You are on page 1of 39

OBLIGATIONS

I. Definition
A juridical necessity to give, to do or not to do, 1 one impressed with the character
of enforceability.
II. Elements of an Obligation

1. Active subject2

The possessor of a right;


he in whose favor the
obligation is constituted;

2. Passive subject3

He who has the duty of


giving, doing or not doing;

3. Object or prestation4

May consist of giving a


thing, or doing or not
doing a certain act5and

4. Efficient cause6

The
reason
why
obligation exists

the

III. Different Kinds of Prestations

1. To give

Consists in the delivery of a


movable or an immovable thing,
in order to create a real right or
for the use of the recipient or for
its simple possession or in order
to return to its owner

2. To do

All kinds of work or services,

1 Art. 1156
2 obligee or creditor
3 obligor or debtor
4 the subject matter of the obligation
5 Requisites:
1. it must be licit
2. it must be possible, physically & juridically
3. it must be determinate or determinable
4. it must have a possible equivalent in money

6 vinculum or juridical tie

whether mental or physical

3. Not to do

Consists in abstaining from some


act, includes not to give, both
being negative obligations

IV. Classification of Obligations

1.
Criteria
demandability:

of a. Pure - one w/c is not


subject to a condition or a
term.
b.
Conditional - 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.7
c. W/ a term8 -

2. Plurality of objects

a. Single

3. Plurality of subjects

b. Alternative - where the


debtor must perform any of
the prestations9
c. Facultative - where only
one thing is due but the
debtor has reserved the
right to substitute it w/
another10
d. Joint - one in w/c each of

7 Art. 1181
A past thing can never be a condition. A condition is always future and uncertain.
Past event unknown to the parties.-- It is really the knowledge of the event w/c constitutes the future.
It is the knowledge w/c is future and uncertain.
Effect of Impossible Condition.-- It annuls the obligation w/c depends upon them. The entire juridical
tie is tainted by the impossible condition.

8 see Reference
9 The characteristic of alternative obligations is that, several objects being due, the fulfillment of
one is sufficient (Tolentino)
10 Art. 1206

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.11
e. Solidary - one in w/c the
debtor is liable for the
entire obligation or each
creditor
is
entitled
to
demand
the
whole
obligation.
There is only
one obligation is a solidary
obligation.

4. Performance

a.
Divisible
susceptible
of
performance.

one
partial

b.
Indivisible - one that
must be performed in one
act.12

5. Sanctions for Breach

a. Simple
b. W/ a penal clause - an
accessory undertaking to
assume greater liability in
case of breach.13

11 there are as many obligations as there are debtors multiplied by the number of creditors. Effects of
Joint Liability:
1. The demand by one creditor upon one debtor, produces the effects of default only w/ respect to the
creditor who demanded and the debtor on whom the demand was made, but not w/ respect to the others;
2. The interruption of prescription by the judicial demand of one creditor upon a debtor, does not benefit
the other creditors nor interrupt the prescription as to other debtors. On the same principle, a partial
payment or acknowledgement made by one of several joint debtors does not stop the running of the
statute of limitations as to the others;
3. The vices of each obligation arising from the personal defect of a particular debtor or creditor does not
affect the obligation or rights of the others;
4. 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;
5. In the joint divisible obligation, the defense of res judicata is not extended from one debtor to another.
(Manresa.)

12 General rule: Obligation is indivisible w/c means that it has to be performed in one act singly. Why?
Bec. the law provides so: Unless there is an express stipulation to that effect, the creditor cannot be
compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be
required to make partial payments. xxx (Art. 1248, par. 1.) Three Exceptions to the Rule on Indivisibility:
1. When the parties so provide. (Art. 1248, par. 1.)
2. When the nature of the obligation necessarily entails performance in parts.
3. Where the law provides otherwise.

V. Sources of Obligations14
A. A single act or omission can give rise to different causes of action
It is a source of obligation because of the provision in Article 100 of the Revised
code that every person criminally liable is also civilly liable.15
B. Natural Obligations16
They are real obligations to which the law denies an action, but which the debtor
may perform voluntarily.17
A. Extra-contractual Obligations18
1. Quasi-contract19 - That juridical relation resulting from a lawful, voluntary and
unilateral act, and which has for its purpose, the payment of indemnity to the end that
no one shall be unjustly enriched or benefited at the expense of another
2 kinds:
a Negotiorum gestio - unauthorized management20
b Solutio indebiti - undue payment

21

13 The purpose is to strengthen the coercive force of the obligation. When a penal clause is
present, damages do not have to be proved.
14 Obligations arise from:
1. Law
2. Contracts
3. Quasi-contracts
4. Acts or omissions punished by law and
5. Quasi-delicts.

15 Nolledo, Jose N., The Philippine Law on Obligations and Contracts Explained, 1980 Ed., p. 2
16 a. Based not on positive law but on equity and natural law
enforce their performance

b. Do not grant such right of action to

17 Examples of natural obligations enumerated under the Civil Code:


1. Performance after the civil
obligation has prescribed;
2. Reimbursement of a third person for a debt that has prescribed;
3. Restitution by minor after annulment of contract;
4. Delivery by minor of money or fungible thing in fulfillment of obligation;
5. Performance after action to enforce civil obligation has failed;
6. Payment by heir of debt exceeding value of property inherited; and
7. Payment of legacy after will have been declared void.

18 Arts. 2142 to 2194


19 obligation ex quasi-contractu
20 This takes place when a person voluntarily takes charge of anothers abandoned business or
property without the owners authority
21 This takes place when something is received when there is no right to demand it, and it was
unduly delivered thru mistake

2. Quasi-delict/torts22 - It is a fault or act of negligence ( or omission of care )


which causes damage to another, there being no pre-existing contractual relations
between the parties.23
VI. Nature and Effect of obligations
A. Obligation to give24
1. A determinate or specific thing
When what is to be delivered is a determinate thing, the creditor, in addition to
the right granted him by Article 1170,25 may compel the debtor to make the delivery.26
The obligation to give a determinate thing includes that of delivering all its
accessions and accessories, even though they may not have been mentioned.27
2. An indeterminate or generic thing
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.28
B. Obligation to do or not to do
Obligations to do
If a person is obliged to do
something, it must be done as
promised, and it cannot be
substituted by another act or
forbearance against the obligees
will29. If the obligor fails to do it,
the same shall be executed at his
cost30 albeit he may not be

In Obligations not to do
When the obligation consists in
not doing, and the obligor does
what has been forbidden him, it
shall also be undone at his
expense.32

22 obligation ex quasi-delicto or ex quasi maleficio


23 Elements:
a. There must be fault or negligence attributable to the person charged
b. There must be damage or injury
c. There must be a direct relation of cause and effect between the fault or negligence on the one hand
and the damage or injury on the other hand ( proximate cause )

24 Three Accessory Obligations:


1. To take care of the thing w/ the diligence of a good father of a
family until actual delivery.(Art. 1163)
2. To deliver the fruits to the creditor (fruits produced after obligation to deliver arises).(Art. 1164)
3. To deliver accessions and accessories(Art. 1166)

25 See reference
26 Art. 1165,

1st

par.

27 Art. 1166
28 Art. 1165 , 2nd par.
29 see Art. 1244

compelled to do so personally or
by himself.
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.31

C. Breaches of obligations
1. Complete failure to perform
Debtor is unable to comply with his obligation because of fortuitous event.33
2. Default, delay or mora34 no default unless creditors makes a demand;35
exceptions
1. Obligation or law expressly so declares
2. Time is of the essence of the contract
3. Demand is useless as when obligor has rendered beyond his power to perform
4. There is acknowledgment of default.
In reciprocal obligations, one party incurs in delay from the moment the other
party fulfills his obligation, while he himself does not comply or is not ready to comply
in a proper manner with what is incumbent upon him.36
a

Mora solvendi

Delay of the debtor to perform his obligation. It may be:


1. Ex re obligation is to give
2. Ex persona obligation is to do37
30 see Chavez vs. Gonzales, 32 SCRA 547
31 Art. 1167
32 see Art. 1168; Cui vs. Chan, 41 Phil. 523
33 debtor is not liable for damages
34 Non-fulfillment of the obligation with respect to time
35 There must be a demand (judicial or extra-judicial) before delay may be incurred.
36 see Art. 1169
The general rule is that fulfillment by both parties should be simultaneous except
when different dates for the performance of obligation is fixed by the parties.
Demand is still necessary if their respective obligations are to be performed on separate dates.

37 There can be delay only in positive obligations (to give/to do). There can be no delay in
negative obligations (not to give/not to do).

b. Mora accipiendi
Delay of the creditor to accept the delivery of the thing w/c is the object of the
obligation
c. Compesatio morae
Delay of the parties or obligors in reciprocal obligation.
1. Fraud in the performance of obligation38
a. Waiver of future fraud is void
Responsibility arising from fraud is demandable in all obligations. Any waiver of
an action for future fraud is void.39
4. Negligence (culpa)40 in the performance of obligation
a. Diligence normally required is ordinary diligence or diligence of a good father
of a family
b. Exceptions: common carriers which are required to exercise extraordinary
diligence
5. Contravention of the tenor of obligation
The faithful observance of an obligation according to its tenor is mandated by law;
an unexcused failure thereof renders the obligor liable for losses and damages caused
thereby.41
6. Legal excuse for breach of obligation fortuitous event; requisites
Fortuitous event42- an event which could not be foreseen or which though
foreseen, was inevitable.
Requisites:

38 Deliberate and intentional evasion of the fulfillment of an obligation


39 Art. 1171Future fraud cannot be waived because it would result to illusory obligation.

40 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
Negligence can be waived unless the nature
of the obligation or public policy requires extraordinary diligence as in common carrier.

41 see Art. 1170


42 General Rule: No liability in case of fortuitous event.
Exceptions:
1. When expressly declared by law (e.g. Article 552(2), 1165(3), 1268, 1942, 2147, 2148 and 2159 of
the Civil Code.)
2. When expressly declared by stipulation or contract
3. When the nature of the obligation requires the assumption of risk
4 When the obligor is in default or has promised to deliver the same thing to 2 or more persons who
do not have the same interest [Article 1165(3)].

1 cause is independent of the will of the debtor43


2 the event must be unforeseeable or unavoidable
3 occurrence must be such as to render it impossible for the debtor to fulfill
his obligation in a normal manner
4 debtor must be free from any participation in the aggravation of the injury
resulting to the creditor44
B. Remedies available to creditor in cases of breach
1. Specific Performance45
When what is to be delivered is a determinate thing, the creditor, in addition to the
right granted him by Art 1170,46 may compel the debtor to make the delivery.47
a. Substituted performance by a third person on obligation to deliver generic
thing and in obligation to do, unless a purely personal act
Obligation to give

Obligation to do

If the thing is indeterminate or


generic, he may ask that the
obligation be
complied with at the expense of
the debtor.48

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 done poorly
be undone.49

generic thing

2. Rescission50
43 It must not only be the proximate cause but it must be the only and sole cause.
44 Lasam vs. Smith, 45 Phil. 657
45 in obligation to give specific thing
46 indemnification for damages
47 Art. 1165, par 1; see also ROC Rule 39, Sec 10
48 Art 1165, Par 2 Delivery of anything belonging to the species stipulated will be sufficient.
Debtor cannot avoid obligation by paying damages if the creditor insists on the performance.

49 Art. 1167
The court has no discretion to merely award damages to the creditor when the act can be
done in spite of the refusal or failure of debtor to do so.
Exception: Imposition of personal force or coercion upon the debtor to comply with his obligation tantamount to involuntary servitude and imprisonment for debt

50 resolution in reciprocal obligations


Only applies to reciprocal obligations, where there is reciprocity
between the parties i.e. creditor debtor relations arise from the same cause or identity of cause.

The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.51
The injured party may choose between the fulfillment and the rescission of the
obligation,52 with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 53 and 138854 and the Mortgage
Law.55
In case both parties have committed a breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If it cannot be determined which of
the parties first violated the contract, the same shall be deemed extinguished, and each
shall bear his own damages.56

3. Damages, in any event


In case of breach of the obligation,57 exclusive or in addition to specific performance.
2. Subsidiary remedies of creditors
Reciprocal obligations have a tacit resolutory condition

51 Power to rescind:
Pertains to the injured party, party who did not perform not entitled to insist upon
the performance of the contract by the defendant or recover damages by reason of his own breach
Rights of injured party subordinated to the rights of a 3rd person to whom bad faith is not imputable
Not absolute, not permitted in casual/slight breach, may only be claimed in substantial breach
(Song Fo v. Hawaiian Philippines)
Rescission requires judicial approval to produce legal effect
Exception: object is not yet delivered and obligation has not yet been performed
If the obligation has not yet been performed: extrajudicial declaration of party willing to perform would
suffice; can refuse to perform if the other party is not yet ready to comply
If the injured party has already performed: cannot extrajudicially rescind IF the other party opposes the
rescission (otherwise, rescission produces legal effect). In the case the other party impugns rescission, the
court comes in either to: a. Declare the rescission as properly made b. Give a period to the debtor in which
to perform

52 The remedy is alternative. Party seeking rescission can only elect one between fulfillment and
rescission. There can be no partial performance and partial rescission.
53 See Reference
54 ibid
55 Art. 1191
56 Art. 1192
57 Art. 1170; See Reference
Recoverable damages include any and all damages that a human being
may suffer. Responsibility for damages is indivisible

a. Accion subrogatoria58
Action which the creditor may exercise in place of the negligent debtor in order to
preserve or recover for the patrimony of the debtor the product of such action, and then
obtain therefrom the satisfaction of his own credit.59
b. Accion pauliana60
Creditors have the right to set aside or revoke acts which the debtor may have
done to defraud them. All acts of the debtor which reduce his patrimony in fraud of his
creditors, whether by gratuitous or onerous title, can be revoked by this action.
c. Accion directa61
Right of the lessor to go directly to sublessee for unpaid rents of the lessee.62
Right of the laborers or persons who furnish materials for a piece of work
undertaken by a contractor to go directly to the owner for any unpaid claims due to the
contractor.63
VII. Kinds of Civil Obligations
A. Pure
The performance does not depend upon a future or uncertain event, or upon a
past event unknown to the parties, which is demandable at once.64
B. Conditional
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.65
1. Suspensive condition66
The happening of the event gives birth to an obligation
58 An action against the debtors debtor
59 subrogatory action; See Art. 1177
Previous approval of court is not necessary
Plaintiff entitled only to so much as is needed to satisfy his credit, any balance shall pertain to the
debtor
Patrimony of the debtor (includes both present and future property) is liable for the obligations he may
contract by being a legal guaranty in favor of his creditors. Hence, he cannot maliciously reduce such
guaranty

60 rescissory action
An action to rescind contracts entered into by the debtor in fraud of creditors ( Arts.
1177, last sentence and 1381, par. 3, See Reference
Payments of pre-existing obligations already due, whether natural or civil, cannot be impugned by an
accion pauliana

61 Arts. 1652, 1608, 1729 & 1893; see reference


62 See Art. 1652
63 See Art. 1729
64 Art. 1179

2. Resolutory condition67
The happening of the event will extinguish the obligation.
3. Potestative, casual or mixed
Potestative

Casual

One
w/c
depends One
where
the
solely on the will of condition is made to
either one party.68
depend upon a third
person
or
upon
69
chance.

Mixed
One
w/c
depends
partly upon the will
of one of the parties
and partly on either
chance or the will of
a third person.

a. Obligations subject to potestative suspensive conditions are void


When the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void.
If it depends upon chance or upon the will of a third person, the obligation shall
take effect.70
4. Effect of the happening of suspensive condition or resolutory condition
a) Extent of retroactivity
The effects of a conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation. When the
obligation imposes reciprocal prestations upon the parties, the fruits and interests
during the pendency of the condition shall be deemed to have been mutually
compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and
interests received, unless from the nature and circumstances of the obligation it should
be inferred that the intention of the person constituting the same was different.

65
Every obligation which contains a resolutory condition shall also be demandable, without prejudice to
the effects of the happening of the event.
When the debtor binds himself to pay when his means permit
him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of Article
1197 (Art. 1180)
Art. 1181

66 condition precedent
67 condition subsequent
68 e.g., "I will give you my plantation in Davao provided you reside in Davao permanently."
69 e.g., "I will give you my land in Pampanga if you will pass the bar exams this year."
70 Art. 1182

In obligations to do and not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.71
3. Effect of improvement, loss or deterioration of specific thing before the happening of
a suspensive condition in obligation to do or not to do
Rules in case of the improvement, loss or deterioration of the thing during the
pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be
extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages; it is understood that the thing is lost when it perishes, or goes out of
commerce, or disappears in such a way that its existence is unknown or it cannot be
recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is
to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose
between the rescission of the obligation and its fulfillment, with indemnity for damages
in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure
to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than
that granted to the usufructuary.72
6. Effect when a resolutory condition in obligation to do or not to do happens and there is
improvement, loss or deterioration of the specific thing
The provisions of the second paragraph of Article 1187 73 shall be observed as
regards the effect of the extinguishment of the obligation.74
C. Obligation with a period or a term75
Obligations for whose fulfillment a day certain has been fixed, which is
demandable only when that day comes.
Obligations with a resolutory period take effect at once, but terminate upon
arrival of the day certain.
A day certain is understood to be that which must necessarily come, although it
may not be known when.
71 Art. 1187
72 Art. 1189
73 supra
74 Art. 1190, par. 3
75 General rule:
If a period is attached in an obligation, the presumption is that it is for the benefit of
both parties. The consequence is that the creditor cannot compel the performance before the arrival of
the term; the debtor cannot compel acceptance before the arrival of the term.

If the uncertainty consists in whether the day will come or not, the obligation is
conditional.76
1. Presumption that period is for the benefit of both debtor and creditor
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.77
2. Effect if suspensive period78 is for the benefit of both debtor and creditor
Term is for the benefit of
Term is for the benefit of
the creditor
the debtor
The
creditor
can
demand The creditor cannot demand
performance anytime; but the performance anytime; but the
debtor cannot insist on payment debtor can insist on performance
before the period.
anytime.79

3. Effect if given to debtor alone


a) Instances when debtor losses benefit of period
(1) When after the obligation has been contracted, he becomes insolvent, unless he
gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities which he
has promised;
(3) 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;
(4) When the debtor violates any undertaking, in consideration of which the
creditor agreed to the period;
(5) When the debtor attempts to abscond.80
4. Resolutory period

76 Art. 1193
77 Art.1196
78 The obligation has already arisen except that it is not yet demandable
79 Illustrations: "I promise to pay within 60 days." This is a term for the benefit of the debtor.
"I
promise to pay Clara the sum of P100,000 on or before Oct. 31, 1996." This is a term for the benefit of the
debtor.

80 Art. 1198

Obligations with a resolutory period take effect at once, but terminate upon
arrival of the day certain.81
5. Definite or indefinite period
a. Instances when courts may fix the period
If the obligation does not fix a period, but from its nature and the circumstances it
can be inferred that a period was intended.
The courts shall also fix the duration of the period when it depends upon the will
of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them.82
b. Creditor must ask court to set the period before he can demand payment
D. Alternative or Facultative83
1. Difference between alternative and facultative obligations84
Alternative

Facultative
As to contents of the obligation

There are various prestations all


of w/c constitute parts of the
obligation

Only the principal prestation


constitutes the obligation, the
accessory being only a means to
facilitate payment.

As to nullity
The nullity of one prestation does
not invalidate the obligation, w/c
is still in force w/ respect to
those w/c have no vice

The nullity of the principal


prestation
invalidates
the
obligation and the creditor
cannot demand the substitute
even when this is valid.
As to choice

The right to choose may be given Only the debtor can choose the
81 in diem, or resolutory
82 Art. 1197
83 Art. 1199
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.

84 Facultative obligations always involve choice by the debtor.


In theory, it is easy to distinguish a
facultative obligation from an alternative one. But in practice, it is difficult to distinguish the two. You just
have to find out what the parties really intended (Balane)

to the creditor

substitute prestation.
As to effect of loss

Only the impossibility of all the The impossibility of the principal


prestations due w/o fault of the prestation
is
sufficient
to
debtor
extinguishes
the extinguish the obligation, even if
obligation
the substitute is possible.85
2. Effect of loss of specific things or impossibility of performance of alternative, through
fault of debtor/creditor or through fortuitous events
Choice is debtor's

Choice is the
creditor's

85 IV Tolentino

a. When only one prestation is a. If one or some are lost through


left,86 the debtor may perform the fortuitous event, the creditor may
one that is left.87
choose from those remaining.90
b.
If the choice is limited
through the creditor's own acts,
the debtor can ask for resolution
plus damages.88

b. If one or some are lost through


the debtor's fault, the creditor
has choice from the remainder or
the value of the things lost plus
damages.91

c. If everything is lost through


the debtor's fault, the latter is c. If all are lost through the
liable to indemnify the creditor debtor's fault,
for damages.89
the choice of the creditor shall
d.
If some things are lost fall upon the price of any of
through the debtor's fault, the them,
w/
indemnity
for
92
debtor can still choose from damages.
those remaining.
d. If some are lost through the
e.
If all are lost through creditor's fault, the creditor may
fortuitous event, the obligation is choose from the remainder.
extinguished.
e.
If all are lost through
f. If all prestations but one are fortuitous event, the obligation is
lost through fortuitous event, and extinguished.
the remaining prestation was lost
through the debtor's fault, the f.
If all are lost through the
latter is liable to indemnify the creditor's fault, the obligation is
creditor for damages.
extinguished.
g. If all but one
the fault of the
last one was lost
fortuitous event,
extinguished.

are lost through


debtor and the
through through
the obligation is

86 whether or not the rest of the prestations have been lost through fortuitous event or through
the fault of the debtor
87 Art. 1202
88 Art. 1203
89 Art. 1204
90 Art. 1205 (1)
91 Id. (2)
92 Id. (3)

VIII. Joint and Solidary obligation


A. Joint (divisible) obligation
1. Concurrence of two or more creditors and or two or more debtors
a. Joint obligation is presumed, unless otherwise indicated by the law or nature
of obligation
The concurrence of two or more creditors or of two or more debtors in one and
the same obligation does not imply that each one of the former has a right to demand,
or that each one of the latter is bound to render, entire compliance with the prestation.
There is a solidary liability only when the obligation expressly so states, or when
the law or the nature of the obligation requires solidarity.93

b. Obligation presumed to be divided into as many equal shares as there are


creditors or debtors
The credit or debt or deemed divided into as many shares as there are creditors
or debtors to each other, each resulting credit or debt being considered distinct from
one another.94
c. Each credit is distinct from one another, therefore a joint debtor cannot be
required to pay for the share of another with debtor, although he may pay if he
wants to
If the division is impossible, the right of the creditors may be prejudiced only by
their collective acts, and the debt can be enforced only by proceeding against all the
debtors. If one of the latter should be insolvent, the others shall not be liable for his
share.95
d. Insolvency of a joint debtor, others not liable for his share96
B. Joint Indivisible Obligation
1. Obligation cannot be performed in parts but debtors are bound jointly
Generally, obligations are indivisible since the integrity of the obligations requires their
payment or performance completely.97
2. In case of failure of one joint debtor to perform his part (share), there is default but
only guilty debtor shall be liable for damages
A joint indivisible obligation gives rise to indemnity for damages from the time
anyone of the debtors does not comply with his undertaking. The debtors who may have
been ready to fulfill their promises shall not contribute to the indemnity beyond the
93 Art. 1207
94 see Art. 1208
95 Art. 1209
96 ibid
97 Arts. 1233 and 1248

corresponding portion of the price of the thing or of the value of the service in which
the obligation consists.98

C. Solidary obligation
1. Mutual agency among solidary debtors
The debtor may pay any one of the solidary creditors; but if any demand, judicial
or extrajudicial, has been made by one of them, payment should be made to him.99
Novation, compensation, confusion or remission of the debt, made by any of the
solidary creditors or with any of the solidary debtors, shall extinguish the obligation,
without prejudice to the provisions of Article 1219.100
The creditor who may have executed any of these acts, as well as he who collects
the debt, shall be liable to the others for the share in the obligation corresponding to
them.101
2. Mutual guaranty among solidary debtors
The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others, so long as the debt has
not been fully collected.102
Payment made by one of the solidary debtors extinguishes the obligation. If two or
more solidary debtors offer to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment already made. If the payment is
made before the debt is due, no interest for the intervening period may be demanded.
When one of the solidary debtors cannot, because of his insolvency, reimburse his
share to the debtor paying the obligation, such share shall be borne by all his codebtors, in proportion to the debt of each.103
A solidary debtor may, in actions filed by the creditor, avail himself of all defenses
which are derived from the nature of the obligation and of those which are personal to
him, or pertain to his own share. With respect to those which personally belong to the
others, he may avail himself thereof only as regards that part of the debt for which the
latter are responsible.104

98 Art. 1224
99 Art. 1214
100 The remission made by the creditor of the share which affects one of the solidary debtors
does not release the latter from his responsibility towards the co-debtors, in case the debt had
been totally paid by anyone of them before the remission was effected.
101 Art. 1215
102 Art. 1216
103 Art. 1217
104 Art. 1222

3. Each one of solidary creditors may do whatever may be useful to the others, but not
anything prejudicial to them105
a) Effect of any novation, compensation, confusion or remission of debt executed
by a solidary creditor
The obligation is extinguished, without prejudice to the provisions of Article 1219.106
The creditor who may have executed any of these acts, as well as he who collects
the debt, is liable to the others for the share in the obligation corresponding to them.107
D. Divisible and Indivisible
Obligations to give definite things and those which are not susceptible of partial
performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number of days of
work, the accomplishment of work by metrical units, or analogous things which by their
nature are susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an
obligation is indivisible if so provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibility shall be determined by the
character of the prestation in each particular case.108
E. 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. Damages
shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the
fulfillment of the obligation.
The penalty may be enforced only when it is demandable.109
Proof of actual damages suffered by the creditor is not necessary in order that the
penalty may be demanded. 110
The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.111
The nullity of the penal clause does not carry with it that of the principal
obligation.
105 Art. 1212
106 supra
107 Art. 1215
108 Art. 1225
109 Art. 1226
110 Art. 1228
111 Art. 1229

The nullity of the principal obligation carries with it that of the penal clause.112
IX. Extinguishment of Obligations
A. Payment
The creditor is 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.
Whoever pays for another may demand from the debtor what he has paid, except
that if he paid without the knowledge or against the will of the debtor, he can recover
only insofar as the payment has been beneficial to the debtor.113
Whoever pays on behalf of the debtor without the knowledge or against the will of
the latter, cannot compel the creditor to subrogate him in his rights, such as those
arising from a mortgage, guaranty, or penalty.114
Payment made by a third person who does not intend to be reimbursed by the
debtor is deemed to be a donation, which requires the debtor's consent. But the
payment is in any case valid as to the creditor who has accepted it115
1. Dation in payment
Property is alienated to the creditor in satisfaction of a debt in money.116
2. Form of payment
The payment of debts in money shall be made in the currency stipulated. If it is
not possible to deliver such currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in
abeyance.117
3. Extraordinary inflation or deflation
The value of the currency at the time of the establishment of the obligation shall
be the basis of payment, unless there is an agreement to the contrary.118

112 Art. 1230


113 Art. 1236
114 Art. 1237
115 Art. 1238
116 Art. 1245
Dation in payment is governed by the law on sales because it is as if the creditor is now
the vendee,and the debtor becomes now the vendor.

117 Art. 1249

4. Application of payment119
He who has various debts of the same kind in favor of one and the same creditor,
may declare at the time of making the payment, to which of them the same must be
applied. Unless the parties so stipulate, or when the application of payment is made by
the party for whose benefit the term has been constituted, application shall not be made
as to debts which are not yet due.
If the debtor accepts from the creditor a receipt in which an application of the
payment is made, the former cannot complain of the same, unless there is a cause for
invalidating the contract.120
If the debt produces interest, payment of the principal shall not be deemed to
have been made until the interests have been covered.121
When the payment cannot be applied, or if application cannot be inferred from
other circumstances, the debt which is most onerous to the debtor, among those due,
shall be deemed to have been satisfied.
If the debts due are of the same nature and burden, the payment shall be applied
to all of them proportionately.122
5. Tender of Payment and Consignation
If the creditor to whom tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from responsibility by the consignation
of the thing or sum due.
Consignation alone shall produce the same effect in the following cases, when:
(1) Creditor is absent or unknown, or does not appear at the place of payment;
(2) He is incapacitated to receive the payment at the time it is due;
(3) Without just cause, he refuses to give a receipt;
(4) Two or more persons claim the same right to collect;
(5) The title of the obligation has been lost.123
In order that the consignation of the thing due may release the obligor, it must
first be announced to the persons interested in the fulfillment of the obligation.124

118 Art. 1250


119 the designation of a debt which is being paid by the debtor who has several obligations of
the same kind in favor of the creditor to whom the payment is made (quoting Tolentino.)
120 Art. 1252
121 Art. 1253
122 Art. 1254
123 Art.1256
124 Art. 1257

Consignation shall be made by depositing the things due at the disposal of judicial
authority, before whom the tender of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified
thereof.125
The expenses of consignation, when properly made, shall be charged against the
creditor.126
Once the consignation has been duly made, the debtor may ask the judge to order
the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial declaration
that the consignation has been properly made, the debtor may withdraw the thing or
the sum deposited, allowing the obligation to remain in force.127
If, the consignation having been made, the creditor should authorize the debtor to
withdraw the same, he shall lose every preference which he may have over the thing.
The co-debtors, guarantors and sureties shall be released.128
B. Loss of Determinate Thing Due or Impossibility or difficulty of performance
The obligation is extinguished if it should be lost or destroyed without the fault of
the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the
loss of the thing does not extinguish the obligation, and he shall be responsible for
damages. The same rule applies when the nature of the obligation requires the
assumption of risk.129
The debtor in obligations to do shall also be released when the prestation
becomes legally or physically impossible without the fault of the obligor.130
When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in
part.131
C. Condonation or Remission of Debt
An act of liberality by virtue of which, without receiving any equivalent, the
creditor renounces enforcement of an obligation which is extinguished, in whole or in
part.132

125 Art. 1258


126 Art. 1259
127 Art. 1260
128 Art. 1261
129 Art. 1262
130 Art. 1266
131 Art. 1267

1. Express condonations and required formality thereof


Express condonation shall comply with the forms of donation.133
2. Implied
The delivery of a private document evidencing a credit, made voluntarily by the
creditor to the debtor, implies the renunciation of the action which the former had
against the latter.
If in order to nullify this waiver it should be claimed to be inofficious, the debtor
and his heirs may uphold it by proving that the delivery of the document was made in
virtue of payment of the debt.134
Whenever the private document in which the debt appears is found in the
possession of the debtor, it shall be presumed that the creditor delivered it voluntarily,
unless the contrary is proved.135
It is presumed that the accessory obligation of pledge has been remitted when the
thing pledged, after its delivery to the creditor, is found in the possession of the debtor,
or of a third person who owns the thing.136

D. Confusion or Merger of Rights


When the characters of creditor and debtor are merged in the same person.137
E. Compensation
When two persons, in their own right, are creditors and debtors of each other.138
It is necessary that:
(1) Each one of the obligors be bound principally, and that he be at the same time
a principal creditor of the other;
132 Four (4) requisites:1. Debt that is existing. You can remit a debt even before it is due.
2. Renunciation must be gratuitous.
If renunciation is for a consideration, the mode of
extinguishment may be something else. It may be novation, compromise of dacion en pago.
3. Acceptance by the debtor
4. Capacity of the parties.

133
Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It
may be made expressly or impliedly.
One and the other kind shall be subject to the rules which govern
inofficious donations (Art. 1270)
The form of donation must be observed. If the condonation involves movables, apply Art. 748. If it
involves immovables, apply Art. 749. But note that the creditor may just refuse to collect (w/o observing
any form.) In this case, the obligation will be extinguished not by virtue of condonation but by waiver
under Art. 6.

134 Art. 1271


135 Art. 1272
136 Art. 1274
137 Art. 1275
138 Art. 1278

(2) 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;
(3) The two (2) debts be due;
(4) They be liquidated and demandable;
(5) Over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.139
1. Kinds
a. Legal compensation
Compensation takes place by operation of law, even though the debts may be
payable at different places, but there shall be an indemnity for expenses of exchange or
transportation to the place of payment.140
When all the requisites mentioned above are present, compensation takes effect
by operation of law, and extinguishes both debts to the concurrent amount, even though
the creditors and debtors are not aware of the compensation.141
b. Agreement
The parties may agree upon the compensation of debts which are not yet due.142
c. Voluntary143
d. Judicial
If one of the parties to a suit over an obligation has a claim for damages against
the other, the former may set it off by proving his right to said damages and the amount
thereof.144
e. Facultative
When compensation is claimable by only one of the parties but not of the other.145

139
Compensation shall not be proper when one of the debts arises from a depositum or from the
obligations of a depositary or of a bailee in commodatum.
Neither can compensation be set up against
a creditor who has a claim for support due by gratuitous title, without prejudice to the provisions of par. 2
of Article 301 (Art. 1287)
Neither shall there be compensation if one of the debts consists in civil liability arising from a penal
offense (Art. 1288)
If a person should have against him several debts which are susceptible of compensation, the rules on
the application of payments shall apply to the order of the compensation (Art. 1289)
Art. 1279

140 Art. 1286


141 Art. 1290
142 Art. 1282
143 See Agreement, supra
144 Art. 1283

2. Obligations not compensable


a. When one of the debts arises from a depositum or from the obligations of a
depositary or of a bailee in commodatum.
b. Against a creditor who has a claim for support due by gratuitous title, without
prejudice to the provisions of paragraph 2 of Article 301.146
c. If one of the debts consists in civil liability arising from a penal offense.147
F. Novation
Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.148
In order that an obligation may be extinguished by another which substitute the
same, it is imperative that it be so declared in unequivocal terms, or that the old and
the new obligations be on every point incompatible with each other.149
Novation which consists in substituting a new debtor in the place of the original
one, may be made even without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new debtor gives him the rights
mentioned in articles 1236 and 1237.150
If the substitution is without the knowledge or against the will of the debtor, the
new debtor's insolvency or non-fulfillment of the obligations shall not give rise to any
liability on the part of the original debtor.151
The insolvency of the new debtor, who has been proposed by the original debtor
and accepted by the creditor, shall not revive the action of the latter against the original
obligor, except when said insolvency was already existing and of public knowledge, or
known to the debtor, when the delegated his debt.152
145 e.g., Arts. 1287, 1288
146 Art. 1287
Support in arrears may be compensated and renounced, and the right to demand the
same may be transmitted by onerous or gratuitous title (Art. 301, par. 2)

147 Art. 1288


148 Art. 1291
149 Art. 1292
150 Art. 1293
151 Art. 1294
152 Art. 1295

When the principal obligation is extinguished in consequence of a novation,


accessory obligations may subsist only insofar as they may benefit third persons who
did not give their consent.153
If the new obligation is void, the original one shall subsist, unless the parties
intended that the former relation should be extinguished in any event.154
The novation is void if the original obligation was void, except when annulment
may be claimed only by the debtor or when ratification validates acts which are
voidable.155
If the original obligation was subject to a suspensive or resolutory condition, the
new obligation shall be under the same condition, unless it is otherwise stipulated.156
Subrogation of a third person in the rights of the creditor is either legal or
conventional. The former is not presumed, except in cases expressly mentioned in this
Code; the latter must be clearly established in order that it may take effect.157
Conventional subrogation of a third person requires the consent of the original
parties and of the third person.158
It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the
debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the express or
tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion as to the
latter's share.159
Subrogation transfers to the persons subrogated the credit with all the rights
thereto appertaining, either against the debtor or against third person, be they
guarantors or possessors of mortgages, subject to stipulation in a conventional
subrogation.160
A creditor, to whom partial payment has been made, may exercise his right for the
remainder, and he shall be preferred to the person who has been subrogated in his
place in virtue of the partial payment of the same credit.161
153 Art. 1296
154 Art. 1297
155 Art. 1298
156 Art. 1299
157 Art. 1300
158 Art. 1301
159 Art. 1302
160 Art. 1303

CONTRACTS
I. Essential Requisites
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.162
II. Kinds of Contracts
Consensual

Real

Formal or
Solemn

Perfected by mere Requires delivery of Requires compliance


consent and from object
for with
certain
163
that
moment,
the perfection.
formalities
parties are bound not
prescribed by law,
only to the fulfillment
such prescribed form
of what has been
being an essential
expressly stipulated
element
but
also
to
all
consequences which,
according to their
nature may be in
keeping with good
faith, usage and law.
1. Donations
Movable
May be made orally or in writing

Immovable

It must be made in a public


document, specifying therein the
An oral donation requires the property donated and the value
simultaneous delivery of the of the charges which the donee
thing or of the document must satisfy.
representing the right donated.
If the value of the personal
property donated exceeds five
thousand pesos (P5,000.00), the
donation and the acceptance
shall be made in writing.
Otherwise, the donation shall be
void.164

161 Art. 1304


162 Art. 1381
163 like deposit, pledge and commodatum

The acceptance may be made in the same deed of donation or in a


separate public document, but it shall not take effect unless it is
done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall
be notified thereof in an authentic form, and this step shall be noted
in both instruments.165

2. Partnership166 where real property contributed


A public instrument is necessary.167
There must be:
1. an inventory of said property
2. signed by the parties; and
3. attached to the public instrument.168
3. Antichresis
The amount of the principal and of the interest shall be specified in writing;
otherwise, the contract of antichresis is void.169
4. Agency to sell real property or an interest therein
The authority of the agent must be in writing; otherwise, the sale is void.170
5. Stipulation to charge interest
No interest shall be due unless it has been expressly stipulated in writing.171
6. Stipulation limiting common carriers duty of extraordinary diligence to ordinary
diligence

164 Art. 748


165 Art. 749
166 may be constituted in any form
167 Art. 1771
168 Art. 1773; otherwise, the contract of partnership is void
169 Art. 2134
170 Art. 1874
171 Art. 1956

A stipulation between the common carrier and the shipper or owner limiting the
liability of the former for the loss, destruction, or deterioration of the goods to a degree
less than extraordinary diligence shall be valid, provided it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than the service rendered by the
common carrier; and
(3) Reasonable, just and not contrary to public policy.172
7. Chattel mortgage
Personal property is recorded in the Chattel Mortgage Register as security for the
performance of an obligation.
If the movable, instead of being recorded, is delivered to the creditor or a third
person, the contract is a pledge and not a chattel mortgage.173
8. Sale of large cattle
Governed by special law174 which requires that the same be in a public
instrument.
No person, partnership, association, corporation or entity shall engage in the
business of buy and sell of large cattle without first securing a permit for the said
purpose from the Provincial Commander of the province where it shall conduct such
business and the city/municipal treasurer of the place of residence of such person,
partnership, association, corporation or entity. The permit shall only be valid in such
province.175
III. Formality
Contracts shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. However, when the
law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is absolute
and indispensable. In such cases, the right of the parties stated in the following article
cannot be exercised.176
If the law requires a document or other special form, the contracting parties may
compel each other to observe that form, once the contract has been perfected. This
right may be exercised simultaneously with the action upon the contract.177
The following must appear in a public document:

172 Art. 1744


173 Art. 2140
174 Act No. 1147
175 Sec. 5, P.D. 533
176 Art. 1356
177 Art. 1357

(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;178
(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.
All other contracts where the amount involved exceeds five hundred pesos
(P500.00) must appear in writing, even a private one. But sales of goods, chattels or
things in action are governed by articles, 1403, No. 2 and 1405.179
IV. Defective Contracts
A. Rescissible Contracts180
(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) All other contracts specially declared by law to be subject to rescission.181
(6) Payments made in a state of insolvency on account of obligations not yet
enforceable
1. Difference with Rescission (resolution) under Art. 1191
Rescission in Article
1191

Rescission Proper in Article


1381

It is a principal action retaliatory It is a subsidiary remedy.


in character.
178 infra
179 Art. 1358
180 Contracts validly agreed upon but, by reason of lesion or economic prejudice may be
rescinded in cases established by law.
181 Art. 1381

The
only
ground
is
non- There are 5 grounds to rescind.
performance of ones obligation/s Non-performance by the other
or what is incumbent upon him.
party is not important.

It applies
obligation

only

to

reciprocal It applies to both unilateral and


reciprocal obligations.

Only a party to the contract may Even a 3rd person who is


demand fulfillment or seek the prejudiced by the contract may
rescission of the contract.
demand the rescission of the
contract.

B. Voidable Contracts182
Contracts entered into during a lucid interval are valid. Contracts agreed to in a
state of drunkenness or during a hypnotic spell are voidable.183
The incapacity declared in Article 1327184 is subject to the modifications
determined by law, and is understood to be without prejudice to special
disqualifications established in the laws.185
A contract where consent is given through mistake, violence, intimidation, undue
influence, or fraud is voidable.186
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 the contract.
A simple mistake of account shall give rise to its correction.187

182 Art. 1409


Those in which all of the essential elements for validity are present, although the element
of consent is vitiated either by lack of capacity of one of the contracting parties or by VIMFU.
What contracts are voidable:
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
3. By loss of the thing which is the object of the contract through fraud or fault of the person who is
entitled to annul the contract.
Requisites:
a. there must be knowledge of the reason which renders the contract voidable
b. such reason must have ceased and
c. the injured party must have executed an act which expressly or impliedly conveys an intention to
waive his right.

183 Art. 1328


184 See Reference
185 Art. 1329
186 Art. 1330

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.188
There is no mistake if the party alleging it knew the doubt, contingency or risk
affecting the object of the contract.189
Mutual error as to the legal effect of an agreement when the real purpose of the
parties is frustrated, may vitiate consent.190
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 evil 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 intimidation, the age, sex and condition of the person
shall be borne in mind.
A threat to enforce one's claim through competent authority, if the claim is just or
legal, does not vitiate consent.191
Violence or intimidation shall annul the obligation, although it may have been
employed by a third person who did not take part in the contract.192
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.193
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.194
Failure to disclose facts, when there is a duty to reveal them, as when the parties
are bound by confidential relations, constitutes fraud.195

187 Art. 1331


188 Art. 1332
189 Art. 1333
190 Art. 1334
191 Art. 1335
192 Art. 1336
193 Art. 1337
194 Art. 1338

The usual exaggerations in trade, when the other party had an opportunity to
know the facts, are not in themselves fraudulent.196
A mere expression of an opinion does not signify fraud, unless made by an expert
and the other party has relied on the former's special knowledge.197
Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual. 198
Misrepresentation made in good faith is not fraudulent but may constitute
error.199
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.200
The following contracts are voidable or annullable, even though there may have
been no damage to the contracting parties:
(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.201
The action for annulment shall be brought within four (4) years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of
the consent ceases.
In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases.202
Ratification extinguishes the action to annul a voidable contract.203
195 Art. 1339
196 Art. 1340
197 Art. 1341
198 Art. 1342
199 Art. 1343
200 Art. 1344
201 Art. 1390
202 Art. 1391

Ratification may be effected expressly or tacitly. It is understood that 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.204
Ratification may be effected by the guardian of the incapacitated person.205
Ratification does not require the conformity of the contracting party who has no
right to bring the action for annulment.206
Ratification cleanses the contract from all its defects from the moment it was
constituted.207
The action for the annulment of contracts may be instituted by all who are
thereby obliged principally or subsidiarily. However, persons who are capable cannot
allege the incapacity of those with whom they contracted; nor can those who exerted
intimidation, violence, or undue influence, or employed fraud, or caused mistake base
their action upon these flaws of the contract.208
An obligation having been annulled, the contracting parties shall restore to each
other the things which have been the subject matter of the contract, with their fruits,
and the price with its interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the basis for
damages.209
When the defect of the contract consists in the incapacity of one of the parties,
the incapacitated person is not obliged to make any restitution except insofar as he has
been benefited by the thing or price received by him.210
Whenever the person obliged by the decree of annulment to return the thing
cannot do so because it has been lost through his fault, he shall return the fruits
received and the value of the thing at the time of the loss, with interest from the same
date.211
The action for annulment of contracts shall be extinguished when the thing which
is the object thereof is lost through the fraud or fault of the person who has a right to
institute the proceedings.

203 Art. 1392


204 Art. 1393
205 Art. 1394
206 Art. 1395
207 Art. 1396
208 Art. 1397
209 Art. 1398
210 Art. 1399
211 Art. 1400

If the right of action is based upon the incapacity of any one of the contracting
parties, the loss of the thing shall not be an obstacle to the success of the action, unless
said loss took place through the fraud or fault of the plaintiff.212
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.213
C. Unenforceable Contracts214
The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds.
In the following cases an agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a year from
the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of
another;
(c) An agreement made in consideration of marriage, other than a mutual
promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a
price not less than five hundred pesos (P500.00), unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of them, of
such things in action or pay at the time some part of the purchase money; but
when a sale is made by auction and entry is made by the auctioneer in his sales
212 Art. 1401
213 Art. 1402
214 Those which cannot be enforced by proper action in court unless they are ratified
What contracts
are unenforceable
1. those entered into in the name of another by one without or acting in excess of authority;
2. those where both parties are incapable of giving consent; and
3. those which do not comply with the Statute of Frauds
Agreements within the scope of the Statute of Frauds (exclusive list):
1. Agreements not to be performed within one year from the making thereof;
2. Special promise to answer for the debt, default or miscarriage of another;
- this does not refer to the original or independent promise of the debtor to his own creditor. It
refers rather to a collateral promise.
3. Agreement in consideration of marriage other than a mutual promise to marry;
4. Agreement for the sale of goods, etc. at a price not less than P500.00;
5. Contracts of lease for a period longer than one year;
6. Agreements for the sale of real property or interest therein; and
7. Representation as to the credit of a third person.
The contracts/agreements under the Statute of Frauds require that the same be evidenced by some
note, memorandum or writing, subscribed by the party charged or by his agent, otherwise, the said
contracts shall be unenforceable.
The statute of frauds applies only to executory contracts, not to those that are partially or completely
fulfilled.
Ratification of contracts in violation of the Statute of Frauds
1. Failure to object to the presentation of oral evidence to prove such contracts
2. Acceptance of benefits under these contracts

book, at the time of the sale, of the amount and kind of property sold, terms of
sale, price, names of the purchasers and person on whose account the sale is
made, it is a sufficient memorandum;
(e) An agreement for the leasing for a longer period than one (1) year, or for
the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.215
Unauthorized contracts are governed by Article 1317 216 and the principles of
agency.217
Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403,
are ratified by the failure to object to the presentation of oral evidence to prove the
same, or by the acceptance of benefit under them.218
When a contract is enforceable under the Statute of Frauds, and a public
document is necessary for its registration in the Registry of Deeds, the parties may
avail themselves of the right under Article 1357.219
In a contract where 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 the same effect as if only one of them were
incapacitated.
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.
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.220
D. Void Contracts221
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
215 Art. 1403
216 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

217 Art. 1404


218 Art. 1405
219 Art. 1406
If the law requires a document or other special form, the contracting parties may compel
each other to observe that form, once the contract has been perfected. This right may be exercised
simultaneously with the action upon the contract (Art. 1357)

220 Art. 1407

(2) Those which are absolutely simulated or fictitious;


(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.222
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.223

Comparative table of defective contracts

221 Those where all of the requisites of a contract are present but the cause, object or purpose is
contrary to law, morals, good customs, public order or public policy, or contract itself is
prohibited or declared void by law.
222 Art. 1409
223 Art. 1346

Void

Voidable

Rescissible

Unenforceabl
e

1. Defect is Defect
is Defect
is
caused
by caused by vice caused
by
lack
of of consent
injury/ damage
essential
either to one of
elements
or
the parties of to
illegality
a 3rd person

Defect
is
caused by lack
of
form,
authority,
or
capacity
of
both
parties
not cured by
prescription

2. Do not, as
a general rule
produce any
legal effect

Valid
and
enforceable
until they are
annulled by a
competent
court

Cannot
be
enforced by a
proper action
in court

3. Action for
the
declaration or
nullity
or
inexistence or
defense
of
nullity
or
inexistence
does
not
prescribe

Action
for Action
annulment
or rescission
defense
of prescribe
annulability
may prescribe

Valid
and
enforceable
until they are
rescinded by a
competent
court

for Correspondin
may g action for
recovery,
if
there
was
total or partial
performance
of
the
unenforceable
contract
under No. 1 or
3 of Article
1403
may
prescribe

4. Not cured Cured


by Cured
by Not cured by
by
prescription
prescription
prescription
prescription
5. Cannot be Can be ratified
ratified

Need not
ratified

6.
Assailed Assailed only by
not only by a a
contracting
contracting
party
party
but
even
by
a
third person
whose
interest
is
directly
affected

Assailed
not
only
by
a
contracting
party but even
by
a
third
person who is
prejudiced
or
damaged by the
contract

7.
Assailed Assailed
directly
or directly
collaterally
collaterally

Assailed
or directly only

be Can
ratified

be

Assailed only
by
a
contracting
party

Assailed
directly
or
collaterally

1. Pactum commissorium
It can be found in Article 2088 of the civil code which provides: The creditor
cannot appropriate the things given by way of pledge or mortgage, or dispose of them.
Any stipulation to the contrary is null and void.
Simply put, it is a stipulation in a contract of mortgage of pledge which provides
that the mortgagee will automatically own the property mortgaged in case the
mortgagor fails to pay the loan. This stipulation is void.
2. Pactum de non alienando
A stipulation forbidding the owner from alienating the immovable mortgaged.224
3. Pactum leonina
A stipulation which excludes one or more partners from any share in the profits or
losses.225

V. Effect of Contracts
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 received from the decedent.
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. 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.226

224 Art. 2130


225 Art. 1799
226 Art. 1311