable,
obligations arising from law must be expressly
determined in the civil code or in special laws.
II. CONTRACTS
• Under Article 1159, Obligations arising from
contracts have the force of law between the
contracting parties and should be complied with in
good faith.
• Article 1305, defines a contract as a meeting of
minds between two persons whereby one binds
himself, with respect to the other, to give
something or to render some service.
• Contracts are as good as a law since the terms and
conditions agreed upon by the parties is
considered a law between them. In law on
contracts, this is what we call obligatory force of
contracts, which presupposes the existence of a
valid and enforceable contract.
III. QUASI-CONTRACTS
• Article 2142 - Certain lawful, voluntary and
unilateral acts give rise to the juridical relation of
quasi-contract to the end that no one shall be
unjustly enriched or benefited at the expense of
another.
• Article 2124 creates the legal fiction of a quasi-
contract precisely because of the absence of any
actual agreement between the parties concerned.
• Characteristics: (1) It arises from a lawful act. (2)
The act is voluntary because the actor in quasi-
contracts is not bound by any pre-existing
obligation to act. (3) It is unilateral, because it
arises from the sole will of the actor who is not
previously bound by any reciprocal or bilateral
agreement.
• Negotiorum Gestio – Whoever voluntarily takes
charge of the agency or management of the
business or property of another, without any
power from the latter, is obliged to continue the
same until the termination of the affair and its
incidents, or to require the person concerned to
substitute him, if the owner is in a position to do
so. (Article 2144 of the Civil Code)
Requisites of Negotiorum Gestio
[1] a person, called the officious manager or
gestor, voluntarily assumes the agency or
management of the business or property of
another.
[2] the property or business is neglected or
abandoned.
[3] there is no authorization form the owner,
either expressly or impliedly
[4] The assumption of agency or management
is done in good faith.
• Solutio Indebiti – arises when something is
received when there is no right to demand it, and
it was unduly delivered through mistake, the
obligation to return it arises.
Requisites:
[1] That he who paid was not under obligation
to do so; and
[2] That payment was made by reason of an
essential mistake of fact.
IV. DELICTS
• Delicts are acts or omissions punishable by law.
• Every person criminally liable for a felony is also
civilly liable (Article 100 of the Revised Penal Code)
• Crime has a dual character: (1) As an offense
against the State because of the disturbance of the
social Order (2) As an offense against the private
person injured by the crime.
 • While an act or omission is felonious because it is
punishable by law, it gives rise to civil liability not
so much because it is a crime but because it
caused damage to another.
PERSONAL
 Obligation is to do, and not to do.
 There is a negative and positive obligation.

V. QUASI-DELICTS
Specific vs generic obligations
• Under Article 2176 of the Civil Code, whoever by
• Real Obligations can either be specific
act or omission causes damage to another, there
(determinate) or generic (indeterminate)
being fault or negligence, is obliged to pay for the
depending on the nature of the thing to be
damage done. Such fault or negligence, if there is
delivered.
no pre-existing contractual relation between the
parties, is called quasi-delict. • Specific Obligation – In an obligation to give, it
consists in the delivery of a specific or determinate
Requisites to sustain a claim based on Quasi-Delict:
thing.
[1] Damage suffered by the offended party.
• Generic Obligation – Consists merely in that of
[2] Fault or negligence on the part of the offender delivering any member of the genus or class.

[3] Connection of cause and effect between the fault • A thing is determinate when it is particularly
or negligence of the offender and the damage designated or physically segregated from all others
incurred by the offended party. of the same class.

 The concept of quasi-delict is not limited to cases • A thing is indeterminate when only the genus or
of negligence but also covers intentional and class has been determined, without the same
deliberate acts which are unlawful. The term being designated and distinguished.
“fault” covers deliberate and intentional acts.
Duties of obligor

Classification of obligation 1. To Preserve the Specific thing due

2. To Deliver Fruits
1. Civil or Natural 3. To Deliver Accessions and Accessories
2. Real or Personal
3. Pure, conditional or with a term
4. Conjunctive, alternative, or facultative To Preserve the Specific thing due
5. Joint or Solidary
• The only way by which the debtor may be able to
6. Divisible or indivisible; and
comply with his determinate obligation is by
7. With a penal clause
delivering the exact thing which is due. THERE IS
NO OTHER WAY.
CIVIL VS NATURAL
• Debtor in a determinate obligation is bound to
CIVIL (Title I) observe the “proper diligence of a good father of a
family” which is the most common standard of
 Based on positive law/man-made law
conduct. (Art. 1163)
 Grants a right to compel performance or fulfillment
 Provides for a legal sanction in case of its breach

Duty To deliver fruits

NATURAL (Title III)
• A debtor is bound to deliver the fruits of a
 Equity and natural law determinate thing.
 Does not grant a right of action for fulfillment.
The obligation may still be fulfilled voluntarily. • A creditor shall acquire a right over the fruits of a
determinate thing due only from the time the
 Does not provide legal sanction in case of its
obligation to deliver the said thing arises.
breach.
• Obligation to deliver arises from the moment the
REAL VS PERSONAL
vinculum attaches, even when another date has
REAL
been fixed for the delivery of the thing.
 Obligation is to give a thing.
Duty To deliver fruits (creditor acquires real right)
 There is no negative obligation only positive
obligation.
 • Article 1164 provides that the creditor “shall
acquire no real right over it until the same has
been delivered to him.”
Personal right vs Real right
• Personal right – is the power of one
person to demand from another, as a
definite passive subject, the fulfillment of
a prestation to give, to do, or not to do.
• Real right – is the power belonging to a
person over a specific thing, without a
passive subject individually determined,
against whom such right may be
personally exercised.
Kinds of obligations
1. Pure Obligations
2. Conditional Obligations
Pure obligations
• Every obligation whose performance does not
depend upon a future or uncertain event, or upon
a past event unknown to the parties, is
demandable at once. Every obligation which
contains a resolutory condition shall also be
demandable, without prejudice to the effects of
the happening of the event. (Article 1179)
• For obligation to be pure, the same must not also
be subjected to a term or period.
• Demandable at once; Obligation is due upon
demand; Obligation is due immediately.
• However, if the obligor binds himself to pay when
his means permit him to do so, the obligation is
with a period not pure obligation.
Conditional obligations
• In conditional obligations, the acquisition of rights,
as well as the extinguishment or loss of those
already acquired, shall depend upon the
happening of the event which constitutes the
condition.
• The event must be future and uncertain. As a the
most important character of a condition is
uncertainty.
Conditional obligations
• Suspensive
• Resolutory
• Potestative
• Casual
• Mixed
Suspensive condition
• The effectivity of the obligation shall take place
only if and when the event which constitutes the
condition happens or is fulfilled.
• The happening of the condition gives rise to the
obligation.
• When the suspensive condition arrives, the effects
of the obligation shall retroact to the day of the
constitution of the obligation. (Art. 1187)
Resolutory condition
• A condition that constitutes "a future and
uncertain event, upon the happening or fulfillment
of which rights which are already acquired by
virtue of the obligation are extinguished or lost
(Jurado, Comments and Jurisprudence on
Obligations and Contracts (1987)
• The happening of the condition extinguishes the
obligation.
• An obligation subject to a resolutory condition is
immediately demandable but it is extinguished
upon the happening of the condition.
• Once the resolutory condition is fulfilled, the
obligation is extinguished and the parties are
required to return to each other what they have
received.
Potestative condition
• A condition is potestative when its fulfillment
depends exclusive upon the will of one of the
contracting parties.
• The fulfillment of which depends exclusively upon
the will of the debtor, in which case , the
conditional obligation is void. (Art.1182)
Casual condition
• A condition that depends on chance, hazard, or the
will of a third person. (valid obligation)
Mixed condition
• A condition that depends partly on the will of one
of the contracting parties, or the obligor, and partly
on chance, hazard or the will of a third person,
MODULE 3
Obligations with a period
Under Article 1193, obligations for whose fulfillment a day
certain has been fixed, shall be demandable only when that
day comes.
A day certain is understood to be that which must
necessarily come, although it may not be known when.
To constitute a term the period must end on a day certain.
Classification of term
1. Suspensive
2. Resolutory
Alternative obligations
Kinds of term
1. Definite
2. Indefinite
3. Legal
4. Voluntary
5. Judicial
Suspensive period (ex die)
• Is one that must necessarily come before the
performance of the obligation can be demanded.
RIGHT OF CHOICE IN ALTERNATIVE OBLIGATIONS
• Obligation becomes demandable only when the
day certain arrives. The term or period does not,
however, affect the existence of the obligation nor
its effectivity. What is suspended by the term is
only the demandability of the obligation
Resolutory period
• Take effect at once, but terminate upon arrival of
the day certain. (Art. 1193 par 2)
Benefit of the period
• Under Article 1196, Whenever in an obligation a
period is designated, it is presumed to have been
established for the benefit of both the creditor
and the debtor, unless from the tenor of the same
or other circumstances it should appear that the
period has been established in favor of one or of
the other.
• PRESUMPTION: is that the period was fixed for the
benefit of both parties.
• EXCEPTION: when from the tenor of the obligation
or other circumstances, it was only established for
one or the other.
Debtor’s loss of benefit of the period
Loss of prestation in alternative obligation
• When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or
security for the debt;
• When he does not furnish to the creditor the
guaranties or securities which he has promised;
• When by his own acts he has impaired said
guaranties or securities after their establishment,
and when through a fortuitous event they
disappear, unless he immediately gives new ones
equally satisfactory;
• When the debtor violates any undertaking, in
consideration of which the creditor agreed to the
period;
• When the debtor attempts to abscond.
• where several objects are due, the fulfillment of
one is sufficient which is determined by the choice
of the debtor who generally has the right of
choice.
• A person alternatively bound by different
prestations shall completely perform one of them.
The creditor cannot be compelled to receive part
of one and part of the other undertaking (Article
1199)
• General Rule: the right of choice belongs to the
debtor. (Article 1200)
• Exceptions:
(1) when EXPRESSLY granted to the creditor (it
cannot be implied); or
(2) when the right of choice is given to a third
party.
• The debtor shall have no right to choose those
prestations which are impossible, unlawful or
which could not have been the object of the
obligation.
• The debtor shall lose the right of choice when
among the prestations whereby he is alternatively
bound, only one is practicable. (Article 1202)
• Article 1205 – Choice is given to the Creditor.
• Choice or election becomes effective only from the
time it has been communicated.
• When choice is made, the obligation ceased to be
alternative and becomes pure or simple.
• When loss is due to a fortuitous event, the
alternative character of the obligation remains if
there are still two or more prestations. However, if
 only one remains, the obligation becomes a simple
one. If all is lost, the obligation is extinguished.
• If the loss is due to the fault of the debtor and the
right of choice belongs to the latter, the loss of one
does not produce any legal consequences.
However, if all is lost, the creditor is entitled to
recover the value of the last thing which
disappeared or that of the service which last
became impossible. Assuming, however, that the
right of choice belongs to the creditor, the latter
can choose the price of any of the things lost, with
indemnity for damages.
Facultative obligations
• There is more than one prestation, but only one is
demandable, unlike in alternative where any of the
prestations may be demandable.
• When only one prestation has been agreed upon,
but the obligor may render another in substitution,
the obligation is called facultative.
• The loss or deterioration of the thing intended as a
substitute, through the negligence of the obligor,
does not render him liable. But once the
substitution has been made, the obligor is liable
for the loss of the substitute on account of his
delay, negligence or fraud. (Article 1206)
• Debtor always has the right to substitute. He
cannot be compelled to make the substitution.
Alternative vs facultative
JOINT AND SOLIDARY OBLIGATIONS
Joint Obligation – is one in which of the debtors is liable
only for a proportionate part of the debt or each creditor is
entitled only to a proportionate part of the credit.
In joint OBLIGATIONS, there are as many OBLIGATIONS as
there are debtors multiplied by the number of creditors.
Solidary Obligation - one in which the debtor is liable for
the entire obligation, or each creditor is entitled to demand
the whole obligation. If there is only one obligation, it is a
solidary obligation.
Presumption in favor of joint obligation
In case of concurrence of two or more creditors or of two or
more debtors in one and the same obligation and in the
absence of express indubitable terms characterizing the
obligation as solidary, the presumption is that the obligation
is only joint.
Effects of joint obligation
• Each creditor can demand only for the payment of
this proportionate share in the credit.
• The demand by one creditor upon one debtor,
produces the effects of default only with respect to
the creditor who demanded and the debtor on
whom the demand was made, but not with respect
to the others.
• The vices of each obligation arising from the
personal defect of a particular debtor or creditor
do not affect the obligation or rights of the others.
• The insolvency of a debtor does not increase the
responsibility of his co-debtors, nor does it
authorize a creditor to demand anything from his
co-creditors.
• Under Article 1208, the law mandates the equal
sharing of creditors and debtors in the credit or
debt in the absence of any law or stipulation to the
contrary.
Rule on plurality of obligation
• As a general rule, when there is a concurrence of
two or more creditors or of two or more debtors in
one and the same obligation, the obligation is
presumed to be Joint Obligations
• According to Article 1207, there is Solidarity only:
• When the obligation expressly states so
(Terms used, “joint and several,
individually and collectively, separately,
distinctively, respectively, severally)
• When the law requires solidarity (Art.
927; Art. 1824, Art. 1911, Art. 1915, Art.
1945)
• When the nature of the obligation
requires solidarity.
Kinds of solidarity
 • Active Solidarity – Is one that exists only among
the creditors.
• Passive Solidarity – that which exists only among
the debtors.
• Mixed Solidarity – that which exists amount the
creditors and debtors.
Active solidarity
• Mutual Agency is the essence of Active Solidarity
since every Creditor is considered an agent of the
others and he has the power to claim and exercise
the rights of all of them in relation to their debtor
or debtors. Each creditor is entitled to demand the
whole obligation.
• Mutual agency extends only to acts that are
beneficial to other creditors, but not to anything
which maybe prejudicial.
• When an act is prejudicial, any creditor who
performs such act is liable to the other creditors
for the share in the obligation corresponding to
them. (Art 1215)
• A solidary creditor cannot assign his rights without
the consent of the others.
Passive solidarity
EFFECTS OF REMISSION IN PASSIVE SOLIDARITY
• Remission of debt may either be for the whole
obligation, or, for the full share of the affected
debtor, or only for a part of the share of the
affected debtor.
• Total remission extinguishes the obligation.
However, a total remission obtained by one of the
solidary debtors, does not entitle him to
reimbursement from his co-debtors, because the
remission is a gratuitous act.
• If the remission is for the solidary debtor’s full
share, the latter ceases to have any relation with
the creditors, from whom he is thereby released.
• However, the remission of the full share of a
solidary debtor does not affect his relationship
existing among solidary debtors themselves, such
that notwithstanding his release with respect to
the creditors, he is still bound with respect to his
co-debtors in the event of insolvency of one of the
remaining co-debtors.
• Mutual Guaranty is the concept of Passive
Solidarity. Each debtor can be made to answer for
the shares of the others. Art. 1216 provides, “The
creditor may proceed against any one of the
solidary debtors or some of all of them
simultaneously”
• Solidary debtor acquires the right to demand
reimbursement from the others for their
corresponding shares once payment of the entire
obligation has been made.
• Payment made by one of the solidarity debtors
extinguishes the obligation and the juridical tie
between the creditor on the one hand, and the
solidary debtors, on the other.
Divisible and indivisible obligations
In determining whether an obligation is divisible or
indivisible, the question asked should be: whether the
obligation is capable of partial performance?
Under Article 1225, obligations to give definite things and
those which are not susceptible of partial performance shall
be deemed to be indivisible.
In relation to divisibility, although an obligation is divisible,
the parties may require that the same be considered as
indivisible.
Under Article 1225, even though the object or service may
be physically divisible, an obligation is indivisible if so
provided by law or intended by the parties.
Liability in a joint indivisible obligation
A joint debtor may be held liable for damages if he/she
does not comply with his undertaking in the obligation.
MODULE 4
Obligations with a penal clause
Under Article 1226, In obligations with a penal clause, the
penalty shall substitute the indemnity for damages and the
payment of interests in case of noncompliance, if there is
no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to
pay the penalty or is guilty of fraud in the fulfillment of the
obligation.
Read in relation to Article 1170.
Those who in the performance of their obligations are guilty
of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
Principal and accessory obligations
Principal Obligations may be defined as those that can
stand alone independently of the existence of other
obligations and have their independent and individual
purpose.
Accessory Obligations are those attached to a principal
obligation in order to complete the same or take their place
in case of breach.
Concept of a penal clause
• A penal clause has been defined as an accessory
obligation which the parties attach to a principal
obligation in order to complete the same or take
their place in case of breach
• Is an accessory undertaking to assume greater
liability in case of a breach. It is attached to an
obligation to ensure performance.
• are extraordinary events not foreseeable or
avoidable. It is therefore, not enough that the
event should not have been foreseen or
anticipated, as is commonly believed but it must
be one impossible to foresee or to avoid. The mere
difficulty to foresee the happening is not
impossibility to foresee the same. (Republic v.
Luzon Stevedoring Corporation, 128 Phil. 313, 318
(1967)

PENALTY AND DAMAGES • To constitute a fortuitous event, the following

GENERAL RULE: The penalty shall substitute the indemnity
for damages and payment of interests in case of non-
compliance
EXCEPTIONS:
1. If there is a stipulation to the contrary;
2. If the debtor refuses to pay the penalty;
3. If the debtor is guilty of fraud in the fulfillment
of the obligation.
elements must concur: (a) the cause of the
unforeseen and unexpected occurrence or of the
failure of the debtor to comply with obligations
must be independent of human will; (b) it must be
impossible to foresee the event that constitutes
the caso fortuito or, if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be
such as to render it impossible for the debtor to
fulfill obligations in a normal manner; and, (d) the
obligor must be free from any participation in the
aggravation of the injury or loss.

• GENERAL RULE: No person shall be responsible for

those events which could not be foreseen, or
which, though foreseen, were inevitable.

EXCEPTION:
WHEN PENAL CLAUSE IS DEMANDABLE 1. In cases expressly stated by law (Article
1165 and 1942)
In order that the penalty may be demandable, it is
necessary that: 2. When declared by stipulation
(1) the total non-fulfillment of the obligation or the 3. When the nature of the contract requires
defective fulfillment is chargeable to the fault of the assumption of risk (i.e. insurance
the debtor; and contracts)
(2) that the penalty may be enforced in FRAUD (DOLO)
accordance with the provisions of law.
• Under Article 1338 of the Civil Code, there is fraud
Effect of nullity of principal or penalty clause when, through insidious words or machinations of
one of the contracting parties, the other is induced
• Being an accessory only, the nullity of the penal
to enter into a contract which, without them, he
clause does not carry with it that of the principal
would not have agreed to.
obligation.
• One of the parties may resort to dolo or fraud only
• The nullity of the principal obligation carries with it
during the fulfillment of the obligation or for the
that of the penal clause.
purpose of inducing another to enter into a
SPECIFIC CIRCUMSTANCES AFFECTING OBLIGATIONS IN contract.
GENERAL
• Fraud is the voluntary execution of a wrongful act
1. Fortuitous Event or a willful omission, while knowing and intending
2. Fraud the effects that naturally and necessarily arise from
3. Negligence that act or omission. In its general sense, fraud is
4. Delay deemed to comprise anything calculated to
5. Breach Of Contract deceive -- including all acts and omission and
concealment involving a breach of legal or
FORTUITOUS EVENT (CAS FORTUITO) equitable duty, trust, or confidence justly reposed
 ---- resulting in damage to or in undue advantage
over another.
• Responsibility arising from fraud is demandable in
all obligations. Any waiver of an action for future
fraud is void. (Article 1171)
Kinds of fraud
1. DOLO CAUSANTE – or fraud in obtaining consent, is
applicable only to contracts where consent is necessary and
thus affects the validity of the contract, making it voidable.
Under this kind of fraud, the party would not have entered
into the contract were it not for the fraud; annulment is the
remedy of the party who’s consent was obtained through
fraud. (Art. 1338 of the civil code)
2. DOLO INCIDENTE – or fraud in the performance of the
obligation and applicable to obligations arising from any
source. This kind, however, does not affect the validity of
the contract and makes the party guilty of fraud liable for
damages. (Article 1170)
Under this kind, a party would have entered the obligation
with or without the fraud. Remedy is damages.
Negligence (CULPA)
Negligence or Fault consists in the omission of that
diligence which is required by the nature of the obligation
and corresponds with the circumstances of the persons, of
the time and of the place. (Article 1173)
Standard of Care
1. Ordinary Care - that which is expected of a good
father of a family (bonus pater pamilyas); In
obligation, parties are obliged to exercise ordinary
care (proper diligence of a good father of a family,
1163)
2. Extraordinary: utmost diligence. E.g., common
carriers, banks, public utility companies (Meralco
vs. Ramoy) and realty firms.
Kinds of negligence
1. Simple Negligence – failure to comply with the diligence
required;
2. Gross Negligence – amounts to bad faith and may thus
be the source of moral damages. (Telefast vs. Castro)
• Note: Waiver of action for future negligence is not
contrary to public policy thus, is considered valid.
Delay or default
• Delay is the non-fulfillment of the obligation with
respect to time.
• Those obliged to deliver or to do something incur
in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment
of their obligation. (Article 1169)
Kinds of delay
• Mora Solvendi – Delay on the part of the debtor
• Mora Accipiendi – Delay on the part of the creditor
• Compensatio Morae – Delay on the part of both
parties
Mora solvendi
• Delay in the fulfillment of an obligation by reason
of a cause imputable to the debtor.
• Delay may occur only in obligations which are
positive (to give and to do) but not in obligations
not to do.
• Requisites in order that debtor may be in default:
• (1) The obligation must be demandable
and already liquidated;
• (2) The debtor delays performance; and (
• 3) The creditor requires the performance
judicially or extrajudicially.
• Those obliged to deliver or to do something incur
in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment
of their obligation. (Article 1169)
Instances where demand is not necessary:
1. When the obligation expressly so declare
2. When the law expressly so declare
3. When from the nature and the circumstances of
the obligation it appears that the designation of
the time when the thing is to be delivered or the
service is to be rendered was a controlling motive
for the establishment of the contract; or
4. When demand would be useless, as when the
obligor has rendered it beyond his power to
perform.
Effects of delay
• Party who incurs delay will be liable for damages
(Article 1170)
• Party maybe held liable for interest on payments
due, if no stipulation, interest shall be in lieu of
indemnity as to damages.
• Party maybe held liable for fruits as well
 • Party will be liable for the loss of the thing to be
delivered even it is due to fortuitous event. (Article
1165)
Mora accipiendi
• The requisites of mora accipiendi are the following:
(1) An offer of performance by the debtor who has
the required capacity;
(2) The offer must be to comply with the prestation
as it should be performed; and
(3) the creditor refuses the performance without
just cause.
Compensatio morae
• Delay on the part of both parties because neither
has completed their part in their reciprocal
obligations.
• Mutual delay of the parties cancels out the effects
of default.
Reciprocal obligations
• In reciprocal obligations, as in a contract of sale,
the general rule is that the fulfillment of the
parties' respective obligations should be
simultaneous. Hence, no demand is generally
necessary because, once a party fulfills his
obligation and the other party does not fulfill his,
the latter automatically incurs in delay.
• But when different dates for performance of the
obligations are fixed, the default for each
obligation must be determined by the rules given
in the first paragraph of the present article, that is,
the other party would incur in delay only from the
moment the other party demands fulfillment of
the former's obligation.
Duties of an obligor
• To perform his obligation in accordance with the
tenor and nature of the obligation
• To comply with his obligation in good faith
• To pay for damages in cases of delay, negligence, or
fraud in the performance of the obligation
Duties of an oblige
• To act in good faith in accordance with the terms
and conditions of the obligations
• To exercise his rights accordingly when required by
the nature and circumstances of the obligations.
• To pay for damages, in cases of fraud, negligence,
and delay.
MODULE 5
Modes of extinguishment:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and
debtor;
(5) By compensation;
(6) By novation.
- There are other causes of extinguishment governed
elsewhere in the civil code.
(Article 1231)
Payment or performance
• In an obligation, payment not only means delivery
of money but also the performance of the
obligation. (Article 1232)
• Payment means the effective performance of the
agreed prestation.
• There is payment, when the thing or service
subject of the obligation has been completely
delivered or rendered, as the case may be. (Article
1233) . For example, In a contract of loan, once the
delivery of the sum due is made to the creditor,
the debt is considered paid.
Rules for valid payment
• Completeness of Payment
• Payment must be made by the proper person only
• Payment must be made to the proper person only
• Correct Prestation must be paid.
• Payment must be made at the proper place.
Provisions related to payor
Under Article 1236, Creditors are not bound to accept
payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is a
stipulation to the contrary.
Instances when there is valid payment
As a rule, a creditor cannot be compelled to accept
payment from any person. (Art. 1236)
Below are the instances where creditor can be compelled to
accept payment:
• When payment is made by the Debtor, his heirs,
assignees, or duly authorized representative.
• When payment is made by a third person
interested in the fulfillment of the obligation
• When payment is made by a third person not
interested in the fulfillment of the obligation but
with the consent of the debtor.
Persons interested in the fulfillment of the obligation
• Guarantors
• Mortgagors
• Co-debtors
Payment made by a third person
• Who has an interest in the fulfilment of the
obligation or when the debtor consents.
Effects:
1. The creditor can be compelled to receive payment
2. The third-party payor may demand reimbursement for
the full amount
3. Results in subrogation: As such, the 3rd party payor may
exercise rights belonging to the creditor, such as going
against the guarantor or foreclosure of mortgage (Article
1237)
• One who has no interest in the fulfillment of the
obligation or when the debtor had no knowledge
of or did not consent (against his will).
Effects:
1. The creditor cannot be compelled to receive payment.
2. If payment was made, 3rd party payor can only demand
reimbursement up to the extent that has been beneficial to
the debtor. (Art. 1236)
3. No subrogation. As such, the third party payor cannot go
against guarantors or foreclose the mortgage.
Instances where a creditor is bound to accept payment
from a third person
• When stipulated;
• When the 3rd party payor has an interest in the
fulfilment of the obligation
• When the debtor gives his consent
Payment with intention to donate
• Under Article 1238, If a third person pays an
obligation with no intent to be reimbursed, such
payment is considered a donation that requires the
acceptance of the debtor. (See Article 725 of the
Civil Code)
• Acceptance by a creditor of the payment of the
debtor under Article 1238 with or without the
consent of the debtor is a valid payment.
CAPACITY AND FREE DISPOSAL
• In obligations to give, the payor should have the
capacity to alienate and the free disposal of the
thing due for payment to be effective. Such that
minors (who don’t have capacity) and those
suffering the penalty of civil interdiction (no free
disposal) cannot make a valid payment. (See
Article 1239)
Provisions related to PAYEE
Under Article 1240, Payment shall be made to the person in
whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it.
3 types of valid recipient/payee
• Person in whose favour the obligation has been
constituted. (Creditor, Beneficiary in a Trust
transaction etc.)
• His successor in interest – who may not be
creditors at the time of constitution, but may be
creditors at the time of fulfilment.
• Any person authorized to receive it – agents are
creditors because they have the right to collect,
but not in their own right.
Payment to a wrong party
• As a rule, payment to anyone not authorized as
provided under Art. 1240 is considered a void
payment. As such, the debtor may be compelled to
pay again, his remedy being to run against the
person he made payment to. Except in the
following circumstances:
1. It redounded to the benefit of the creditor;
Such benefit need not be proven if:
• a. after the payment, the third person acquires the
creditor's rights;
• b. the creditor ratifies the payment to the third
person;
• c. by the creditor's conduct, the debtor has been
led to believe that the third person had authority
to receive the payment. (Article 1241)
2. Payment made in good faith to any person in possession
of the credit. (Article 1242)
3. When the debtor w/o the knowledge of the assignment
of credit, pays his creditor.
Things to be paid or delivered
• Money or Performance
• Creditor cannot be compelled to accept a different
thing
• Creditor cannot be compelled to receive partial
prestations. Except:
• When there is an express stipulation to
the contrary.
• Where the obligation is partly liquidated
and partly unliquidated.
• Where different prestations are subject to
different conditions or terms.
• Payment must be made in the currency stipulated.
If it is impossible to deliver such, then in the
currency which is legal tender in the Philippines
Legal tender
• All notes and coins issued by the Central Bank
(BSP) shall be legal tender in the Philippines for all
debts, both private and public. Provided:
• 1. P1, P5 and P10 coins shall be legal tender in
amounts not exceeding P1,000;
• 2. Coins below P1 – legal tender not exceeding
P100
Place of payment
• Designated in the Obligation
• No designation and the prestation is to deliver a
determinate thing, the payment shall be made
wherever the thing might be at the moment the
obligation was constituted
• In any other case, Domicile of the DEBTOR
Dation in payment/Dacion en pago
• Under Article 1245, Dation in payment, whereby
property is alienated to the creditor in satisfaction
of a debt in money, shall be governed by the law of
sales.
• The undertaking really partakes in one sense of the
nature of sale, that is, the creditor is really buying
the thing or property of the debtor, payment for
which is to be charged against the debtor's debt.
As such, the essential elements of a contract of
sale, namely, consent, object certain, and cause or
consideration must be present.
• There has to be delivery of the thing and prior
acceptance and a consequent transfer of
ownership to consider it a dation in payment
EFFECTS OF COMPLETE PAYMENT or PERFORMANCE
• The obligation is extinguished. However, there are
instances where incomplete performance or
substantial performance extinguishes an
obligation. To wit:
• When the obligation has been
substantially performed in good faith, the
debtor may recover as though there had
been strict and complete fulfillment less
damages suffered by the creditor. (Art.
1234)
• When the creditor accepts the
performance knowing its incompleteness
and irregularity, and without expressing
any protest or objection, the obligation is
deemed fully complied with. (Art. 1235)
Special forms of payments
(1) Application of Payments
(2) Payment by Cession
(3) Tender of Payment and Consignation
Application of payments
• Due and demandable debts: as a general rule, all
debts must be due and demandable. EXCEPTION:
when there is a mutual agreement or when the
consent of the party for whose benefit the term
was constituted was obtained.
• the designation of the debt which is being paid by
a debtor who has several obligations of the same
kind in favor of the creditor to whom payment is
made.
Requisites:
1. There is only one debtor;
2. There are several debts;
3. The debts are of the same kind;
4. There is only one and the same
creditor.
Limitations to right to apply
• Generally, the debtor has the right to apply the
payment at the time of making the payment,
subject to the following LIMITATIONS:
1. Creditor cannot be compelled to accept partial
payment. (Article 1248)
2. Debtor cannot apply payment to principal if
interest has not been paid. (Art. 1253)
 3. The debt must be liquidated, except when the
parties agree otherwise
4. Cannot be made when the period has not arrived
and such period was constituted in favour of the
creditor, except with the consent of the creditor
(Art. 1252);
5. When there is agreement as to which debt must be
paid first.
Rules if there is no designation
• If the debts are of different nature and burden – to
that debt which is most onerous to the debtor;
• IF the debts are of the same nature and burden –
applied proportionately.
Debts which are considered more onerous
• Principal in an obligation and surety in another –
debt where he is the PRINCIPAL
• Sole debtor in one obligation and solidary debtor
in another – debt where he is the Sole Debtor
• When there are various debts (all without interest)
– the Oldest debt
• When there are various debts (some with interest)
– that with the HIGHEST interest rate
• Liquidated debts over unliquidated ones
Payment by cession
• It is the assignment of debtor’s property to his
creditors for payment of the former’s debt.
• Debtor is only released from responsibility for the
net proceeds of the thing assigned, unless there is
a stipulation to the contrary
Dacion vs payment by cession
Tender of payment and consignation
• Tender of Payment is the manifestation made by
the debtor to the creditor of his desire to comply
with his obligation, with the offer of immediate
performance. It is a PREPARATORY ACT to
consignation and in itself DOES NOT extinguish the
obligation.
• Consignation is the deposit of the object of the
obligation in a competent court in accordance with
rules prescribed by law, AFTER the tender of
payment has been refused or because of
circumstances that render direct payment to the
creditor impossible. It extinguishes the obligation.
` REQUISITES:
• There is a debt due
• There is a legal cause to consign
• There is a previous notice to consign to the
persons having interest in the fulfillment of
the obligation (Art. 1257). Otherwise,
consignation is void.
• The amount or thing due is deposited in court.
(Art. 1258)
` Withdrawal of the thing deposited
• Withdrawal as a matter of right: debtor withdraws
before acceptance by the creditor or before the
judicial declaration of propriety of consignation
(Art. 1260 par 2). In this case, no extinguishment
yet of the obligation. As such, no revival since the
obligation has not been extinguished to begin with.
• Withdrawal after acceptance or declaration:
obligation is revived. As such, the creditor can no
longer run after the guarantor, unless the latter
consents. This is because the obligation has been
extinguished. The revival did not revive the
guaranty.
`
MODULE 6
Loss of the thing due
Loss - there is loss when the thing had perished, gone out
of commerce, or disappeared that its existence is unknown
or it cannot be recovered. (Ang vs. American Steamship
Agencies Inc.)
Under Article 1262, An obligation which consists in the
delivery of a determinate thing shall be extinguished if it
should be lost or destroyed without the fault of the debtor,
and before he has incurred in delay.
Determinate vs generic
• Determinate Thing – Under Article 1460, A thing is
determinate when it is particularly designated or
 physical segregated from all others of the same
class.
• Generic Thing – All things that are not considered
as Determinate.
Generic thing
Genus nunquam perit – Genus does not perish
Loss of Generic Thing to be delivered will not extinguish the
obligation.
Partial loss obligation
Article 1264 covers partial loss, in case of Partial Loss the
Court may determine whether the loss of the object of
obligation is so important to extinguish the obligation
Presumption in case of loss of thing
• Generally, in case of Fortuitous Event, the Debtor is
not liable.
• If loss is not due to FE and the Debtor is in
possession of the thing, the presumption is that it
was lost due to his fault, hence he is liable.
Creditor has no duty to show that the debtor is at
fault
Loss due to legal or physical impossibility
• Loss of the thing may likewise cover impossibility
of performance, e.g., a debtor is obliged to paint a
building and the building was destroyed (physical
impossibility) or a law took effect making the
obligation illegal (legal impossibility).
• When: In impossibility, the law should take effect,
or the impossibility happened DURING the
existence of the obligation so as to extinguish it. If
the law took effect or the impossibility arose
BEFORE the existence of the obligation, the
obligation is void.
Types of impossibility
1. As to nature: Physical (by reason of its nature); and Legal
(through some subsequent law);
2. As to whom impossibility refers:
a. Objective – impossibility of the act or service
itself without considering the person of the debtor
b. Subjective - impossibility refers to the fact that
the act or service can no longer be done by the debtor but
may still be performed by another person
3. As to extent: Partial or Total;
4. As to period of impossibility: Permanent or Temporary.
Condonation/Remission
is an act of liberality, by virtue of which, without receiving
any equivalent, the creditor renounces the enforcement of
the obligation, which is extinguished in its entirety or in that
part or aspect of the same to which the remission refers.
Under Article 1270, Condonation/Remission may be made
expressly or impliedly.
Requisites:
• The parties must have the requisite capacity to
enter into a contract of donation.
• It must be gratuitous.
• It must be accepted by the debtor
• It must not amount to inofficious donation or
legacy.
• If it is made expressly, it must comply with the
forms of donation.
Kinds of donation
• EXPRESS - made formally, and should be in
accordance with the forms of ordinary donations.
- Acceptance must be done personally
- Acceptance must be made during the lifetime of
the donor and done
- Donation of movable property exceeding P500,
donation and acceptance must be made in writing
- Donation of real property must be made in a public
document.
• IMPLIED - When it can be inferred from the acts of
the parties. E.g. delivery of promissory note to the
debtor
IMPLIED/TACIT REMISSION
• Delivery of a private document evidencing credit,
voluntarily made by the creditor (Art. 1271)
• Voluntary destruction of or cancellation of the
evidence of credit by the creditor with intent to
renounce his right.
. Presumption of remission/condonation
• Under Art. 1272, when the private document
which represents a debt is found in the possession
of the debtor, it shall be presumed that the
creditor delivered it voluntarily. Hence, Article
1271 will now apply.
. Effect of condonation of principal obligation
• When the Principal Obligation is condoned by the
Creditor, it follows that the accessory obligation
shall be extinguished by such condonation.
However, the waiver of the accessory obligation
does not extinguish the principal obligation.
Confusion or merger
. Is the meeting in one person of the qualities of the
creditor and debtor with respect to the same obligation.
REQUISITES:
 1. Must take place between the credit and the
principal debtor;
2. Must involve the very same obligation;
3. Must be total
EFFECT OF CONFUSION OR MERGER
• For Guarantors - the Merger which takes place in
the person of the principal debtor or creditor
benefits the guarantors (extinguish the obligation
of the guarantor)
• In a Joint Obligation – It does not extinguish the
entire obligation but only as to the share of the
creditor or debtor in whom to characters concur.
• In a Solidary Obligation – the obligation will be
extinguished since in a Solidary Obligation there is
only ONE obligation.
Compensation
A mode of extinguishment to the concurrent amount, the
obligations of those persons who in their own right, are
reciprocally creditors and debtors of each other
Kinds of compensation
• AS TO EXTENT: (Art. 1281)
1. Total - when the two obligations are of the same
amount
2. Partial - when the amounts are not equal. This is
total as to the debt with lower amount
• AS TO ORIGIN: (Art. 1281)
1. Legal - takes effect by operation of law because all
the requisites are present; (Art. 1282)
2. Conventional – when the parties agree to
compensate their mutual obligations even if some
of the requisite are lacking. (Art. 1282 The parties
may agree upon the compensation of debts which
are not yet due.)
3. Judicial – decreed by the court in a case where
there is a counterclaim. (Art. 1283)
Requisites of legal compensation
• (a) that each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
• (b) 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;
• (c) that the two debts be due;
• (d) that they be liquidated and demandable; and
(A debt is liquidated when its existence and
amount are determined.)
• (e) that over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor.
. Compensation when there is an assignment of debts
• As a general rule, a debtor who consented to the
assignment of his debt cannot invoke
compensation against the assignee , except:
1. When the debtor has no knowledge of or did not
consent to the assignment; or
2. If with knowledge or consent, but reserved his
right to the compensation.
. NOVATION
is defined as the extinguishment of an obligation by the
substitution or change of the obligation by a subsequent
one which terminates the first, either by changing the
object or principal conditions, or by substituting the person
of the debtor, or subrogating a third person in the rights of
the creditors
Requisites of novation
• Previous Valid Obligation (refer to Article 1298)
• Agreement of all parties to a new contract
• Extinguishment of old obligation
• Validity of new obligation
Kinds of novation
AS TO NATURE
1. Subjective – Changing the subject:
- Active – if a third person is subrogated to the rights
of the creditor either by:
• Agreement or express - Conventional subrogation
of a third person requires the consent of the
original parties and of the third person
• Law or Implied – (see Article 1302) In article 1302
there is legal subrogation because of payment.
Effects of subrogation
• Transfer of creditor’s right against the debtor
• Transfer of creditor’s right against a third person,
(i.e. guarantors, or possessors of mortgages)
Passive – if a third person is substituted to the person of the
debtor. In this case, it should be clear to both parties that
the new debtor is in lieu of the old debtor.
Expromision – without the knowledge or against the will of • Under Article 1302. It is presumed that there is
the original debtor but with the consent of the creditor legal subrogation:
(Art. 1293)
• (1) When a creditor pays another creditor who is
• As to the extent of reimbursement - Arts. 1236 and preferred, even without the debtor's knowledge;
1237 shall be applicable, as such, the new debtor
• (2) When a third person, not interested in the
can only recover only upto the extent that the old
obligation, pays with the express or tacit approval
debtor was benefited
of the debtor;
• As to right of the creditor when the new debtor
• (3) When, even without the knowledge of the
becomes insolvent or fails to fulfil the obligation –
debtor, a person interested in the fulfillment of the
he cannot run after the old debtor. (Art. 1294)
obligation pays, without prejudice to the effects of
Delegacion - with the consent, or knowledge of the original confusion as to the latter's share.
debtor but without any objection. Here, it is the debtor who
Other matters
offers the change.
• When the principal obligation is extinguished in
Parties:
consequence of a novation, accessory obligations
Delegante – the old debtor; may subsist only insofar as they may benefit third
Delegado – the new debtor persons who did not give their consent
Delegatorio – the creditor
• A creditor, to whom partial payment has been
made, may exercise his right for the remainder,
Delegacion - with the consent, or knowledge of the original
and he shall be preferred to the person who has
debtor but without any objection. Here, it is the debtor who
been subrogated in his place in virtue of the partial
offers the change.
payment of the same credit
• As to extent of reimbursement – the whole
MODULE 7
amount paid regardless of the extent the old
debtor was benefited. CONTRACT
• As to the right of the creditor when the new is a meeting of minds between two persons whereby
debtor becomes insolvent – he can run after the one binds himself, with respect to the other, to give
old debtor, IF: the insolvency was already existing
something or to render some service.
and of public knowledge, or known to the debtor.
Otherwise, the creditor cannot run after the old
Agreement not necessarily a contract: if no obligation
debtor. See Article 1295
would arise from the agreement, there is no contract.
2. Objective/Real Novation – (a) Change in object (b)
Change in the principal conditions of the obligations, which
may either be express or implied

• Implied Novation - requires clear and convincing

proof of complete incompatibility between the
two obligations. The law requires no specific form
for an effective novation by implication.
• The test is whether the two obligations can stand
together. If they cannot, incompatibility arises, and
the second obligation novates the first. If they can
stand together, no incompatibility results and
novation does not take place.
Extinguishment of accessory obligations
• General Rule: extinguished as a consequence of
novation.
• Exception: insofar as pour atrui (third party) is
concerned and the third person for whose benefit
the obligation was constituted did not give his
consent.
Legal subrogation
CONSENSUALITY OF CONTRACTS (Art. 1305 & 1307)
There can be no contract in the true sense in the absence of
the element of agreement, or mutual assent of the parties,
for consent is the essence of contract.
The element of consent is what makes contract different
from other sources of obligations.
How is consent manifested?
• EXPRESSLY (Verbal or Written)
• IMPLIEDLY
Example of implied consent
• Where one has rendered services to another, and
these services are accepted by the latter, in the
absence of proof that the service was rendered
 gratuitously, it is but just that he should pay a
reasonable remuneration therefor because 'it is a
well-known principle of law, that no one should be
permitted to enrich himself to the damage of
another. (Corpus vs CA)
AUTONOMY OF CONTRACTS (ART.1306)
• The contracting parties may establish such
stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not
contrary to law, morals, good customs, public
order, or public policy. Otherwise known as, Liberty
to Contract
• Obligations arising from contracts have the force of
law between the parties and should be complied
with in good faith. In characterizing the contract as
having the force of law between the parties, the
law stresses the obligatory nature of a binding and
valid agreement.
• Article 1306 provides also the limitation on
freedom of contract.
MUTUALITY OF CONTRACTS (ART.1308 to 1310)
• The contract must bind both contracting parties;
its validity or compliance cannot be left to the will
of one of them.
• In order that obligations arising from contracts may
have the force of law between the parties, there
must be mutuality between the parties based on
their essential equality. A contract containing a
condition which makes its fulfillment dependent
exclusively upon the uncontrolled will of one of the
contracting parties, is void.
Contract of adhesion
• Is defined as one in which one of the parties
imposes a ready-made form of a contract, which
the other party may accept or reject, but which the
latter cannot modify. One party prepares the
stipulation in the contract, while the other party
merely affixes his signature or his adhesion
thereto.
• Contracts of adhesion are not void per se. The
same is binding however, these kind of contracts
must be construed strictly against the one who
drafted the same.
Relativity/privity of contracts (1311 to 1314)
• Third Parties: as a general rule do not have a right
to enforce or annul a contract.
• Exceptions:
a. When he is bound by the contract (Art. 1312)
b. A creditor may initiate an action against the
contracting parties
c. Third persons may be benefited by a contract –
2nd paragraph of Art. 1311, otherwise known as a
stipulation pour autrui.
“If a contract should contain some stipulation in
favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor
before its revocation.”
Requisites of a valid stipulation POUR AUTRUI
• There is a stipulation in favor of a third person
• The stipulation is a part, not a the whole of a the
contract;
• The contracting parties clearly and deliberately
conferred a favor to the third person – the favor is
not an accidental benefit;
• The favor is unconditional and uncompensated
• The third person communicated his or her
acceptance of the favor before its revocation; and
• The contracting parties do not represent, or are
not authorized by, the third party.
Obligatory force of a contract (1315 & 1316)
• Obligations arising from contracts have the force
of law between the contracting parties and should
be complied with in good faith.
• Contracts are perfected by mere consent, and from
that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated
but also to all the consequences which, according
to their nature, may be in keeping with good faith,
usage and law.
• It is a fundamental rule that contracts, once
perfected, bind both contracting parties, and
obligations arising therefrom have the force of law
between the parties and should be complied with
in good faith.
Classification of contracts
1. ACCORDING TO DEGREE OF DEPENDENCE
2. ACCORDING TO PERFECTION
3. ACCORDING TO PURPOSE
4. ACCORDING TO NATURE OF OBLIGATION
PRODUCED
5. ACCORDING TO CAUSE
According to degree of dependence
• Preparatory Contract – a contract whose purpose
is to enter into other contracts. (i.e. contract of
agency, contract to sell, Option contract)P
 • Principal Contracts – (i.e. Contract of Sale, Contract
of Loan, Contract of Barter etc.). These are
contracts that can survive on its own.
• Accessory Contracts - those which cannot stand on
its own and are dependent upon other contracts
for its validity. E.g., guaranty, suretyship, mortgage
and antichresis.
According to perfection
• Consensual - are those perfected by mere consent.
Under Art. 1315, Contracts are perfected by mere
consent, and from that moment the parties are
bound not only to the fulfillment of what has been
expressly stipulated but also to all the
consequences which, according to their nature,
may be in keeping with good faith, usage and law.
• REAL - those which are perfected only upon
delivery of the thing subject of the contract. E.g.,
deposit, pledge, commodatum and mutuum.
Under Article 1316, Real contracts, such as deposit, pledge
and Commodatum, are not perfected until the delivery of
the object of the obligation
• FORMAL - those which require a certain form for
its validity (Donation, Antichresis). Refer to Article
1356.
According to purpose
• To transfer ownership – Donation, Sale, Barter
• Conveyance of use – Usufruct, Lease, Loan
• Rendition of service – Lease and Agency
According to nature of obligation produced
• BILATERAL - where both parties are reciprocally
obligated, e.g., lease (where the lessor is obliged to
allow the use of the thing and the lessee is obliged
to pay rent) and sale (where the buyer is obliged to
pay the price and the seller obliged to deliver the
thing) (ARTS. 1642, 1458)
• UNILATERAL – only one party is obliged. E.g.,
guaranty and pledge
According to cause
• ONEROUS - In onerous contracts, the consideration
as to each of the parties is the delivery or
performance or the promise of delivery or
performance of a thing or service by the other
party
• GRATUITOUS - In gratuitous contracts, the cause is
the liberality or generosity of a party. Essentially,
the latter involves contracts of donation.
Stages in contracts
1. NEGOTIATION
2. PERFECTION
3. CONSUMATION
STAGES OF CONTRACTS
• NEGOTIATION - begins when the prospective
contracting parties manifest their interest in the
contract and ends at the moment of their
agreement.
• PERFECTION – or birth of the contract occurs when
they agree upon the essential elements thereof.
• CONSUMATION – the last stage, occurs when the
parties fulfill or perform the terms agreed upon in
the contract, culminating in the extinguishment
thereof.
NEGTIOATION (Art. 1324)
• Formally initiated by an offer which should be
certain with respect to both the object and the
cause or consideration of the envisioned contract.
• OPTION CONTRACT - In an option agreement, as
provided under Art. 1324, the offeror may
withdraw the offer before acceptance is
communicated to him, and he would not be liable
for damages. However, if there is an option
contract, he may only withdraw upon the
expiration of the period related to the option
contract.
• In option contract, there is already a perfected
contract of option. Here, there is a consideration
distinct and separate from the price. As such, the
offeror cannot validly withdraw before the period
agreed upon without being liable for damages.
• Likewise, an option contract does not bind the
offeror to enter into a contract, he has the choice
whether to pursue or not the contract, if he does
not pursue, he loses his right to the option money
given.
Perfection of contracts
• Takes place upon concurrence of the essential
elements thereof. Consensual contracts is so
established upon a mere meeting of minds. On the
other hand, real contracts requires meeting of the
minds as well as delivery of the object of the
agreement.
Essential elements of a contract
1. CONSENT
2. OBJECT CERTAIN WHICH IS THE SUBJECT MATTER
OF THE CONTRACT
3. CAUSE OF THE OBLIGATION
Purpose of Essential elements of a contract
The essential elements of contracts enumerated under
article 1318 are necessary only for the perfection of the
contract and not for its validity.
Perfection of the contract is different from its validity.
Although a valid contract presupposes its perfection, not all
perfected contracts are valid.
For example
1. A contract that is contrary to law.
2. A contract that violates the principle of mutuality.
CONSENT (Art. 1319 to 1346)
• CONSENT - is manifested by the meeting of the
offer and the acceptance upon the thing and the
cause which are to constitute the contract.
• Objective Theory of contracts – Under this theory,
the intention of the parties to enter into a contract
is to be judged by their outward or objective
manifestations of intent. What a person may have
intended subjectively is not controlling.
Concept of an offer
• Defined as an expression of willingness to contract
on certain terms, made with the intention that it
shall become binding as soon as it is accepted by
the person to whom it is address.
Requisites of a valid offer:
• The offeror must have a serious intention to
become bound by his offer
• The terms of the offer must be reasonably certain,
definite and complete, so that the parties and the
court can ascertain the terms of the offer and;
• The offer must be communicated by the offeror to
the offeree, resulting in the offeree’s knowledge of
the offer.
Mere invitations to make an offer
• Advertisement of things for sale. – are treated as a
mere invitation to negotiate not as offers to
contract.
• Invitation to Bid. – Simply an invitation to make
offers, to make tenders and is not an offer obliging
the one extending the invitation to accept the
highest or lowest of any of the bids.
• Auctions. – In an action, the auctioneer’s call for
bids is not considered as an offer but simply an
invitation to make proposals.
• Display of Goods. – The display of goods with a
price ticket attached in a shop window or on a
supermarket shelf is not an offer to sell but an
invitation for customers to make an offer to buy.
CONSENT (Art. 1319 to 1346)
• Acceptance maybe express or implied
KINDS OF ACCEPTANCE:
a. Absolute – Perfects the contract.
b. Qualified – Constitutes a counter-offer.
When acceptance binds offeror: theory of cognition
• Under the theory of cognition, the acceptance of
an offer must be made known to the offeror.
Unless the offeror knows of the acceptance, there
is no meeting of the minds of the parties, and no
concurrence of offer and acceptance. The contract
is perfected only from the time an acceptance of
an offer is made known to the offeror.
Capacity to give consent (1327 to 1329)
• The legal capacity of the parties is an essential
element for the existence of the contract because
it is an indispensable condition for the existence of
consent. There is no effective consent in law
without the capacity to give such consent.
Persons who cannot give consent (art. 1327)
• Unemancipated (still under parental authority)
minors
• Insane or demented persons, and
• deaf-mutes who do not know how to write.
*In relation to insane persons, contracts entered during
lucid interval are VALID. However, entered during a state of
drunkenness or during a hypnotic spell are VOIDABLE.
MINORS
• Minority is defined as the state of a person who is
under the age of legal majority and a minor is a
person below 18 years of age.
• Although article 1327 mentions of
“unemancipated minors”, all minors now are
necessarily unemancipated because, under
currently laws, emancipation can only take place
by the attainment of majority age.
• Contract entered into by a minor is not void, but
merely voidable. The law gives the minor the right
to annul the contract entered into by him upon his
attainment of the age of majority.
INSANE OR DEMENTED
• The law presumes that every person is of sound
mind. Hence, the defense of insanity must be
proven by party who alleges it.
• When used as a defense, it must be proven that
the party was mentally incapacitated at the time of
the execution of the contract.
Lucid interval
• As mentioned, contracts entered into during lucid
interval are valid.
• Lucid Interval is defined as that intervals occurring
in the mental life of an insane person during which
he is completely restored the use of his reason, or
so far that he has sufficient intelligence, judgment,
and will to enter into contractual relations, or
perform other legal acts, without disqualification
by reason of his disease.
ILLITERACY, OLD AGE, AND CIVIL INTERDICTION
• Illiteracy – is not an incapacity to give consent,
except when the person is also a deaf-mute.
• Old Age or Other Physical Infirmities – As a general
rule not an incapacity, however, if such age or
infirmities impair his mental faculties to the extent
that he is unable to properly or intelligently and
fairly understand the provision of such contract, he
is considered incapacitated.
• Civil Interdiction– Is an accessory penalty imposed
upon an accused who is sentenced to be
imprisoned by at least 12 years and 1 day to 20
years. Civil interdiction shall deprive the offender
during the time of his sentence of (1) the rights of
parental authority, or guardianship, either as to the
person or property of any ward, of marital
authority, of the (2) right to manage his property
and of the (3) right to dispose of such property by
any act or any conveyance inter vivos.
Acts which vitiates consent (VICES OF CONSENT)
• MISTAKE
• VIOLENCE
• INTIMIDATION
• UNDUE INFLUENCE
• FRAUD
MISTAKE
• Should refer to the substance of the thing which is
the object of the contract, or to those conditions
which have principally moved one or both parties
to enter into the contract. Otherwise, such will be
considered as simple mistake and will not affect
the validity of the contract but will result in
correction of such mistake (Art. 1331)
• Mistake is not present, if the party alleging it knew
the doubt, contingency or risk affecting the object
of the contract.
• As a rule, mutual error will not affect the validity of
the contract. However, if due to such mutual error
the real purpose of the parties is frustrated, then
such will affect the validity of the contract.
• In order to vitiate consent, mistake should refer to
a mistake of fact and not of law.
VIOLENCE
• Refers to physical force or compulsion. In violence,
there is actual infliction of harm.
• There is violence when there is an employment of
serious or irresistible force to secure consent.
• In order that violence may vitiate consent and be a
ground for annulment of contract the following
must be present (1) The force employed is either
serious or irresistible; and (2) it must have been
the determining cause of consent.
INTIMIDATION
• Occurs when one of the contracting parties is
compelled by a reasonable and well-grounded fear
of an imminent and grave evil upon his person or
property, or upon the person or property of his
spouse, descendants or ascendants, to give his
consent.
• Things to consider in assessing level of
intimidation:
a. Age
b. Sex
c. Condition of the person
REQUISITES FOR INTIMIDATION TO VITIATE CONSENT:
1. The intimidation must be the determining
cause of the contract, or must have
caused the consent to be given;
2. That the threatened act be unjust or
unlawful
3. That the threat be real and serious.
4. That it produces a reasonable and well-
grounded fear from the fact that the
person whom it comes has the necessary
means or ability to inflict the threatened
injury.
UNDUE INFLUENCE
• There is undue influence when a person takes
improper advantage of his power over the will of
another, depriving the latter of a reasonable
freedom of choice.
• Requisites in order for undue influence to vitiate
consent
1. A person who can be influenced.
2. The fact that improper influence was exerted
3. Submission to the overwhelming effect of such
unlawful conduct.
FRAUD
• There is fraud when, through insidious words or
machinations of one of the contracting parties, the
other is induced to enter into a contract which,
without them, he would not have agreed to.
• What acts constitutes fraud?
1. Failure to disclose facts, when there is a duty to
reveal them, as when the parties are bound by
confidential relations
2. Exaggerations in trade when the other party has no
opportunity to know the facts
3. Expression of an opinion made by an expert which
relied upon by the other party
4. Misrepresentation in bad faith, and those made by
a third person which created substantial mistake
Requisites in order that Fraud may vitiate consent:
1. It must have been employed by one contracting
party upon the other.
2. It must have induced the other party to enter
into the contract.
3. It must have been serious, and
4. It must have resulted in damage and injury to
the party seeking annulment.
• In order to affect the validity of the contract,
FRAUD must be employed by one party ONLY.
• Incidental Fraud does not affect the validity of a
contract but gives rise to an action for damages.
Simulated and fictitious contracts
● Simulated Contracts: where the parties would
make it appear that they entered into a contract
when in fact they did not.
● Fictitious Contracts: where one of the parties did
not actually gave his consent. E.g., a party’s
signature in a deed of sale is forged;
SIMULATED CONTRACTS
• Absolutely Simulated Contracts – A contract where
parties did not intend to be bound by the contract
or any contract for that matter. Usually created to
defraud someone. Contract is VOID
• Relatively Simulated Contracts – takes place when
the parties conceal their true agreement.
OBJECT
• OBJECT: is the subject matter of a contract which
may not necessarily be a thing, it may be rights or
service.
Requisites of Object of Contract
1. It must be within the commerce of men.
2. It must be licit.
3. It must be real or possible.
4. It must be determinate or susceptible of
determination.
1.As to Rights – Must not be intransmissible.
As to Services – not contrary to law, morals, good customs,
public order or public policy;
2. As to Things – must not be outside of commerce of men,
it must be licit and not impossible
*Future Inheritance: cannot be the subject matter of a valid
contract as provided under Art. 1347. This is because the
seller owns no inheritance while his predecessor lives.
Public policy demands that if you’re going to sell, you have
the right to do so, but not necessarily requiring that the
seller is the owner.
• The object of a contract, in order to be considered
as "certain," need not specify such object with
absolute certainty. It is enough that the object is
determinable in order for it to be considered as
"certain."
• Future Things – can be the object of a contract.
Future things is understood as anything which is
not yet owned or possessed by the obligor at the
time of the celebration of the contract, but it may
be manufactured, raised or acquired after the
perfection of the contract.
Cause of the obligation (art. 1350 to 1355)
• Under Article 1350, In onerous contracts the cause
is understood to be, for each contracting party, the
prestation or promise of a thing or service by the
other; in remuneratory ones, the service or benefit
which is remunerated; and in contracts of pure
beneficence, the mere liberality of the benefactor.
• Contracts without a cause or consideration
produce no effect whatsoever
 • A contract of purchase and sale is null and void and
produces no effect whatsoever where the same is
without cause or consideration in that the
purchase price which appears thereon as paid has
in fact never been paid by the purchaser to the
vendor.
• As a rule, motive does not affect the validity of a
contract since motive is different from cause and
the illegality of motive does not affect the validity
of the contract.
• Although the cause is not stated in the contract, it
is presumed that it exists and is lawful
• As a rule, gross inadequacy of the price does not
affect the validity of contracts.
MODULE 8
Form of contracts
• As a rule, no form is required in order to make the
contract binding and effective between parties
thereto.
• The 1st paragraph of Article 1356 explains that
once a contract is perfected, it is, as a rule,
obligatory. Consequently, a contract may be made
either orally or in writing, and, if entered into in
writing, it may either be in a private or public
instrument.
Exceptions when form is indispensable
• There are two groups of contracts where the
requirement of form is absolute and indispensable:
1. Those contracts which require a certain form for
the purpose of their validity
2. Those contracts which require a certain form for
the purpose of proving their existence in order to
be enforceable between parties.
Note: There is a third form which is not for the purpose of
making the contract valid and enforceable but simply for
greater efficacy or convenience for the purpose of making
the contract effective against third persons.
Form for validity
• The following are the contracts which require a
certain form for the purpose of their validity:
(1) Donation of personal property exceeding P5,000.00 (2)
Donation of real property (3) Donation by reason of
marriage (4) Contract of Partnership when real property is
contributed to the capital (5) Sale of parcel of land or any
interest therein by an agent (6) Contract of Antichresis (7)
Sale or transfer of large cattle (8) Chattel Mortgage
Contract (9) Stipulation limiting the commo carrier’s liability
in carriage of goods.
Form for enforceability
• Those contracts which are required under the
Statue of Frauds (will be discussed later)
• The purpose of statue of frauds is to prevent fraud
and perjury in the enforcement of obligations
depending for their evidence on the unassisted
memory of witnesses by requiring certain
enumerated contracts and transactions to be
evidenced by a writing signed by the part to be
charged.
Form for greater efficacy or convenience
• There are certain contracts under Article 1358
which are required to be in a “public document”.
However, such requirement is not for the validity
or enforceability of the contract rather for its
greater efficacy or convenience or to bind third
persons.
• Non-compliance with formal requirements does
not adversely affect the validity or enforceability of
the contract or the contractual rights and
obligations of the parties.
Form for greater efficacy or convenience
• The following contracts are required to be appear
in public instrument for the purpose of greater
efficacy or convenience or to bind third persons:
(1) Acts and contracts which have for their object the
creation, transmission, modification or extinguishment of
real rights over immovable property; sales of real property
or of an interest therein are governed by articles 1403, No.
2, and 1405;
(2) The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains;
(3) The power to administer property, or any other power
which has for its object an act appearing or which should
appear in a public document, or should prejudice a third
person;
(4) The cession of actions or rights proceeding from an act
appearing in a public document.
Interpretations of contracts
• The following are the rules to be observed in
interpreting contracts:
1. Intention of the Parties Should Prevail
2. When the terms of contract is clear the literal
meaning of its stipulations shall control
3. Rules in case of ambiguity

Intention of the Parties Should Prevail
• When the language of the contract is plain and
unambiguous, its meaning should be determined
without reference to extrinsic facts or its.
• When the terms of the contract is clear, courts
have no authority to alter a contract by
construction or make a new contract for the
parties.
When the terms of contract is clear
• When the language of the contract is plain and
unambiguous, its meaning should be determined
without reference to extrinsic facts or its.
• When the terms of the contract is clear, courts
have no authority to alter a contract by
construction or make a new contract for the
parties.
When there is ambiguity
• A contract provision is ambiguous if it is
susceptible of two reasonable alternative
interpretations.
Rules to be observed When there is ambiguity
1. When the terms of the contract are prepared only
by one party, the ambiguities are to be construed
against the party that prepared it (Contra
Proferentem)
2. Where two interpretations of the same contract
language are possible, one interpretation having
the effect of rendering the contract meaningless,
while the other interpretation would give effect to
the contract as a whole, the latter interpretation
must be adopted (Principle of Effectiveness)
3. Contract should be interpreted as a whole not in
isolation.
4. Contracts should be interpreted in keeping with
nature and object of the contract.
Settlement in case of doubts
• When it is absolutely impossible to settle doubts
by the rules established in Article 1370 to 1377,
the following rules should be observed:
1. If the doubts refer to incidental circumstances of a
gratuitous contract, the least transmission of rights
and interests shall prevail.
2. If the contract is onerous, the doubt shall be
settled in favor of the greatest reciprocity of
interests.
3. If the doubts are cast upon the principal object of
the contract in such a way that it cannot be known
4. what may have been the intention or will of the
parties, the contract shall be null and void.
Types of defective contracts
1. Rescissible Contracts
2. Voidable Contracts
3. Unenforceable Contracts
4. Void and Inexistent Contracts
Rescissible contracts
• These are contracts that are valid until rescinded.
• Rescission has the effect of "unmaking a contract,
or its undoing from the beginning, and not merely
its termination." Hence, rescission creates the
obligation to return the object of the contract It
can be carried out only when the one who
demands rescission can return whatever he may
be obliged to restore.
The following are rescissible contracts
• (1) Those which are entered into by guardians
whenever the wards whom they represent suffer
lesion by more than one-fourth of the value of the
things which are the object thereof;
• (2) Those agreed upon in representation of
absentees, if the latter suffer the lesion stated in
the preceding number;
• (3) Those undertaken in fraud of creditors when
the latter cannot in any other manner collect the
claims due them;
• (4) Those which refer to things under litigation if
they have been entered into by the defendant
without the knowledge and approval of the
litigants or of competent judicial authority;
• (5) Payments made in a state of insolvency for
obligations to whose fulfillment the debtor could
not be compelled at the time they were effected,
• (6) All other contracts specially declared by law to
be subject to rescission
Rescission in 1191 vs 1381
• Rescission in these articles are different. In 1191,
Recission is the primary action, which is to annul
the contract with which the obligation arises. On
the other hand, in 1381 Rescission here is a
subsidiary action, meaning it cannot be instituted
except when the party suffering damage has no
other legal means to obtain reparation for the
same.
• Rescission under Article 1191 is on account of a
breach of contract while rescission in Article 1381
is by reason of lesion or economic prejudice.
 • Rescission in Article 1191 applies only to reciprocal
obligations while rescission in Article 1381 applies
to all kinds of obligations.
Requisites for rescission under art. 1381 to prosper
• The action for rescission must originate from any
of the causes specified in Articles 1381 and 1382
• The party suffering damage and who is asking for
rescission has on other legal means to obtain
reparation for the damage suffered by him.
• The person demanding rescission must be able to
return what he may be obliged to restore if
rescission is granted except in Article 1381 (3)
• The things which are the object of the contract
must not be legally in the possession of third
persons who did not act in bad faith.
• The action for rescission must be filed within 4
years form accrual of the right of action.
Concept of lesion
• Lesion has been defined as the injury which one of
the parties suffers by virtue of a contract which is
disadvantageous to him.
• As to scope and coverage, these refers to contracts
entered into by representatives where the ward or
absentee suffers lesion exceeding 25% of the value
of the thing owned by the ward or absentee.
Contracts undertaken in fraud of creditors
• Alienations by gratuitous title: presumed to have
been entered into in fraud of creditors, when the
donor did not reserve sufficient property to pay all
debts contracted before the donation.
• Alienations by onerous title: presumed fraudulent
when made by persons against whom some
judgment has been issued. The decision or
attachment need not refer to the property
alienated, and need not have been obtained by the
party seeking the rescission.
• The rescissory action to set aside contracts in fraud
of creditors is known as accion pauliana. This
remedy is available when the subject matter is a
conveyance, otherwise valid, undertaken in fraud
of creditors.
Requisite for accion pauliana to prosper:
• The one asking for recission has a credit prior to
the alienation although demandable later (2) The
debtor has made a subsequent contract conveying
a benefit to a third person (3) the creditor has no
other legal remedy to satisfy his claim (4) the act
being impugned is fraudulent (5) The third person
who received the property conveyed has been an
accomplice in the fraud.
Badges of Fraud
• Close relationship of the parties;
• When the debtor is the seller but is in continued
possession of the property;
• When the price in the contract is grossly
inadequate;
• When the debtor is already insolvent and he sells
his property in credit.
Legal concept pertaining to rescission
• No rescission shall take place hen the things which
are the object of the contract are legally in the
possession of third persons who did not act in bad
faith.
• Rescission can be carried out only when he who
demands rescission can return whatever he may
be obliged to restore.
• The action to claim rescission must be commenced
within four (4) years.
• The necessary consequence of recission is mutual
restitution, that is, the parties to a rescinded
contract must be brought back to their original
situation prior to the inception of the contract;
hence, they must return what they received
pursuant to the contract.
Voidable contracts
• (1) Those where one of the parties is incapable of
giving consent to a contract;
• (2) Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud.
• These contracts are binding, unless they are
annulled by a proper action in court. They are
susceptible of ratification.
Ratification Voidable contracts
• Ratification may be effected by the Party who was
either incapable of giving consent or whose
consent was vitiated by mistake, violence,
intimidation, undue influence or fraud.
How is Ratification made?
1. Expressly – Verbal or Written
2. Tacitly/Implied - There is a tacit ratification if, with
knowledge of the reason which renders the
contract voidable and such reason having ceased,
the person who has a right to invoke it should
execute an act which necessarily implies an
intention to waive his right.
 Unenforceable contracts

Ratification Voidable contracts (EFFECT) • An unenforceable contract is a written or oral

agreement that will not be enforced by courts.
• Ratification extinguishes the action to annul a
voidable contract • Those entered into in the name of another person
by one who has been given no authority or legal
• Ratification cleanses the contract from all its
representation, or who has acted beyond his
defects from the moment it was constituted
powers;
Annulment of Voidable contracts
• Contracts which do not conform with Statute of
• Annulment of Contracts may only be instituted by Frauds (Not in writing):
the injured party. (Art. 1397)
a. Agreement that by its terms is not to be performed
• When there is annulment, parties shall restore to within a year from the making thereof;
each other the things which have been the subject
b. A special promise to answer for the debt, default,
matter of the contract, with their fruits, and the
or miscarriage of another;
price with its interest, except in cases provided by
law c. An agreement made in consideration of marriage,
other than a mutual promise to marry
• When an annulment is made and a defect of the
contract consists in the incapacity of one of the d. Sale of personal property exceeding P500.00
parties, the incapacitated person is not obliged to
e. An agreement for the leasing for a longer period
make any restitution except insofar as he has been
than one year, or for the sale of real property or of
benefited by the thing or price received by him
an interest therein
LOSS OF THE THING SUBJECT OF ANNULMENT OF
f. A representation as to the credit of a third person.
CONTRACT:

1. If lost is through the fault of the guilty party - it
shall not eextinguish the action for annulment. He
is liable to return the fruits, price of the thing at
the time of loss, and interest from date of loss.
2. If lost is through the fault of the injured party –
Action for annulment is extinguished.
Other concepts in Voidable contracts
• As long as one of the contracting parties does not
restore what in virtue of the decree of annulment
he is bound to return, the other cannot be
compelled to comply with what is incumbent upon
him.
• As to prescription, the following rules should be
observed:
1. If the ground for annulment is vitiation of consent
by intimidation, violence, or undue influence, the
four-year period starts from the time such defect
ceases.
 Those where both parties are incapable of giving
consent to a contract.
Ratification of Unenforceable contracts
• Were both parties are incapable of giving consent,
express or implied ratification by the parent, or
guardian, as the case may be, of one of the
contracting parties shall give the contract a
VOIDABLE STATUS
• If ratification is made by the parents or guardians,
as the case may be, of both contracting parties, the
contract shall be validated from the inception.
Void and inexistent contracts
• Is one which has no force and effect from the very
beginning. Hence, it is as if it has never been
entered into and cannot be validated either by the
passage of time or by ratification.

2. If the ground for annulment is vitiation of consent

by mistake or fraud, the four-year period starts
from the discovery of the same.

3. If the ground for annulment is minority, the four-

year period starts when the minor reaches the age
of majority. The following contracts are inexistent and void from the
beginning:
4. If the ground for annulment is other than minority,
the four-year period starts from the time the
guardianship ceases.
 • (1) Those whose cause, object or purpose is 1. When parties are in pari delicto – No action against
contrary to law, morals, good customs, public order each other. The illegal thing subject of the contract
or public policy; will be confiscated by the government.

• (2) Those which are absolutely simulated or 2. When only one person is guilty – The illegal thing
fictitious; subject of the contract will be confiscated. No
action against each other except that the innocent
• (3) Those whose cause or object did not exist at
party ay claim what he has given, and shall not be
the time of the transaction;
bound to comply with his promise.
• (4) Those whose object is outside the commerce of
• Illegality of the cause or object DOES NOT
men;
constitute a crime:
• (5) Those which contemplate an impossible
1. When the fault is on the part of both contracting
service;
parties, neither may recover what he has given by
• (6) Those where the intention of the parties virtue of the contract, or demand the performance
relative to the principal object of the contract of the other's undertaking;
cannot be ascertained;
2. When only one of the contracting parties is at
• (7) Those expressly prohibited or declared void by fault, he cannot recover what he has given by
law. reason of the contract, or ask for the fulfillment of
what has been promised him. The other, who is
Those expressly prohibited or declared void by law. not at fault, may demand the return of what he
has given without any obligation to comply his
• Article 1461, - The sale of a vain hope or
promise
expectancy is void
Other concepts pertaining to void contracts
• Article 739. The following donations shall be void:
• These contracts cannot be ratified. Neither can the
(1) those made between persons who were guilty of
right to set up the defense of illegality be waived.
adultery or concubinage at the time of the donation;(2)
Those made between persons found guilty of the same • The action or defense for the declaration of the
criminal offense, in consideration thereof;(3) Those made to inexistence of a contract does not prescribe
a public officer or his wife, descendants and ascendants, by
reason of his office.

• Article 1105. A partition which includes a person

believed to be an heir, but who is not, shall be void
only with respect to such person.
• Art. 1182 When the fulfillment of the condition
depends upon the sole will of the debtor, the
conditional obligation shall be void.
• Art. 1298. The novation is void if the original
obligation was void.
Concept of “in pari delicto”

• Latin for "in equal fault,'' in pari delicto connotes

that two or more people are at fault or are guilty of
a crime. Neither courts of law nor equity will
interpose to grant relief to the parties, when· an
illegal agreement has been made, and both parties
stand in pari delicto

• Under the pari delicto doctrine, the parties to a

controversy are equally culpable or guilty, they
shall have no action against each other, and it shall
leave the parties where it finds them.

Rules in cases of void contracts

• Illegality of the cause or object constitute a crime: