Jojo I.

Mendoza
BSEE 5
NWSSU

Chapter 1: General Provisions

Art. 1156. An obligation is a juridical
necessity to give, to do or not to do.
The definition of obligations establishes
the unilateral act of the debtor either to
give, to do or not to do as a patrimonial
obligation. It means that the debtor has
the obligation while the creditor has its
rights.

The obligations referred to is a patrimonial obligations

that is, those obligations with pecuniary value or
assessable in terms of money.
1. Characteristics of patrimonial obligations:

They represent an exclusively private interest.

They create ties that are by nature transitory.
They exist a power to make effective in case of nonfulfillment, the economic equivalent obtained at the patrimony
of a debtor.

2. Juridical Necessity it means the rights and duties

arising from obligation are legally demandable and the
courts of justice may be called upon through proper action
to order the performance.

 Action means an ordinary suit in court of justice by which

one party prosecutes another for the enforceable or

protection for a right or a prevention or redress of a
wrong ( Sec. 1. Rules of court ).

Example
Gaya bought a refrigerator from Tito but Gaya did
not pay the refrigerator. If after demand, Gaya still
did not pay, Tito can sue Gaya in Court either to
demand payment or for recovery of the refrigerator.

3. Essential requisites of an obligation

An active subject, who has the power to demand the
prestation, known as the creditor or oblige;
b) A passive subject, who is bound to perform the prestation,
known as debtor or obligor.
c) An object or the prestation which may consist in the act of
giving, doing or not doing something.
d) The vinculum juris or the juridical tie between the two subjects
by reason of which the debtor is bound in favor of the creditor
to perform the prestation. It is the legal tie which constitutes
the source of obligationthe coercive force which makes the
obligation demandable. It is the legal tie which constitutes the
devise of obligation the coercive force which makes the
obligation demandable.
a)

Juridical Tie
Debtor
Or Obligor

To give, to do
or not to do

Creditor
or Obligee

Example:

Gaya enters into a contract of sale with Tito who paid the
purchase of a GE refrigerator. Gaya did not deliver the
refrigerator. Gaya is the passive subject or debtor and Tito
is the active subject or creditor. The object or prestation is
the GE refrigerator and the obligation to deliver is the
legal tie or the vinculum juris which binds Gaya and Tito.

 This is also known as a unilateral obligation, that is, the

obligation of the debtor to fulfill or comply his commitment, in

this case, the delivery of the refrigerator.
On the other hand, if Gaya, delivered the refrigerator and
Tito did not pay, then Tito becomes the debtor who is bound to
pay while Gaya is the creditor who has the right to demand the
prestation.
4. Distinctions between Obligations and Contracts:
Contract is the only one of the sources of obligation, while obligations

have other sources like law, quasi-contracts, delicts or quasi-delicts;

Contract is a bilateral obligation while obligation is a unilateral
obligation;
All contracts are obligations while not all obligations are contracts.

5. Civil obligations as distinguished from Natural

obligations
Civil obligations derive their binding force from positive

law; Natural Obligation derives their binding effect from

equity and natural justice.
Civil can enforced by court action of the coercive power of
public authority;

Natural the fulfillment cannot be compelled by

court action but depends on the good conscience of
debtor.

ART. 1157. Obligations arise from:

Law;
Contracts;
Quasi-contracts;
Acts or omissions punished by law; and
Quasi-delicts. (1089a)
On the sources of obligation, the main sources are really Law
and Contracts. The other sources are also established by law.

Source of Obligations
1. LAW as a source of obligations

The provisions of Art. 1158 refers to the legal obligations

or obligations imposed by specific provisions of law,
which means that obligations arising form law are not
presumed and that to be demandable must be clearly
provided for, expressly or impliedly in the law.
Examples:
It is the duty of the Spouses to support each other. (Art. 291,

New Civil Code)

And under the National Internal Revenue Code, it is the
duty of every person having an income to pay taxes.

2.

CONTRACT as a source of obligations

Contract as defined in Art. 1305, NCC is the meeting of minds between two person
whereby one binds himself with respect to the other,
Obligations arising from contracts have the force of law between the contracting
parties because that which is agreed upon in the contract by the parties is the law
between them, thus, the agreement should be complied with in good faith. (Art.
1159).
For examples:
A contract of lease was executed between Gaya as the lessee and Tito as the
lessor for the rent of an apartment.

Although contracts have the force of law, it does not mean that contract are over
and above the law. Contracts are with the limitations imposed by law in Art. 1306,
NCC, it states that the contracting parties may establish such stipulations, clauses
terms and conditions as, they may deem convenient, provided that are not
contrary to law, morals, good custom, public order or public policy.

3. QUASI-CONTRACTS as a source of obligations

The quasi literally means as if.

Quasi-contract is the juridical relation resulting from a

lawful, voluntary and unilateral act which has for its

purpose the payment of indemnity to the end that no one
shall unjustly enrich or benefited at the expense of
another. (Art. 2142, NCC)
Contracts and quasi-contracts distinguished:
in a contract, consent is essential requirement for its validity
while in quasi-contract, there is no consent as the same is
implied by law;
contract is a civil obligation while quasi-contract is a natural
obligation.

2 Kinds of Quasi-contracts
1. Solutio Indebiti (Payment by mistake)
It is the juridical relation which arises when a person is obliged to return something
received by him through error or mistake.
ExampleArvin owed Ian the sum of P1, 000.00. By mistake, Arvin paid P2, 000.00. Ian has
the obligation to return the P1, 000.00 excess because there was payment by
mistake.
2. Negotiorum gestio (management of anothers property)
It is the voluntary management or administration by a person of the abandoned
business or property of another without any authority or power from the latter. (Art.
2144, NCC)
ExampleVictor, a wealthy landowner suddenly left for abroad leaving his livestock farm
unattended. Ramon, a neighbor of Victor managed the farm thereby incurring
expenses. When Victor returns, he has the obligation to reimburse Ramon for the
expenses incurred by him and to pay him for his services. It is bases on the
principle that no one shall enrich himself at the expense of another.

DELICTS or acts or omissions punished by law as a source of obligations

Acts or omission punished by law is known as Delict or Felony or Crime.
While an act or omission is felonious because it is punished by law, the criminal
act gives rise to civil liability as it caused damage to another.
4.

Civil liability arising from delicts:

Restitution which is the restoration of or returning the object of the crime to
the injured party.
Reparation which is the payment by the offender of the value of the object
of the crime, when such object cannot be returned to the injured party.
Indemnification the consequential damages which includes the payment of
other damages that may have been caused to the injures party.
Illustration:
Mario was convicted and sentenced to imprisonment by the Court for the crime of
theft, the gold wrist watch, of Rito. In addition to whatever penalty that the Court
may impose, Mario may also be ordered to return (restitution) the gold wrist watch
to Rito. If restitution is no longer possible, for Mario to pay the value (reparation) of
the gold wrist watch. In addition to either restitution or reparation, Mario shall also
pay for damages (indemnification) suffered by Rito.

5. QUASI-DELICTS as a source of obligations

Concepts of Quasi-Delict

Quasi-delict is one where whoever by act or omission causes

damage to another, there being fault of negligence, is obliged
to pay for the damage done. Such fault of negligence, if there
is no pre-existing contractual relation between the parties.
(Art. 2176)
ExampleIf Pedro drives his car negligently and because of his
negligence hits Jose, who is walking on the sidewalk of the
street, inflicting upon him physical injuries. Then Pedro
becomes liable for damages based on quasi-delict.

Requisites of a quasi-delicts
There must be fault of negligence attributable to the

offended;
There must be damage or injury caused to another;
There is no pre-existing contract.

ART. 1158. Obligations derived from law are not presumed.

Only those expressly determined in this Code or in
special laws are demandable, and shall be regulated by
the precepts of the law which establishes them; and as
to what has not been foreseen, by the provisions.(1090)

ART. 1159. Obligations arising from contracts have the

force of law between the contracting parties and should be
complied with in good faith. (1091a)

 ART. 1160. Obligations derived from quasi-

contracts shall be subject to provisions.

ART. 1161. Civil obligations arising from criminal

offenses shall be governed by the penal laws,

subject to the provisions of article 2177, and of the
pertinent provisions of Chapter 2, Preliminary
Title, on Human Relations, and of regulating
damages. (1092a)
ART. 1162. Obligations derived from quasi-delicts

shall be governed by the provisions of Chapter 2,

Title XVIII of this Book, and by special law. (1093a)

Chapter 2: NATURE AND EFFECT

OF OBLIGATIONS
ART. 1163.

Every person obliged to give something is also

obliged to take care of it with the proper diligence of a good
father of a family, unless the law or the stipulation of the
parties requires another standard of care. (1904a)

ART. 1664. The creditor has a right to the fruits of the

thing from the time the obligation to deliver it arises.

However, he shall acquire no real right over it until the
same has been delivered to him. (1905)
ART. 1165.

When what is to be delivered is a determinate

thing, the creditor, in addition to the right granted him by
article 1170, may compel the debtor to make the delivery.

 If the thing is indeterminate or generic, he may ask that

the obligation be complied with at the expense of the

debtor.
If the obligor delays, or has promised to deliver the same

thing to two or more persons who do not have the same

interest, he shall be responsible for any fortuitous event
until he has effected the deliver. (1906)
ART. 1166. The obligation to give a determinate thing

includes that of delivering all its accessions and

accessories, even though they may not have been
mentioned. (1097a)

Obligations of the Debtor To Give a

determinate thing1.

To preserve or take care of the thing with the proper

diligence of a good father of a family. It means the
ordinary diligence that a prudent man would exercise in
taking care of his own property taking into consideration
the nature of the obligation, of the time and of the place,
like a person who is obliged to deliver a determinate
horse to another should, pending its delivery, preserve it
by taking care of the same as if the horse is his own.

2. Accessions and accessories.

Accession is the right pertaining to the owner of a thing
over its products and whatever is attached thereto either
naturally or artificially.
Example Accretion which refers to the gradual and addition of
sediment to the shore by action of water.
Accessories are those things which are joined attached to
the principal object as ornament or to render it perfect.

Example Radio attached to a car; or key to a car.

3.

To be liable for damages in case of breach of obligation (Art.

1170, NCC)

When creditor acquire a right to the thing to be delivered and

its fruitsThe creditor has a right to the fruits of the thing from the
time the obligation to deliver it arises. However, he shall acquire
no real right over it until the same have been delivered to him.
(Art. 1164, NCC)

Example a binds himself to sell his horse to B for fro P10, 000.
No date nor condition is stipulated for delivery of the horse.
Later, the horse gave birth to a colt. A has right to the colt, if B
has not paid the horse. Before delivery, B does not acquire
ownership over it.

Definition of terms:
Determinate thing a thing is determinate when it is
particularly designated or physically segregated from all
others from the same class. (Art. 1460, NCC)
2. Indeterminate or generic thing A thing is generic when
it refers to a class or thing or genus and cannot be
designated with particularity. (Art. 1460, NCC)
3. Fortuitous Events those events which could not be
foreseen or which though foreseen were inevitable. (Art.
1174, NCC)
1.

 Art. 1167. If a person obliged to do something fails to do it,

the same shall be executed at his cost.

This same rule shall be observed if he does it in

contravention of the tenor of the obligation. Furthermore,

it may be decreed that what has been poorly done be
undone. ( 1098 )

Obligation of the debtor To Do

Being a personal positive obligation, The creditor has
the right to secure the services of third person to perform
the obligation at the expense of the debtor under the
following instances:
When the debtor fails to do the obligation;
When the debtor performs the obligation but contrary to the

tenor; or
When the obligor poorly performs the obligation.

 ART. 1168. When the obligation consists in not doing, and the

obligor does has been forbidden him, it shall also be undone at

his expense, (1099a)
Obligation of the Debtor NOT To Do

This is negative personal obligation which is consisting of an

obligation, of not doing something. If the debtor does what has been
forbidden him to do, the obligee can ask the debtor to have it undone.
If it is impossible to undo what was done, the remedy of the injured
party is for an action of damages.

ExampleA bought a land from B. It was stipulated that A would not construct a
fence in a certain portion of his land adjoining that land sold by B.
Should A construct a fence in violation of the agreement, B. can bring
an action to have the fence remove at the expense of A.

 ART. 1169. Those oblige to deliver or to do something incur in

delay from the time the obligee judicially or extra - judicially demands
from theme the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in
order that delay may exist:
( 1 ) When the obligation or the law expressly declares; or
( 2 ) When from the nature and the circumstances of the obligation
it appears that the destination of the time when the thing is to be
delivered or the service is to rendered was controlling motive for the
establishment of
the contract; or
( 3 ) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other
does not comply in a proper manner with what is incumbent upon
him. From the moment one of the parties fulfills his obligation, delay
by the other begins. ( 1100a )

Delay ( Mora )
means a legal delay or default and it consists of failure
discharge a duty resulting to ones own disadvantaged.
The debtor incurred delay if:
The debtor fails to perform his obligation when it falls due; and
A demand has been made by the creditor judicially or extra
judicially.

Example
Gaya obliged herself to deliver a determinate horse to Tito on
June 20. this year. Gaya failed to delivered on the agreed date, Is
Gaya already on delay on June 20, only when Tito makes a
judicial or extra-judicial demand and from such date of
demand when Gaya is on default or delay.

 However, there are instances when the demand by the

Creditor is not necessary to place the debtor on delay:

1.

When the obligation expressly so provides

The mere fixing of the period is not sufficient to

constitute a delay. An agreement to the effect that
fulfillment or performance is not made when the
obligation becomes due, default or delay by the
debtor
will automatically arise.

2. When the law so provides

The express provision of law that a debtor is in default.

For instance, taxes must be paid on the date prescribed by
law, and demand is not necessary in order that the taxpayer
is liable for penalties.
3.

When time is of the essence

Because time is the essential factor in the fulfillment of
the obligation. Example, Gaya binds herself to sew the
wedding gown of Maya to be used by the latter on her
wedding date. Gaya did not deliver the wedding gown on
the date agreed upon. Even without demand, Gaya will be
in delay because time of the essence.

4. When demand would be useless

When the debtor cannot comply his obligation as when it is

beyond his power to perform. Like when the object of the
obligation is lost or destroyed through the fault of the debtor,
demand is not necessary.

In a reciprocal obligation, from the moment one of

the parties fulfills his obligation, delay to the other
begins

5.

For instance, in a contract of sale, if the seller delivers the object to

the buyer and the buyer does not pay, then delay by the buyer
begins and vice versa, if the buyer pays and the seller did not
deliver the object, then the seller is on delay.

Kinds of delay
Mora solvendi delay on the part of the debtor.
Mora accipiendi delay on the part of the creditor, like

when the creditor unjustifiably refused to accept payment

at the time it was due, is in delay.
Compensatio morae delay both parties in a reciprocal

obligation.

ART. 1170. Those who in the performance of their

obligations are guilty of fraud, negligence, or delay,
and those whoin any manner contravene the tenor
thereof, are liable for damages. (1101)
ART. 1171. Responsibility arising from fraud is
demandable in all obligations. Any waiver of an action
for future fraud is void. (1120a)
ART. 1172. Responsibility arising from
negligence in the performance of every king of
obligation is also demandable, but such liability may
be regulated by the courts, according to the
circumstances. (1130)

ART. 1173. The fault or negligence of the obligor

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. When negligence shows
bad faith, the provisions of articles 1171 and 2201,
paragraph 2, shall apply.
If the law or contract does not state the diligence
of which is to be observed in the performance, that
which is expected of a good father of a family shall be
required. (1104a)

Sources of liability for damages:

1.

Fraud (dolo) is the intentional deception made by one

person resulting in the injury of another.
The fraud referred to is incidental fraud, that is, fraud

incident to the performance of a pre-existing obligation.

2. Negligence (culpa) consists in the omission by the

obligor of that diligence which is required by the nature

of the obligation and corresponds with the
circumstances of the person, of the time and of the
place. (Art. 1173, NCC)

3. Delay (Mora) like when there has been judicial or

extra-judicial demand and the debtor does not comply

his obligation, delay will occur.
4. In contravention of the tenor of the obligation refers to

the violation of the terms and conditions or defects in

the performance of the obligation, like when a landlord
fails to maintain a legal and peaceful possession of a
tenant being leased by the latter because the landlord
was not the owner and the real owner wants to occupy
the land, there is contravention of the tenor of the
obligation.

Other sources of liability for

damages
Loss of the thing with the fault of debtor.
Deterioration with the fault of debtor. (Art. 1189)

Kinds of Damages
1.

Moral damages include physical sufferings, mental

anguish, fright, serious anxiety, besmirched reputation,
wounded feeling, moral shock, social humiliation and
similar injury.

2. Exemplary damages imposed by way of example or

correction for the public good.

Like in quasi-delicts, if the defendant acted with gross

negligence. (Art. 2231, NCC)

3. Nominal damages are adjudicated in order that a right

of the plaintiff, which has been violated by the

defendant, may be vindicated or recognized and not for
the purpose of indemnifying the plaintiff for any loss
suffered by him. (Art. 2221, NCC)
4. Temperate or moderate damages are more than

nominal but less than compensatory damages may be

recovered when the courts finds that its amount cannot,
from the nature of the case, be proved with certainty.
Pecuniary loss means loss of money, or of something by
which money or something of money value may be
acquired. (Black Law Dict. P. 1131)

5. Actual or compensatory damages except as provided

by law, or a stipulation, one is entitled to an adequate

compensation only for such pecuniary loss suffered by
him as he has duly proved. (Art. 2199, NCC)
Damages may be recovered:

For loss or impairment of earning capacity in cases of temporary

or permanent personal injury;
For injury, to the plaintiffs business standing or commercial
credit.

 Liquidated damages are those agreed upon by parties to a

contract to be paid in case of breach thereof. (Art. 2226,

NCC)

ART. 1174. Except in cases expressly specified by

the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be
responsible for those events which could not be
foreseen, or which, though foreseen, were inevitable
(1105a)

 Fortuitous even is an event which cannot be foreseen which

though foreseen is inevitable.

Fortuitous event proper are acts of God such as volcanic
eruption, earthquake, lightning, etc. is now similar with force
majuere or acts of man such as conflagration, war, robbery, etc.

1.

Requisite necessary to constitute fortuitous event

The failure of the debtor to comply with the obligation must be

independent from the human will;

The occurrence makes it impossible for the debtor to fulfill the
obligation on a normal manner, and the obligor did not take part
as to aggravate the injury of the creditor. (Vasquez v.C.A. G.R.
42926)

2. As a general rule, no person shall be held responsible for

fortuitous events
Example Gaya obliged herself to deliver a determine car to

Tito on Dec. 30, 1998. Before the arrival of the period, the car
was struck by lightning and was totally destroyed. Gaya
cannot be held responsible for the destruction of the car,
hence her obligation to deliver is extinguished.

 Exceptions (when the person is responsible despite the

fortuitous even).

When the law expressly so provides, such as:

a.

The debtor is guilty of fraud, negligence or in contravention of the tenor

of the obligation. (Art, 1170, NCC)

The debtor has proved to deliver the same thing to two or more persons
who do not have the same interest. ( Art. 1165,NCC )
The thing to delivered is generic.
The debtor is guilty of default or delay. ( Art. 1169,NCC )
The debtor is guilty of concurrent negligence.

b. When declared by stipulation;

c.

When the nature of obligation requires the assumption of

risk. An example of this is a contract of insurance.

 ART. 1175. Usurious transaction shall be governed by

special laws.

Note: C.B. Circular No. 905 suspends the ceilings in the usury law.

Hence, parties can agree as to the rate of interest.

Kinds of interest

1.

Conventional

2.
3.

Legal Interest
Lawful Interest

4.

Usurious Interest

*The rate which is agreed upon by the

parties.
*The rate which is prescribed by law.
*The rate which is agreed upon by the
parties but which rate is within the
rate authorized by law.
*The rate which is in excess of the
maximum rate of interest allowed by
law.

ART. 1176.The receipt of the principal by the creditor

without reservation with respect to the interest, shall
give rise to the presumption that said interest has
been paid.
The receipt of a later installment of a debt
without reservation as to prior installments, shall
likewise raise the presumption that such installments
have been paid. (1110a)
Presumption
means the inference as to the
existence of a certain fact which if not contradicted is
considered as true.

The presumption in the above article is a disputable

presumption, whereby one which can be contradicted by
presenting proof to the contrary while a conclusive
presumption does not admit any evidence or proof, hence,
it is considered as a fact.
Presumption under this article:
1. Receipt of the principal, without reservation as to the
interest, shall give rise to the presumption that the said
interest has been paid.
2. When the creditor issues a receipt of a later installment of
a debt without reservation as to prior installment is
presumed to have been paid.

 ART. 1177.

The creditors, after having pursued the property in

possession of the debtor to satisfy their claims, may exercise all
the rights and bring all the actions of the latter for the same
purpose, save those which are inherent in his person; they may
also impugn the acts which the debtor may have done to
defraud them. (1111)

Rights of Creditors

In order to satisfy their claims against the debtor, creditors have the
following successive rights:
1.

to levy by attachment and execution upon all the property of the

debtor, except such as are exempt by law from execution;

2.

to exercise all the rights and actions of the debtor, except, such as
are inherently personal to him; and

3.

to ask for the rescission of the contracts made by the debtor in fraud
of their rights.

 ART. 1178. Subject to the laws, all rights acquired in

virtue of an obligation are transmissible, if there has

been no stipulation to the contrary. (1112)
As a rule, all rights acquired in virtue of an obligation are

transmissible, except in the following cases:

1. When the law so provides.
2. When the parties stipulate otherwise by agreement of
parties that the rights acquired by them will not be
transmitted to any other person.
3. When the obligation is purely personal in nature.

General Provisions on Contracts

ART. 1305. A contract is a meeting of minds
between two persons whereby one binds himself,
with respect to the other, to give something or to
render service. (1254a)
The above article defines the term Contract. In a contract,

one or more persons bind themselves with respect to

another or reciprocally, to the fulfillment of a presentation
to give, to do or not to do.

Elements of Contract
1.

Essential elements those elements without which

there can be no valid contract. This element are consent,
object or subject matter and cause or consideration

2.

Natural elements those elements which are found

in a contract by its nature and presumed by law to exist,
such
as Warranty of hidden defects or eviction in
contract of sale.

3. Accidental elements - those which exist by virtue of an

agreement for the purpose of expanding, limiting, or

modifying a contract. Such accidental elements are
condition, clauses, terms, modes of payment, or
penalties.

Stages of A Contract
1.

Preparatory or conception process of

formation such as bargaining, negotiation to arrive
at a define contract.

2.

Perfection or birth there is now a meeting of

minds to arrive at a definite agreement as to the
subject matter, cause or consideration, terms and
conditions of contract.

3.

Consumption or death which is the fulfillment

or performance of the terms and conditions agreed
upon in the contract may be said to have been fully
accomplished or executed.

Characteristics of Contracts
1.

Freedom to contract they may establish terms

and conditions as they may deem convenient.

2.

Relativity it is binding only upon the parties

and their successors.

3.

Obligatory force it constitutes the law as

between the parties.

4.

Mutuality its validity and performance cannot

be left to the will of only one of the parties.

Classification of A Contract:
(FORM)
1. As to perfection

a. Consensual one which is perfected by mere consent (Art. 1315

b. Real Contract perfected by mere consent and by the delivery of the
object or subject matter. Ex. Deposit, pledge, or commodatum.

2. As to dependence to other contract.

a. Principal one which can stand alone. Ex. A contract of sale,

lease.
b. Accessory those which are dependent upon another contract.
Ex. Contract of mortgage, pledge of guaranty.
c. Preparatory those which is created in order that a future
transaction or contract may be entered into by te parties. Ex.
Contract of partnership or agency.

 3. According to name or designation

a. Nominate one which has particular name

or designation such as sale, agency, etc.
b. Innominate those without particular name.

4. According to the nature of obligation

a. Unilateral where only one ha an obligation to

perform. Ex. Contract of
donation, commodation.
b. Bilateral where both parties have reciprocal
obligation to perform. Ex.
Sale.

5. According to risk involved

a. Commutative - where there is an exchange of

values, such as lease.
b. Aleatory - one which the fulfillment of the
obligation depends upon chance. Ex. Contract of
insurance.

 6. According to cause

a. Onerous one which imposes valuable consideration

such as sale,
mortgage.
b. Gratuitous one which one of the parties does not
receive any valuable consideration, such as commodatum.

7. According to form
a. Oral by word of mouth of the parties
b. Written the agreement which is reduced in writing
which may be public or private or private document

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.
(1255a)

Art. 1307 Innominate contracts shall be regulated by

the stipulations of the parties, by the provisions of
Contracts, by the rules governing the most
analogous nominate contracts, and by the customs
of the place.

Contract Binds by Both Parties

ART. 1308. The contract must bind both
contracting parties; its validity or compliance cannot
be left to the will of one of them. (1256a)

Contracts entered by and between the parties mush

bind both parties in order that it can be enforced against
each other. This is also known as mutuality of contract.
Hence, its validity or compliance cannot be left to the will of
one of them. This principle is based on the essential
equality of the parties. It is elementary rule that no party
can renounce or violate the law of the contract without the
consent of the other. (11 Manresa 380)
Example, Gaya and Laura entered into a contract to
sell whereby Gaya binds herself to sell her only parcel of
land to Laura if Gaya decides to leave for States. The
contract is void because the fulfillment of the condition
depends on the will of Gaya.

ART. 1309. The determination of the

performance may be left to a third person, whose decision
shall not be binding until it has been made known to
both contracting parties.

ART. 1310. The determination shall not be

obligatory if it is evidently inequitable. In such case, the
courts shall decide what is equitable under the
circumstances.

Determination of Performance
by Third Person

As a rule, compliance with a contract cannot be left to the

will of one of the contracting parties. However, the
determination of its performance may be left to a third person
after it has been made known to both contracting parties.
Provided, further, the parties are not bound by the
determination if it is evidently inequitable or unjust when the
third person acted in bad faith or by mistake, the courts shall
decide what is equitable under the circumstances.

Example, Gaya sold her parcel of land to Laura. It was

agreed that Maya, a real estate appraiser would be the one to
determine the reasonable price of the land. Maya, then, fixed
the price after considering the factors affecting the value of the
land, and informing both contracting party that the decision is
just and suitable. If the decision made by Maya is manifestly
inequitable, the court may be called upon to decide what is
equitable

 ART. 1311. Contracts take effect only between the

parties, their assigns and heirs, except in case where

the rights and obligations arising from the contract are

not transmissible by their nature, or by stipulation, or
by provision of law. The heir is not liable beyond the
value of the property he perceived from the decedent.
If a contact should contain some stipulation in
favor of third person, he may demand its fulfillment
provided he communicated his acceptance to the

obligor before its revocation. A mere incidental

benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately
conferred a favor upon a third person. (1257a)

 Art. 1312 In contracts creating real rights, third persons

who come into possession of the object of the contract are

bound thereby, subject to the provisions of the Mortgage
Law and the Land Registration Laws.
Art. 1313 Creditors are protected in cases of contracts

intended to defraud them.

Art. 1314 Any third person who induces another to violate

his contract shall be liable for damages to the other

contracting party.

Cases Where Third person May

Be Affected By a Contract

1. In determining the performance of both parties (Art. 1309).

2. In contracts containing a stipulation in favor of a third person (Art.

1311).

3. In contracts creating real rights (Art. 1312).

4. In contracts entered into to defraud creditor (Art. 1313).

5. In contracts which have been violated at the inducement of the third

person (Art. 314).

Example, Gaya mortgaged her parcel of land in favor of Laura as

collateral for her debt. The mortgage is duly registered. Later on, Gaya sold
the same land to Tito. In this case, Tito bought the land subject to the
mortgage constituted thereon. Tito, although a stranger in the mortgage,
being a real right follows the property on the right of Laura to the mortgage

 Art. 1317 No one may contract in the name of another

without being authorized by the latter, or unless he

has by law a right to represent him.

A contract entered into in the name of another by one who

has no authority or legal representation, or who has acted
beyond his powers , shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf
it has been executed, before it is revoked by the other
contracting party. (1259a)

Chapter 2: Essential Requisites of

Contracts
General Provisions

Art. 1318 There is no contract unless the following

requisites occur:
Consent of the contracting parties;
2. Object certain which is the subject matter of the
contract;
3. Cause of the obligation which is established. (1261)
1.

Section 1. Consent
Art. 1319 Consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge.
The contract in such a case, is presumed to have been
entered into the place where the offer was made. (1262a)

Art. 1320 An acceptance may be express or implied.

Art. 1321 The person making the offer may fix the time,
place, and manner of acceptance, all of which must be
complied with.
Art. 1322 An offer made through an agent is accepted
from the time acceptance is communicated to him.

Art. 1323 An offer becomes ineffective upon the death,

civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed.
Art. 1324 When the offerer has allowed the offeree a
certain period to accept, the offer may be withdrawn at
any time before acceptance by communicating such
withdrawal, except when the option is rounded upon a
consideration, as something paid or promised.

Art.1325. Unless it appears otherwise, business

advertisements of things for sale are not definite offers,
but mere invitations to make an offer.
Art. 1326. Advertisement for bidders are simply
invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder, unless the
contrary appears.

Art. 1327 The following cannot give consent to a contract:

1.) Unemancipated minors;
2.) Insane or demented persons, and deaf-mutes who do
not know how to write. (1263a)
Art. 1328 Contracts entered into during a lucid interval
are valid, contracts agreed to in a state of drunkenness or
during a hypnotic spell are voidable.

Art. 1329 The incapacity declared in article 1327 is subject

to the modifications determined by law, and is
understood to be without prejudice to special
disqualifications established in the laws.
Art. 1330 A contract where consent is given through
mistake, violence, intimidation, undue influence or
fraud is voidable.

Art. 1331 In order that mistake may invalidate consent, it

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.
Mistake as to the identity or qualifications of one of the
parties will vitiate consent only when such identity or
qualifications have been the principal cause of contract.
A simple mistake of account shall give rise to its
correction. (1226a)

Art. 1332 When one of the parties is unable to read, or if the

contract is in a language not understood by him, and mistake
or fraud is alleged, the person enforcing the contract must
show that the terms thereof have been fully explained to the
former.
Art. 1333 There is no mistake if the party alleging it know the
doubt, contingency, or risk affecting the object of the
contract.

Art. 1334. Mutual error as to the legal effect of an agreement

when the real purpose of the parties is frustrated may vitiate
consent.

Art. 1335. There is violence when in order to wrest consent,

serious or irresistible force is employed.
There is intimidation when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an
imminent and grave peril upon his person or property, or
upon the person or property of his spouse, descendants or
ascendants, to give his consent.
To determine the degree of the intimidation, the age, sex
and condition of the person shall be borne in mind.
A threat to enforce ones claim through competent
authority, if the claim is just or legal, does not vitiate
consent. (1267a)

Art. 1336. Violence or intimidation shall annul the

obligation, although it may have been employed by third
Person who did not take part in the contract. (1268)
Art. 1337. 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. The following circumstances shall be considered:
the confidential, family, spiritual, and other relations
between the parties, or the fact that the person alleged
to have been unduly influenced was suffering from
mental weakness, or was ignorant or in financial
distress.

Art. 1338. There is fraud when, through insidious words

or machinations of one of the contracting parties, the
other is induced to enter into contract which, without
them, he would not have agreed to. (1269)
Art. 1339. Failure to disclose facts, when there is a duty to
reveal them, as when the parties are bound by
confidential relations, constitutes fraud.
Art. 1340. The usual exaggerations in trade, when the
other party had an opportunity to know the facts, are not
in themselves fraudulent.

Art. 1341. A mere expression of an opinion does not

signify fraud, unless made by an expert and the other
party has relied on the formers special knowledge.
Art. 1342. Misrepresentation by a third person does not
vitiate consent, unless such misrepresentation has
created substantial mistake and the same is mutual
Art. 1343. Misrepresentation made in good faith is not
fraudulent but may constitute error.

Art. 1344. In order that fraud may make a contract

voidable, it should be serious and should not have been
employed by both contracting parties.
Incidental fraud only obliges the person employing it
to pay damages.
Art. 1335. Simulation of a contract may be absolute or
relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties
conceal their true agreement.

Art. 1346. An absolutely simulated or fictitious contract

is void. A relative simulation, when it does not prejudice
a third person and is not intended for any purpose
contrary to law, morals, good customs, public order or
public policy binds the parties to their real agreement.

Section 2. Object of Contracts

1347. All things which are not outside the commerce of
men, including future things, may be the object of a
contract. All rights which are not intransmissible may
also be the object of contracts.
No contract may be entered into upon future
inheritance except in cases expressly authorized by
law.
All services which are not contrary to law, morals,
good customs, public order or public policy may
likewise be the object of a contract. (1271a)

Art. 1348. Impossible things or services cannot be the

object of contracts. (1272)
Art. 1349. The object of every contract must be
determinate so as to its kind. The fact that the quantity
is not determinate shall not be an obstacle to the
existence of a contract, provided it is possible to
determine the same, without the need of a new contract
between the parties. (1273)

Section 3. Cause of Contracts

Art. 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 contrast of pure beneficence, the
mere liberality of the benefactor. (1274)
Art. 1351. The particular motives of the parties in
entering into a contract are different from the cause
thereof.

Art. 1352. Contracts without cause, or with unlawful

cause, produce no effect whatever. The cause is unlawful
if is contrary to law, morals, good customs, public order
or public policy. (1275a)

Art. 1353. The statement of a false cause in contracts shall

render them void, if it should not be proved that they
were rounded upon another cause which is true and
lawful.

Art. 1354. Although the cause is not stated in the

contract, it is presumed that it exist and is lawful, unless
the debtor proves the contrary. (1277)
Art. 1355. Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue influence.

Innocence of the law

excuses no one

reported by:

jim