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TITLE I - OBLIGATIONS CHAPTER 1 GENERAL PROVISIONS Obligation: Requisites 1. Passive Subject debtor/obligor who is bound to the fulfilment of the obligation 2. Active Subject creditor/obligee who is entitled to demand the fulfilment of the obligation (natural/juridical persons) 3. Prestation/Object conduct required to be observed by the debtor 4. Vinculuum Juris juridical/legal tie w/c binds or connects the parties to the obligation; enforceability of the obligation Object/Prestation: Kinds 1. to give delivery of a movable/immovable thing 2. to do work/service whether physical or mental 3. not to do abstaining from some act Object/Prestation: Elements 1. possible 2. determinate/determinable 3. susceptible of pecuniary value 4. legal/licit CIVIL OBLIGATIONS Civil obligations are those which give a right of action to compel their performance binding force from positive law can be enforced by court action or the coercive power of public authority NATURAL OBLIGATIONS natural obligations are those which cannot be enforced by court action but which are binding on the party who makes them, in conscience and according to equity & natural justice equity and natural justice cannot be compelled by court action but depends exclusively upon the good conscience of the debtor

Quasi Contracts: Elements 1. lawful 2. voluntary 3. unilateral Independent Civil Actions 1. obligations not arising from the act/omission claimed to be criminal 2. violations of constitutional rights & liberties of individuals 3. defamation, fraud or physical injuries 4. refusal/failure of members of a local police force to render protection to life/property Civil Liability: Scope 1. restitution 2. reparation for the damage caused 3. indemnification Quasi Delict: Requisites 1. act/omission 2. fault/negligence 3. damage caused 4. direct relation of cause & effect between the act or omission and the damage 5. no pre-existing contractual relation bet. the parties Test of Negligence 1. a duty on the part of the defendant to protect the plaintiff from the injury of w/c the latter complains 2. a failure to perform that duty 3. an injury to the plaintiff through such failure Negligence: Kinds 1. culpa aquilana negligence as a source of obligation 2. culpa contractual negligence in the performance of a contract 3. culpa criminal negligence resulting in the commission of a crime QUASI-DELICT The obligation arises only when there is a breach It is the breach itself w/c gives rise to the obligation Quasi-delict & breach are inseparable QUASI-DELICT private right (wrong against an individual) criminal intent is not present punishable when fault or negligence is present Every quasi-delict gives rise to liability for damages to the injured par CONTRACT There is already an obligation w/c exists prior to or even w/o a breach The breach of the contract is immaterial to the legal obligation Contract & breach are separable.

Legal Wrong: Elements 1. legal right in favour of the plaintiff 2. correlative legal obligation on the part of the defendant 3. an act or omission by the defendant in violation of said right w/ resulting damage to the plaintiff Obligations: Kinds Accdg. to Subject Matter 1. Real Obligation subject matter is a thing w/c the debtor must deliver to the creditor 2. Personal Obligation subject matter is an act to be done or not to be done Personal Obligations: Kinds 1. Positive obligation to do or render service 2. Negative obligation not to do/not to give Obligations: Sources 1. law imposed by law itself (ultimate source) 2. contracts meeting of minds between 2 parties whereby one binds himself, w/ respect to another, to give something or to render service 3. quasi-contracts arise from lawful, voluntary & unilateral acts w/c are enforceable to the end that no one shall be unjustly enriched at the expense of another 4. delicts acts/omissions punishable by law 5. quasi-delicts arise from damage caused to another through an act/omission, there being fault/negligence, but no contractual relation exists between them 6. public offer (Balanes opinion) Quasi Contracts: Kinds (2) 1. Negotiorum gestio voluntary management of the property or affairs of anther w/o the knowledge or consent of the latter 2. solutio indebiti juridical relation w/c is created when something is received when there is no right to demand it & it was unduly delivered through mistake

reparation of injury suffered by the injured party (as compensation/indemnification) Preponderance of evidence Can be compromised Civil liability only

DELICT/CRIME public right (wrong against the State) criminal intent is necessary punishable only when there is a penal law that punishes it there are crimes from which no civil liability arises, such as in the cases of contempt, gambling, and violations of ordinances and traffic regulations where nobody is injured. fine or imprisonment, or both, the fine accruing to the public treasury (as punishment) Proof beyond reasonable ground Can never be compromised Civil & criminal liability

CHAPTER 2 NATURE & EFFECT OF OBLIGATIONS Obligations to Give 1. Determinate/Specific 2. Indeterminate/Generic 3. Limited Generic




DETERMINATE/SPECIFIC - particularly designated - physically segregated fr. others of the same class - individualized - can be identified or distinguished from others of its kind - debtor cannot substitute it w/ another although it is of the same kind & quality w/o the consent of the creditor

INDETERMINATE/GENERIC - refers only to a kind class/genus to w/c it pertains - cannot be pointed w particularity - the object is determinable, but the moment it is delivered, it becomes determinate - debtor can give anything of the same class of the same kind/quality *Limited Generic when the generic objects are confined to a particular class

Liability in case of Breach 1. in good faith liable for necessary/normal damages 2. in bad faith liable for all kinds of damages, including nominal, moral & exemplary Exemption from Liability: Kinds 1. a party to a contract is relieved from the effects of his fault or negligence by a 3rd person (e.g. insurance) 2. one party to a contract renounces in advance the right to enforce liability arising from the fault/negligence of others Damages Moral Exemplary Nominal Temperate Actual Liquidated & attorney fees INCIDENTAL FRAUD (ART. 1171) Malice Subsequent fraud Fraud committed in the performance of an obligation already existing evades the normal fulfilment of an obligation Does not vitiate consent Obligation/contract is valid Creditor has a right to damages because of breach SIMPLE NEGLIGENCE Lack of due diligence Waiver of future simple negligence is allowed CAUSAL FRAUD (ART. 1338) Deceit Antecedent Fraud Fraud employed in the execution of a contract uses insidious words or machinations to induce another to enter a contract, w/o them, he would have agreed Vitiates consent Contract is voidable Creditor may annul the obligation GROSS NEGLIGENCE So reckless as to amount to fraud Waiver of future gross negligence is void, as it is tantamount to waiving future fraud NEGLIGENCE No such intention May be allowed Presumed from the violation of the contractual obligation May be mitigated or reduced CULPA AQUILANA negligence which by itself is the source of obligation (quasi-delict or tort) Liability arises not involving a breach of existing obligation, en employer may exempt himself from liability by proving that he had exercised due diligence No such discretion is given dealing with liability arising under Art. 2176

Duties of Debtor in Obligation to Give a Determinate Thing 1. Preserve the thing diligence of a good father of a family 2. deliver the thing itself 3. deliver the fruits of the things 4. deliver accessions and accessories 5. answer for damages in case of non-fulfilllment/breach Duties of Debtor in Obligation to Give a Generic Thing 1. deliver the thing w/c is of the quality intended by the parties 2. to be liable for damages in case of fraud, negligence, delay, or contravention of the tenor the obligation 3. in case of fortuitous event, debtor is still liable Fruits: Kinds 1. natural fruits spontaneous products of the soil & the young & other products of animals 2. industrial fruits produced by lands of any kind through cultivation of labor 3. civil fruits derived by virtue or juridical relation PERSONAL RIGHT Right/power of a person to demand from another the fulfilment of the latters obligation Definite active subject & definite passive subject Binding against a particular person REAL RIGHT Right/interest of a person over a specific thing w/o a definite passive subject against whom the right may be enforced Definite active subject but no definite passive subject Binding against the whole world

Creditors Remedies in Specific Real Obligations 1. Specific performance/Compliance/Fulfillment performance of the prestation itself 2. Substituted performance when someone else performs or something else is performed at the expense of the debtor 3. Equivalent performance payment of damages exclusively or additonally 4. Resolution/rescission OBLIGATION 1. To Give - determinate Thing - determinable Thing 2. To Do - personal - not personal 3. Not To Do SPECIFIC PERFORMANCE EQUIVALENT PERFORMANCE SUBSTITUTE PERFORMANCE

FRAUD Deliberate intention to cause damage or injury Waiver for future fraud void Must be clearly proved Liability cant be mitigated or reduced by the courts CULPA CONTRACTUAL negligence in contracts resulting in their breach; not a source of obligation Liability arises involving a breach of contractual duty, an employer may not exempt himself from liability by proving that he had exercised due diligence Court is given discretion to mitigate liability accdg. to the circumstances



Grounds for Liability 1. Fraud/Deceit/Dolo deliberate intent or intentional evasion of the normal fulfilment of an obligation w/c implies malice/dishonesty/bad faith 2. Negligence/Fault/Culpa failure to observe for the protection of the interests of another person, that degree of care, precaution & vigilance w/c the circumstances justly demand 3. Delay/Mora nonfulfillment w/ respect to time 4. Contravention of the terms of the obligation violation of the terms/conditions stipulated in the obligation

Kinds of Diligence Required 1. that agreed upon by the parties orally/in writing 2. that required by law in particular cases a. extraordinary diligence common carriers b. meticulous care - banks 3. if both are silent - diligence of a good father of a family Proximate Cause: adequate & efficient cause as, in the natural order of events, & under the particular circumstances surrounding the case, would necessarily produce the event




GR: contributory negligence of a creditor reduces/mitigates the damages w/c he can recover E: if the negligent act/omission of the creditor is the proximate cause of the event w/c led to the damage/injury complained of, the creditor cannot recover damages Delay: Kinds 1. Ordinary delay failure to perform an obligation on time 2. Legal Delay/Default failure to perform an obligation on time constitutes a breach of the obligation Default: Kinds 1. Mora Solvendi delay on the part of the debtor 2. Mora Accipiendi delay on the part of the creditor 3. Compensatio Morae delay of obligors in obligations

Cessation of the Effects of Mora 1. renunciation by the creditor express/implied 2. prescription FORTUITOUS EVENT Acts of man Independent of the will of the obligor but not of other human wills e.g. war, fire, robbery, murder FORCE MAJEURE Acts of God Independent of the will of every man e.g. earthquake, flood, lightning


Fortuitous Event: Kinds 1. ordinary events w/c are common & w/c the contracting parties could reasonably foresee 2. extraordinary uncommon & w/c the parties could not reasonably foresee Fortuitous Event: Requisites 1. event must be independent of the human will or at least of the will of the debtor 2. even could not be foreseen, if foreseen, inevitable 3. event must be of such character as to render it impossible for the debtor to comply with his obligation in a normal manner 4. debtor must be free from any participation in the aggravation of the injury to the creditor GR: a person is not liable for loss or damage caused to another resulting from a fortuitous event Exceptions: 1. Expressly specified by law a. Debtor is guilty of fraud, negligence, delay or contravention of the tenor of the obligation b. Debtor has promised to deliver the same thing to 2 or more persons who do not have the same interests c. Obligation to deliver a specific thing arises from a crime d. The thing to be delivered is generic 2. declared by stipulation 3. nature of the obligation requires the assumption of risk Simple Loan/Mutuum: a contract whereby one of the parties delivers to another, money or other consumable thing, upon the condition that the same amount of the same kind & quality shall be paid Interests: income produced by money in relation to the amount & time it cannot be utilized by the owner Interests: Kinds 1. Moratory paid in contractual obligations to pay a sum of money as the price for the use of the money or as the stipulated advanced determination of the damages due to the delay of the fulfilment of the obligation 2. Compensatory interests in obligations w/c have an extracontractual or delictual origin Recovery of Interests: Requisites 1. payment of interest must be expressly stated 2. agreement must be in writing 3. interest must be lawful Rules for Computing Interests: A. Loan/Forbearance of Money Demand/ ____________ final & _________________ full Breach 12 % executory 12 % payment B. Damages (NOT loan/forbearance of Money) Demand/ ____________ final & _________________ full Breach 6% executory 12 % payment Usury: contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of money, goods or chattels

Mora Solvendi: Requisites 1. the obligation is due, demandable & liquidated 2. failure of the debtor to perform his positive obligation on the time agreed upon through his fault/negligence 3. creditor makes a judicial/extra-judicial demand upon the debtor to comply w/his obligation 4. failure to comply w/ demand Mora Solvendi: Effects 1. debtor guilty of breach 2. debtor is liable to the creditor for interest/damages 3. Fortuitous event a. Determinate thing debtor still liable; but if the debtor can prove that the loss would have resulted just the same even if he had not been in default, the court may equitably mitigate/reduce the damages b. Indeterminate thing debtor is not relieved from liability for loss & can still be compelled to deliver a thing of the same kind GR: Demand is necessary. No demand, no delay. Exceptions: 1. when the obligation so provides 2. when the law so provides 3. when the nature & circumstances of the obligation provides; designation of time was the controlling motive 4. demand would be useless, as when the obligor has rendered it beyond his power to perform 5. there is express recognition of default by the debtor 6. there is performance by a party in reciprocal obligations (Balane: in reciprocal obligations, demand is still needed) Mora Accepiendi: Requisites 1. an offer of performance by the debtor 2. the offer must be to comply w/ the prestation as it should be performed 3. creditor refuses the performance w/o just cause Mora Accepiendi: Effects 1. creditor is guilty of breach 2. creditor is liable for damages suffered by the debtor 3. creditor bears the risk of loss of the thing due 4. expenses incurred by the debtor for preservation of the thing after the delay shall be chargeable to the creditor 5. debtor is not liable for interest 6. debtor may release himself from the obligation by consignation/deposit in court of the thing/sum due 7. responsibility of the debtor for the thing due is reduced & limited to fraud & gross negligence 8. debtor is exempted from risk of loss of the thing w/ shall pass to the creditor Compensatio Morae: Effects 1. liability of the 1st infractor shall be equitably tempered or balanced by the courts 2. if it cant be determined w/c of the parties 1st incurred in delay, the contract shall be deemed extinguished & each shall bear his own damages




Disputable Presumptions 1. Interest bearing debt presumption that interest has been paid if the principal has been received w/o reservation re: interest 2. Debt payable in instalment presumption that earlier instalments have been paid if the later instalment has been received w/o reservation re: the previous instalment When the Presumption Does not Apply 1. w/ reservation as to the interest 2. receipt w/o indication of particular instalment paid 3. payment of taxes 4. non-payment has been proven Creditors Remedies for Satisfaction of their Claims 1. Levy & execution of debtors non-exempt property 2. Accion subragatoria 3. Accion pauliana 4. Accion directa Accion Subragatoria: the action w/c the creditor may exercise in the place of his negligent debtor in order to preserve/recover for the patrimony of the debtor the product of such action & then obtain therefrom the satisfaction of his own credit; the debtor of my debtor is my debtor Accion Subragatoria: Requisites 1. Debtor is indebted to the creditor 2. Debt is due & demandable 3. Failure of debtor to collect his own debt from a 3rd person either through malice or negligence 4. creditor must be prejudiced by the inaction/failure of the debtor to proceed against the 3rd person 5. creditor must have pursued 1st or exhausted all the properties of the debtor w/ arent exempt from execution 6. debtors assets are insufficient to satisfy his claims 7. right of account is not purely personal Accion Pauliana: right of creditors to rescind alienations by debtor w/c are prejudicial to them to the extent of the prejudice Accion Pauliana: Requisites 1. credit in favour of the plaintiff 2. debtor has performed an act subsequent to the contact, giving advantage to other persons 3. creditor is prejudiced by the debtors act w/c are in favour of 3rd persons & rescission will benefit the creditor 4. creditor has no other legal remedy 5. debtors acts are fraudulent Accion Directa: a direct (not subrogatory) action by the creditor against his debtors debtor; a remedy w/c gives the creditor the prerogative to act in his own name Examples of Accion Directa 1. lessor against the sublessee 2. labourer of an independent contractor against the owner 3. principal against the subagent 4. vendor-a-retro against the transferee of the vendee Personal Rights of Debtor 1. right to existence 2. right of relations of a public character 3. rights of an honorary character 4. rights consisting of powers w/c havent been used 5. non-patrimonial rights 6. patrimonial rights not subject to execution 7. patrimonial rights inherent in the person of the debtor GR: All rights acquired in virtue of an obligation are transmissible Exceptions: 1. prohibited by stipulation 2. prohibited by law contract of partnership, agency, commodatum

CHAPTER 3 DIFFERENT KINDS OF OBLIGATIONS Different Kinds of Obligations 1. According to Demandability a. Pure b. Conditional c. w/ a term 2. According to Plurality of Object a. Simple b. Multiple i. Alternative ii. facultative 3. According to Plurality of Subjects a. Single b. Multiple i. Joint ii. Solidary 4. According to Performance a. Divisible b. Indivisible 5. According to Sanction for Breach a. No penal Clause b. w/ penal clause Section 1 Pure & Conditional Obligations Pure Obligation: has neither a condition nor a term attached to it; it is subject to no contingency Obligations Demandable at Once 1. pure 2. subject to a resolutory condition 3. subject to a resolutory period Condition: Characteristics 1. Future & Uncertain 2. Past but Unknown KINDS OF CONDITION SUSPENSIVE RESOLUTORY Obligation arises Obligation extinguished Juridical appear tie doesnt Tie of law is consolidated Hovers the possibility of termination of obligation Subsequent

Condition fulfilled Does not take place Until it takes place AKA

Existence of obligation is a mere hope Precedent/antecedent

Positive Suspensive Condition: Obligation Extinguishes 1. time expires w/o the event taking place 2. indubitable that the event will not take place, though the specified time has not expired Negative Conditions: Obligation Effective 1. time indicated has elapsed 2. evident that the event cannot occur, though the time indicated has not elapsed Retroactive Effect: Fulfilment of Suspensive Condition 1. obligations to give retroact to day of constitution of obligation; a. if the obligation imposes reciprocal prestations, fruits & interests are deemed mutually compensated b. if the obligation is unilateral, debtor appropriates the fruits 2. obligations to do/not to do courts have discretion Rights Pending Fulfilment of Suspensive Condition 1. Creditor preservation of his right 2. Debtor recover what was paid by mistake




Preservation of Creditors Rights 1. To prevent the loss or deterioration of the things which are the object of the obligations by enjoining or restraining acts of alienation or destruction by the debtor himself or by third persons 2. To prevent concealment of the debtors properties which constitute the guarantee in case of non performance of the obligation 3. To demand security if the debtor becomes insolvent 4. To compel the acknowledgement of the debtors signature on a private document or the execution of the proper public documents for registration so as to affect third persons 5. To register the deeds of sale or mortgages evidencing the contract 6. To set aside fraudulent alienations made by the debtor 7. To interrupt the period of prescription, by actions against adverse possessors of the things which are the objects of the obligation Resolutory Condition: Effects 1. Obligation to give mutual restitution (includes fruits); return to status quo; return to each other what they received 2. Obligation to do/not to do discretion of the courts Obligation: Kinds Accdg. to Persons Obliged 1. Unilateral only 1 party is obliged to comply w/ a prestation 2. Bilateral both parties mutually bound to each other; both are debtors/creditors of each other Bilateral Obligations: Kinds 1. Reciprocal 2 prestations arise from the same cause; each prestation is designed to be the counterpart of the other; mutual debtor/creditor 2. Non-Reciprocal not arising from the same cause; obligations arent dependent upon each other Reciprocal Obligations: Remedies 1. Specific Performance & Damages 2. Resolution & Damages Summary of Rulings on Resolution 1. Right to resolve is inherent in reciprocal obligations 2. Breach must be substantial & not slight & there must be proof thereof 3. Right of resolution can be exercised extrajudicially & will take effect upon receipt by the defaulting party of the notice of resolution 4. The exercise of this right can be the subject of judicial review 5. Upon resolution, there must be mutual restitution of the object & its fruits 6. If the aggrieved party has not performed the prestation & resolves extrajudicially, then all the aggrieved party has to do is to refuse to perform his prestation 7. If the aggrieved party has performed the prestation, the aggrieved party can demand recovery Resolution: Effects 1. Extinguishes the obligatory relation as it had never been created (the extinction having a retroactive effect) 2. Equivalent to invalidating and unmaking the juridical tie, leaving things in their status before the celebration of the contract 3. Abrogates the contract in all parts (The party seeking rescission cannot have performance as to a part and rescission as to the remainder) Breach of Both Parties: Effects 1. if 1st infractor known, liability of 1st infractor shall be equitable tempered by courts 2. if it cant be determined who 1st breached, obligation is extinguished & each bears his own damages

RESCISSION IN RECIPROCAL OBLIGATIONS ARTICLE 1191: RESOLUTION ARTICLE 1381: RESCISSION Principal remedy Subsidiary remedy Need not show that there is no Must show that there is no other other remedy remedy May be demanded only by a May be demanded by a 3rd party party to the contract prejudiced by the contract May be denied by the court when Such reason doesnt affect the there is sufficient reason to right to ask for rescission justify extension of time to the defendant in w/c to perform Non performance is the only There are various grounds of ground for the right to rescission equity provided as grounds for rescission (economic prejudice) Applies only to reciprocal Applies w/n the contract produces obligations where 1 party has unilateral/reciprocal obligations & not performed even when the contract has been fully fulfilled SIMILARITIES 1. Both presuppose contracts validly entered into and existing 2. both require mutual restitution when declared proper CONTRACT OF SALE Ownership transferred upon delivery of the thing sold Reciprocal obligations: buyer pay sum of money seller deliver the thing, transfer ownership Remedies: - Specific performance + damages - rescission + damages Conditional contract of sale upon fulfilment of condition, may compel to transfer ownership Non-payment of purchase price is resolutory condition CONTRACT TO SELL Ownership reserved in the vendor & does not pass until full payment of the purchase price Separate obligation to do which is to execute a deed of absolute sale Remedies: - restitution Note: there can be no rescission because obli. to execute a deed of sale never arose; obli. is non-existent Execution of DOS is another and separate action Ownership is retained by vendor Positive suspensive condition non payment of the purchase price is not a breach, but an event which prevents the obli. of vendor to convey title

Conditions Accdg. to Cause/Origin 1. Potestative depends on the sole will of 1 of the parties a. Depends on the sole will of the creditor valid b. Depends on the sole will of the debtor the whole obligation is void 2. Casual depends upon chance or will of 3rd parties 3. Mixed depends partly upon the will of a party and partly upon chance and/or the will of a 3rd person SIMPLE POTESTATIVE To a certain extent, it depends on the voluntary act of the obligor, yet it is subject, in part, to contingencies over w/c he has not control; Does not prevent the formulation of a valid obligation PURELY POTESTATIVE If the suspensive potestative condition depends solely upon the will of the debtor, the efficacy of the legal tie is destroyed

Doctrine of Constructive Fulfillment: the condition is deemed fulfilled when the obligor voluntarily prevents its fulfillment Doctrine of Constructive Fulfillment: Requisites 1. Intent of the debtor to prevent the fulfilment of the suspensive condition 2. Actual prevention of compliance Possible Condition: capable of realization according to nature, law, public policy, good customs




Impossible Conditions: Kinds 1. Physical cannot exist/cannot be done 2. Legal contrary to laws, morals, good customs, public order, public policy Effect of Impossible Condition: GR: the whole obligation is void Exceptions: 1. Obligation not to do an impossible thing 2. If the obligation is divisible, that part of the obligation not affected by the impossible condition is valid 3. Pre-existing obligation 4. Simple/Remuneratory donations 5. Testamentary Dispositions Positive condition to do something impossible Negative condition not to do something impossible Negative condition not to do something illegal Void condition Void obligation Disregard condition Valid obligation Valid condition Valid obligation

Section 2 Obligations with a Period Period/Term: length of time which, exerting an influence on an obligation as a consequence of its juridical acts, suspends its demandability or determines its extinguishment Period: 1. 2. 3. Requisites Future Certain Possible

Other Kinds of Conditions 1. Positive - condition involves the performance of an act 2. Negative - condition involves the non-performance of an act 3. Divisible condition is susceptible of partial realization 4. Indivisible condition is not susceptible of partial realization 5. Conjunctive there are several conditions, all of w/c must be realized 6. Alternative there are several conditions, only 1 must be realized 7. Express condition is stated expressly 8. Implied condition is tacit Application of 1189: Requisites 1. obligation to give 2. determinate thing 3. suspensive condition 4. condition fulfilled 5. there is loss, deterioration, improvement of the thing during pendency of condition LOSS Liable for damages to the creditor upon the fulfilment of the condition Obligation is extinguished, unless there is a stipulation to the contrary DETERIORATION Creditor may demand the thing or ask for rescission, with damages in either case Debtor not liable for damages; creditor must accept the thing in its impaired condition IMPROVEMENT Usufructuary (Usufruct the right to enjoy the use & fruits of a thing belonging to another) By nature of the thing or by time improvements shall inure to the benefit of the creditor

Types of Periods: 1. Suspensive (ex die) obligation begins from a day certain, upon the arrival of the period 2. Resolutory (in diem) obligation is valid up to a day certain; terminates upon arrival of period 3. Legal granted by law 4. Voluntary stipulated by the parties 5. Judicial fixed by the courts 6. Express specifically stated 7. Tacit when a person undertakes to do some work w/c can be done only during a particular season 8. Original 9. Grace an extension fixed by the parties or by the court 10. Definite refers to a fixed known date or time 11. Indefinite refers to an event w/c will necessarily happen but the date of its happening is unknown PERIOD Certain event which must happen sooner or later at a date beforehand, Has no effect upon the existence of obligations but only their demandability or performance Refers only to the future Depends upon the will of the debtor court to fix duration Unless there is an agreement to the contrary , arrival of period does not have any retroactive effect Theres already an obligation CONDITION An uncertain event Gives rise to an obligation or extinguishes one already existing May refer also to a past event unknown to the parties Depends upon the sole will of the debtor invalidates obligation Happening of condition has retroactive effect,

Fulfilment As to influence on the obligation Time Left to the will of the debtor Retroactivity of effects

By debtor

No obligation yet

Not by debtor

Payment Before it was Due: No recovery 1. in reciprocal obligations & there has been premature performance on both sides 2. in loans w/c the debtor is bound to pay interest 3. period is exclusively for the benefit of creditor because the debtor by paying in advance loses nothing 4. debtor is aware of the period & pays anyway (waiver) 5. in personal obligations Moratorium: postponement of fulfilment of an obligation (must be definite & reasonable) PERIOD BENEFIT OF CREDITOR ONLY He may demand fulfilment even before the arrival of the term but the debtor cannot require him to accept payment before the expiration of the stipulated period.

Reqts for the Rules on Loss/Deterioration/Improvement to Apply: 1. Obligation has a suspensive condition, a resolutory condition or term 2. The obligor is obligated to deliver a determinate thing 3. There is improvement/loss/deterioration before the fulfilment of the condition/period 4. The condition is fulfilled or the period arrives Loss in 1. 2. 3. Civil Law physical - perishes legal goes out of commerce civil thing disappears

BENEFIT OF BOTH PARTIES the creditor cannot demand payment and the debtor cannot make an effective tender and consignation of payment before the period stipulated.

BENEFIT OF DEBTOR ONLY He cant be compelled to pay prematurely, but he can, if he desires to do so. He may oppose a premature demand for payment but may validly pay at any time before the period expires - on or before/within




Debtor Loses Right to Make Use of Period 1. debtor becomes insolvent, unless he gives a guaranty/security for the debt 2. debtor doesnt furnish the guaranty/security promised 3. debtor by his own acts has impaired the guaranty/security after their establishment or through a fortuitous event they disappear, unless he immediately gives a new one equally satisfactory 4. debtor violates any undertaking in consideration of w/c the creditor agreed to the period 5. debtor attempts to abscond 6. creditor is deceived on the substance/quality of the thing pledged, the creditor may either claim another thing in its stead, or demand immediate payment of the principle obligation (Art. 2109) Steps involved in an Action for Fixing a Period 1. court should determine that the obligation does NOT fix a period but it can be inferred that a period is intended due to the circumstances OR the period is dependent on the debtors will 2. court shall decide what period was probably contemplated by the parties Instances When Courts Can Fix a Period 1. no period fixed but a period was intended 2. duration of period depends upon will of the debtor 3. debtor binds himself to pay when his means permits him to do so 4. in reciprocal obligations when theres a just cause for fixing a period 5. no period for lease, monthly rent paid, and lessee occupies premises for over a year; if the rent is weekly, the courts may determine a longer period after lessees posses sion for over 6 months; if rent is daily, the courts may fix a longer period after lessees possession for over 1 month GR: if the obligation does not fix a period, but from its nature & the circumstances it can be inferred that a period is intended, the courts may fix the duration thereof Exceptions: 1. Lease of rural land (Art. 1682 & 1687, 1st sentence) when its duration has not been fixed, it shall be for the time necessary for the gathering of the fruits w/c the whole estate may yield in 1 year OR w/c it may yield once, although 2 or more years have to elapse for the purpose 2. Pacto de retro sales (Art 1606) in the absence of an express agreement, the right shall last 4 years from the date of the contract 3. Contract of services for an indefinite period fixing a period would amount to involuntary servitude Term fixed by Court: Effects a. becomes part of the contract b. cannot be changed or extended by the courts w/o consent of both parties

GR: in alternative obligations, the right of choice belongs to debtor Exceptions: 1. When expressly granted to the creditor 2. When agreed upon by the parties that a 3rd person shall make the choice Debtors Right of Choice: Limitations 1. Debtor cant choose prestations that are impossible, unlawful, or couldnt have been the object of the obligation 2. debtor cant choose part of 1 & part of another prestation 3. only 1 is practicable; loss of right of choice Concentration: the act of making the choice Notice of Choice: Form 1. Orally 2. Writing 3. Tacitly/Impliedly 4. Other Unequivocal Means Effect of Notice 1. Ceases to be alternative & becomes simple 2. choice is irrevocable & cannot be changed by either party w/o consent of the other ALTERNATIVE There are various prestation all of w/c constitute parts of the obligation Several are due but compliance of one is sufficient May be given to the creditor or third person Loss of one or more of the alternatives doesnt extinguish the obligation The nullity of one prestation does not invalidate the obligation FACULTATIVE Only the principal constitute the obligation, the accessory being only a means to facilitate payment Only one prestation is due although the debtor is allowed to substitute it Right to make substitution debtor only Loss of the thing due extinguishes the obligation Nullity of the principal obligation invalidates the obligation & the creditor cant demand the substitute even when this is valid the impossibility of the principal prestation is sufficient to extinguish the obligation even if the substitute is possible

As to the content Number of prestations Right of choice Loss thru a fortuitous event As to nullity

As to effect of loss

Only the impossibility of all the prestation due without fault of the debtor extinguishes the obligation

Section 3 Alternative Obligations Obligations: Kinds Accdg. to Object 1. Simple only 1 prestation 2. Compound 2 or more prestations Compound Obligations: Kinds 1. Conjunctive several prestation & all are due 2. Disjunctive one, two or more of prestations are due 3. Alternative several prestations are due, but the payment/performance of 1 is sufficient 4. Facultative only 1 prestation has been agreed upon, but the debtor may deliver or render another in substitution

Effect of Loss in Facultative Obligations 1. Before Substitution a. Principal lost w/o fault obligation extinguished b. Principal lost w/ fault liable for damages c. Substitute lost debtor not liable; extinguishes facultative character of obligation 2. After Substitution a. Principal lost debtor not liable b. Substitute lost liability depends on W/N loss is due to his fault RIGHT OF CHOICE: DEBTOR LOSS OF ONE/SOME 1. Obligation subsists 2. Debtor obliged to deliver one of those that are subsisting (exception to Art. 1170) 1. Debtor may rescind the obligation + damages 2. Debtor may ask for specific performance waiving his right as stated in Art.1203 3. Obligation still subsists 4. Debtor obliged to deliver whatever remains

FAULT Debtor


LOSS OF ALL Creditor may ask for indemnity + value of last thing lost Debtor may rescind obligation + damages Obligation extinguished is

Fortuitous event




FAULT Debtor

Creditor Fortuitous Event

RIGHT OF CHOICE: CREDITOR LOSS OF ONE/SOME LOSS OF ALL Creditor may choose: Choice by the 1. Claim any of those creditor shall fall subsisting upon the price of 2. Price of the thing any one of them which disappeared + damages Deliver remaining Obligation is extinguished Creditor may choose from Obligation is those subsisting extinguished Section 4 Joint & Solidary Obligations

JOINT DIVISIBLE Each can demand/is liable only for proportionate share Cannot act in representation or cannot be compelled to answer for others

JOINT INDIVISIBLE Fulfillment requires concurrence of all debtors, but each for his own share only Proceed against all debtors; concurrence of all creditors necessary for enforcement of obligation

GR: The debtor may pay any of the solidary creditors E: If any of the solidary creditors make a demand upon a debtor, the latter must pay only to the one demanding payment, otherwise it will treated as payment to a 3rd person, and the debtor can still be made to pay the one who made the demand on him (the debtor can still recover from the paid creditor) Active Solidarity: Effects 1. Since it is a reciprocal agency the death of a solidary creditor does not transmit the solidarity to each of his heirs but to all of them taken together 2. Each creditor represents the others in the act of receiving payment and in all other acts which tend to secure the credit or make it more advantageous. a. If he receives only a partial payment he must divide it among the other creditors b. He can interrupt the period of prescription c. He may render the debtor in default for the benefit of all other creditors d. bring suit so the obligation would produce interest 3. One creditor does not represent the others in such acts as novation, compensation, and remission. 4. The creditor and its benefits are divided equally among the creditors unless there is an agreement among to divide differently 5. The debtor may pay to an solidary creditor, but if a judicial demand is made he must pay only to the plaintiff 6. Each creditor may renounce his right even against the will of the debtor and the layer need not thereafter pay the obligation to the former Passive Solidarity: Effects 1. Each debtor can be required to pay the entire obligation but after payment he can recover from the co-debtors their respective shares 2. The debtor who required to pay may set up by way of compensation his own claim against the creditor in this case the effect is the same as that of payment 3. The total remission of the debt in favour of a debtor releases all the debtors but when this remission affects only the share of one debtor the other debtors are still liable for the balance 4. All the debtors are liable for the loss of the thing due even if such loss is caused by the fault of only one of them or by fortuitous event after one of the debtors has incurred in delay 5. The interruption of prescription as to one debtor affects all the others but the renunciation by one debtor of prescription already had not prejudice the others because the extinguishment of the obligation by prescription extinguishes also the mutual representation among the solidary debtors 6. The interests due by reason of the delay of one of the debtors are borne by all of them PASSIVE SOLIDARY & SURETYSHIP SIMILARITIES DISTINCTIONS 1. both stand for 1. A solidary debtor unlike surety is liable not some other person only for his co-debtors obligation but also 2. after payment, for his own, he is both a principal debtor & may require that surety they be 2. A solidary debtors responsibility for his coreimbursed debtor is primary not subsidiary 3. An extension of time given by the creditor to a debtor would not release a solidary cdebtor but would release a solidary guarantor or surety

Obligations: Kinds Accdg. to # of Parties 1. Single/Individual 1 creditor & 1 debtor 2. Collective 2 or more debtors and/or 2 or more debtors a. Joint There are as many obligations as there are creditors multiplied by as many debtors b. Solidary any of the debtors can be held liable for the entire obligation, and any of the creditors is entitled to demand the entire obligation GR: The obligation is joint since joint obligations are less onerous Exceptions (When Solidarity Exists): 1. obligation expressly states 2. law requires solidarity 3. nature of the obligation 4. imposed in a final judgment against several defendants 5. a large condition is imposed upon heirs & the testament expressly makes the condition in solidum 6. quasi delicts 7. employer-employees 8. partners in partnerships 9. principal-agent 10. 2 bailees in a loan JOINT - mancommunada - mancommunadamente - pro rata - proportionately we promise to pay SOLIDARY solidaria in solidum jointly and/or severally together and/or separately individually and/or collectively juntos o seperadamente I promise to pay & signed by 2 or more

Solidarity: Kinds Accdg. to Parties Bound 1. Passive debtors mutual guaranty 2. Active creditors mutual agency/representation 3. Mixed both Solidarity: Kinds Accdg. to Source 1. Conventional agreed upon 2. Legal imposed by the law 3. Real nature of the obligation Solidary Obligations: Kinds Accdg. to Legal Tie 1. uniform parties bound by same stipulations 2. non-uniform/varied parties not subject to same stipulations Joint Liability: Effects 1. Demand by 1 creditor upon 1 debtor produces the effects of default only w/ respect to the creditor who demanded & debtor the demand was made but not w/ respect to others 2. Interruption of prescription by the judicial demand of 1 creditor upon a debtor, does not benefit the other creditors not interrupt the prescription as to other debtors 3. The vices of each obligation arising from the personal defect of a particular debtor or creditor does not affect the obligation or right of the others 4. The insolvency of a debtor does not increase the responsibility of his co-debtors nor does it authorizes a creditor to demand anything from his co-debtors 5. defense of res judicata is not extended from 1 to another




Acts Prejudicial by Solidary Creditor: Effects 1. among co-creditors obligation extinguished w/ respect to debtors, but doesnt prejudice the right of other creditors to recover their shares from the creditor who effected the act 2. among co-debtors co-debtor to whom obligation was extinguished cant recover from his co-debtors Payment by a Solidary Debtor: Effects 1. bet. solidary debtors & creditors full payment extinguishes the obligation 2. among solidary debtors paying debtor may demand reimbursement from others for their proportionate share; in case of insolvency of 1, others assume the share proportionately 3. among solidary creditors receiving creditor is jointly liable to others for their corresponding share Non-Performance/Loss/Impossibility: Effects 1. Loss w/o fault & before delay obligation extinguished 2. Loss by fault of 1 of solidary debtors or through FE after debtor incurred in delay all shall be responsible to the creditor, for the price & payment of damages & interest w/o prejudice to their action against the guilty debtor 3. No loss but theres breach (delay, fraud, negligence) creditor may recover from any of the solidary debtors; the guilty debtor cannot be made to shoulder the hare of the codebtors in the original obligation Defenses Available to Solidary Debtors 1. Real defenses - derived from the nature of the obligation; benefits all the debtors (total) 2. Personal defences - personal to, or w/c pertain to the share of the debtor sued (total/partial) 3. defenses personal to other solidary debtors the debtor can only avail himself of the these defenses only w/ regard to the part of the debt to w/c his co-debtors are liable for (partial) PRESCRIPTIVE PERIOD - written contract - obligation created by law - upon a judgment - oral-contact - quasi-contract - inquiry to the rights of the plaintiff - quasi delict SOLIDARITY Juridical or legal tie Each obligation may demand the full prestation & each debtor has likewise the duty to comply w/ the entire prestation All debtors are liable for the breach of the obligation committed by a debtor There must be at least 2 debtors or 2 creditors The other debtors proportionately liable are

GR: obligations are indivisible Exceptions (divisible obligations): 1. The parties provide otherwise 2. The law so provides 3. The nature of the obligation necessarily entails the performance of the obligation in parts; when the obligation has for its object the: a. execution of a certain number of days of work b. accomplishment of work by metrical units c. analogous things w/c are by their nature susceptible of partial performance Exception to the Exception: Even though the object/service may be physically divided, an obligation is indivisible if: 1. intended by the parties 2. so provided by law Divisible Thing vs. Indivisible Thing 1. Divisible each 1 of the parts forms a homogenous & analogous object to the other parts as well as the thing itself 2. Indivisible if divided into parts, its value is diminished disproportionately; if the object is physically indivisible or service is not susceptible of partial performance, obligation is always indivisible Kinds of Division 1. Qualitative 2. Quantitative 3. Ideal/Intellectual Kinds of Indivisibility 1. Legal 2. Conventional 3. Natural DIVISIBLE OBLIGATION Capable of partial fulfilment 1. Execution of certain # of days of work 2. Expressed by metrical units 3. Nature of obli. susceptible of partial fulfilment INDIVISIBLE JOINT Debtors ready to perform their part do not become liable for more than the share corresponding to him Necessity of collective fulfilment; action must be against ALL debtors Entire liability for damages is shouldered by defaulting debtor INDIVISIBLE OBLIGATION Not capable of partial fulfillment 1. To give definite things 2. Presumption when theres only 1 debtor & 1 creditor 3. Provided by law 4. Intention of parties

10 years 6 years 4 years

INDIVISIBLE SOLIDARY Every debtor liable for losses & damages, but those ready to perform may recover fr. guilty debtor Creditor may demand entire indemnity (including price of the thing/prestation & damages) fr. ANY debtor, even those ready/willing to perform Debtor who paid entire indemnity may recover fr. others their shares in the price, & fr. the guilty debtor the entire amount of damages

Refers to Demand

Who will be liable for damages Existence

INDIVISIBILITY Prestation, w/c is not capable of partial performance Each creditor cannot demand more than his share & each debtor is not liable for more than his share Only the debtor guilty of breach of obligation Can exist although there is only 1 debtor & 1 creditor others arent liable in case insolvency of 1 debtor

Partial Performance = Non-performance: Exceptions 1. Substantial performance in good faith 2. Waiver: Creditor accepts performance, knowing incompleteness & w/o protest ENTIRE CONTRACT Consideration is single If a part is illegal, the whole contract is unenforceable


In case of insolvency

Section 5 Divisible & Indivisible Obligations Test of Divisibility: W/N it is susceptible of partial performance Factors 1. 2. 3. 4. Determining Divisibility/Indivisibility will/intention of the parties objective/purpose of the stipulated prestation nature of the thing provisions of law affecting the prestation

SEVERABLE CONTRACT Consideration is apportioned The part illegal is void & cannot be enforced; the part w/c is legal is enforceable

Section 6 Obligations with a Penal Clause Penal Clause: an accessory undertaking to pay a previously stipulated indemnity in case of breach



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Function of Penal Clause 1. provide for liquidated damages 2. strengthen coercive force Purpose of Penal Clause 1. Reparation - substitutes damages suffered 2. Punishment - right to damages besides penalty Kinds of Penal Clause 1. As to its Origin a. Legal b. Conventional 2. As to its Purpose a. Compensatory b. Punitive 3. As to its Demandability/Effect a. Subsidiary/Alternative b. Joint/Cumulative Characteristics of a Penal Clause 1. Subsidiary/Alternative GR: upon breach of the obligation, the creditor must choose whether to demand principal or penalty Exceptions: - Both the principal obligation & the penalty can be demanded when the penal clause is joint & cumulative; this occurs when the creditor has been clearly granted such right expressly/impliedly - creditor has demanded fulfilment of the principal obligation but it cannot be performed 2. Exclusive GR: penalty clause takes place of other damages E: Both the penalty & actual damages can be reovered if: - there is an express stipulation - debtor refuses to pay penalty - debtor guilty of fraud When Courts May Reduce Penalty 1. partial/irregular performance 2. iniquitous/unconscionable penalty (contrary to good customs) Principal Obligation vs. Accessory Obligation 1. Principal can stand by itself; does not on another obligation for its validity/existence 2. Accessory cannot stand alone; attached to a principal obligation Accessory Follows the Principal: Exceptions 1. Guaranty: Penalty is undertaken by a 3rd person for an obligation w/c is unenforceable/voidable/natural 2. nullity of the principal obligation is due to the fault of the debtor who acted in bad faith OBLIGATIONS W/ A PENAL CLAUSE Already an existing obligation from the start Accessory obligation (penalty) is dependent upon non-performance of principal obligation CONDITIONAL OBLIGATIONS No obligation before the suspensive condition arises Principal obligation is dependent upon uncertain event ALTERNATIVE OBLIGATIONS 2 or more obligations are due but fulfilment of one is sufficient Impossibility of 1 of the obligations, w/o debtors fault, leaves the others subsisting Debtor can choose w/c prestation to fulfill

OBLIGATIONS W/ A PENAL CLAUSE Payment of the penalty in lieu of the principal obligation can be made only in express stipulation Creditor may be granted right to demand both prestations

FACULTATIVE OBLIGATIONS Power of debtor to make substitution is absolute Creditor can never demand both prestations

OBLIGATIONS W/ A GUARANTY PENAL CLAUSE Obligation to pay the penalty is Object of the obligations of the diff. from the principal principal debtor & guarantor is obligation the same Principal obligation & penalty Principal debtor cant be the can be assumed by the same guarantor of the same person obligation GR: Penalty extinguished by Guaranty subsists even when nullity of principal obligation the principal obligation is E: penal clause assumed by 3rd voidable/unenforceable or is a person natural one Similarities 1. both to insure performance of principal obligation 2. both accessory & subsidiary obligations CHAPTER 4 EXTINGUISHMENT OF OBLIGATIONS Modes of Extinguishment of Obligations 1. payment/performance 2. loss of the thing due 3. condonation/remission 4. confusion/merger 5. compensation 6. novation 7. annulment 8. rescission 9. fulfillment of resolutory condition/period 10. prescription 11. death of a party in case of personal obligations 12. renunciation by the creditor 13. mutual desistance/withdrawal 14. mutual/unilateral dissents 15. change of civil status 16. compromise 17. impossibility of performance 18. happening of fortuitous event 19. want of interest 20. abandonment 21. judicial insolvency Section 1 Payment or Performance What is Payment? Payment: means not only the delivery of money but also the performance, in any other manner, of an obligation with the intention to extinguish an obligation General Effect: extinguishes the obligation Payment: Requisites 1. the person who pays 2. the person to whom payment is made 3. the thing to be paid 4. manner, time, placement Payment: Kinds 1. Normal when the debtor voluntarily performs the prestation 2. Abnormal when the debtor is forced by means of judicial proceeding, either to comply w/ the prestation/pay indemnity Debt: may refer to an obligation to deliver money, to deliver a thing (other than money), to do an act or not to do an act

OBLIGATIONS W/ A PENAL CLAUSE Only one prestation is due; only when this is not performed can the penal clause be enforced Impossibility of principal obligation extinguishes penalty GR: Debtor cant choose to pay penalty to relieve himself of principal obligation; E: the right is expressly granted to him



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Manner/Performance 1. IDENTITY the very prestation must be performed; the very thing or service due must be delivered

7. 8. 9.

GR: debtor of a (specific) thing cannot compel creditor to receive a different one, although the latter may be of the same value as, or more valuable than that w/c is due Exceptions the Requirement of Identity: 1. when the obligee consents 2. in case of waiver 3. in facultative obligations debtor is given the right to render another prestation in substitution 4. substitution is allowed by stipulation w/ consent of creditor 5. Dacion en Pago 6. Novation Rule of Medium Quality: if the obligation is the delivery of a generic thing, whose quality & circumstances have not been stated: the creditor cannot demand a thing of superior quality the debtor cannot deliver a thing of inferior quality the court shall take into consideration the purpose & other circumstances of the obligation 2. INTEGRITY completeness the entire prestation must be performed;

if the work to be delivered partially, the price or compensation for each part having been fixed in case of several guarantors who demand the right of division in case of impossibility or extreme difficulty of a single performance Who Pays? (PAYOR)

Creditor May be Compelled to Accept Payment From: 1. the debtor, his heirs, assigns or agents 2. any person who has an interest in the obligation (e.g. guaranty/surety) 3. a 3rd person who has no interest in the obligation when there is a stipulation that he can make payment Donation: no intention of reimbursement & requires acceptance if by 3rd person w/o interest cant compel acceptance if debtor did not accept, but creditor accepted, rules of reimbursement apply WHO PAYS Debtor 3rd Person in Interest 3rd Person w/o Interest w/ stipulation 3rd Person w/o Interest w/o stipulation MINOR Minor as creditor Minor as debtor COMPELLABILITY Can compel receipt Can compel receipt Can compel receipt Cannot compel receipt; if accepted, obli. extinguished REIMBURSEMENT No reimbursement Reimbursement & subrogation (E: if intended to be a donation) Reimbursement & subrogation w/ knowledge & consent: - reimbursement & subrogation no knowledge & no consent: - beneficial reimbursement only

Exceptions to the Requirement of Integrity: 1. Substantial Compliance in Good Faith (POV of Debtor) 2. Waiver (POV of Creditor) 3. In application of payments, if the debts are equally onerous Substantial Compliance in Good Faith: Requisites 1. there must be substantial compliance a. deviation is slight b. omission/defect is technical or unimportant c. must not be so material that intention of parties is not attained 2. obligor must be in good faith a. attempt in good faith to perform w/o wilfull or intentional departure When it will not apply: 1. non-performance of material part of a contract 2. when made in bad faith, knowingly & wilfully (Art. 1170) Substantial Compliance: Effects 1. extinguishes the obligation 2. debtor may ask for specific performance or may recover damages for breach w/o proof of complete fulfillment 3. creditor who did not pay may counterclaim for damages which he was sustained by failure to completely fulfill the obligation, but he cannot require the performance of the residue s a condition precedent to his liability Waiver: Requisites 1. obligee knows that the performance is incomplete/irregular 2. he accepts the performance w/o expressing any protest or objection 3. INDIVISIBILITY the obligor must perform the prestation in one act & not in instalments.

EFFECTS Valid Payment to Incapacitated Person: 1. Kept the thing delivered 2. Redounded to his benefit GR: VOID he doesnt have capacity to alienate Exception: Art. 1427 To Whom? (PAYEE)

To Whom Payment Shall be Made: 1. creditor/obligee - the person in whose favor the obligation was constituted (creditor at the time payment is to be made, not at the constitution of the obligation) 2. any person in interest 3. another person authorized to receive it a. legal authorized by law i. guardian of incapacitated creditor ii. administrator of the estate of deceased creditor iii. heirs/assignee/successor in interest b. conventional authorized by creditor (e.g. agent) PAYMENT TO: EFFECTS Valid if: - incapacitated person kept the thing delivered - insofar as the payment was beneficial to him *in the absence of this benefit, the debtor may be made to pay again by the creditors guardian or by the incapacitated person himself when he recovers/acquires capacity *in the absence of a guardian, he may consign it in court 1. payment to a 3rd person or wrong party is not valid except insofar as it has redounded to the benefit of the creditor 2. that the creditor was benefited by the payment made by the debtor to a 3rd person is not presumed & must be satisfactorily established 3. in absence of such proof, payment thereof in error & in good faith will not deprive the creditor of his right to demand payment

Incapacitated person

GR: Creditor cannot be compelled to accept partial performance Exceptions to the Requirement of Indivisibility: 1. Express stipulation 2. prestations w/c necessarily entail partial performance 3. if the debt is liquidated in part & unliquidated in part 4. in joint divisible obligations 5. in solidary obligations when the debtors are bound under different terms & conditions 6. in compensation where there is a balance left

To a 3rd person



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When Benefit to Creditor need not be Proved: 1. subrogation of the payer in the creditors rights 2. ratification by the creditor 3. estoppel on the part of the creditor Valid if: rd To a 3 person - payment to debtor was made in good faith in possession of - creditor was in possession of the credit & not credit merely the evidence of indebtedness *mere possession of the instrument does not entitle the holder to a payment nor does payment release the debtor When & Where Payment Shall be Made When? 1. payment should be made when it is due 2. even if payment is due, the general rule is that demand is still necessary Where? 1. with stipulation at the place designated 2. no stipulation & delivery of specific thing place where the thing was at the perfection of the contract a. exception: when its existence at the place when the obligation was constituted was temporary, the performance must be made at the debtors domicile 3. no stipulation & delivery of generic thing domicile of the debtor & creditor bears expenses in going to the debtors place to accept payment 4. obligations of sum of money creditor is obliged to collect from the debtor in the debtors domicile 5. if debtor changes his domicile in bad faith or after he has incurred in delay, additional expenses shall be borne by him Special Rules on Monetary Obligations Legal Tender: the currency which a debtor can legally compel a creditor to accept in payment of a debt in money when tendered by the debtor in the right amount Legal Tender in the Philippines: all coins & notes issued by the Bangko Sentral ng Pilipinas coins are legal tender for amounts not exceeding P50 for denominations of P0.25 and above those in amounts not exceeding P20 for denominations of P0.10 or less all coins & bills above P1.00 are valid legal tenders for any amount Payment of Monetary Obligations GR: debts shall be paid in the currency stipulated Exception: if it is not possible to deliver such currency or in the absence of any stipulation to make payment in a foreign currency, then payment shall be made in the currency w/c is legal tender in the Philippines Payment by Checks GR: a check, whether a managers check or an ordinary check, is not legal tender, & an offer of the check in payment of a debt is not valid legal tender Exceptions: 1. when theres a stipulation 2. when it was accepted by the creditor (waiver Effect on Obligation When Accepted GR: Payment by means of mercantile documents doesnt extinguish the obligation Exceptions: 1. when they have been encashed 2. they have been impaired through the fault of the creditor creditor didnt encash it it got destroyed but debtor is already insolvent Balane: the check must be the check of another person, not a party, before there will be impairment

Loss of Value: So long as the notes were legal tender at the time they were paid/delivered, the person accepting them must suffer the loss if they become valueless Inflation: a sharp sudden increase of money/credit w/o a corresponding increase in business transactions. It causes a drop in the value of money, resulting in the rise of the general price level. This is not based on the exchange rate, but on the Consumer Price Index. Deflation: reduction in volume & circulation of the available money or credit, resulting in a decline of the general price level. Extraordinary Inflation/Deflation: that w/c is unusual or beyond the common fluctuation in the value of the currency, w/c the parties could not have reasonably foreseen, or w/c was manifestly beyond their contemplation at the time the obligation was made. GR: Inflation or deflation will not affect the obligation. Exception: in cases of extraordinary inflation or deflation, to be determined by the courts.



- 13 DACION EN PAGO - Property is alienated by the debtor to the creditor in satisfaction of a debt in money - transmission of the ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of an obligation Requisites Conditions for a Valid Dacion: 1. if creditor consents, for a sale presupposes the consent of both parties 2. if dacion will not prejudice the other creditors 3. if debtor is not judicially declared insolvent Definition APPLICATION OF PAYMENTS The designation of the debt to w/c payment must be applied when the debtor has several obligations of the same kind in favour of the same creditor TENDER OF PAYMENT Manifestation of the debtor to the creditor of his decision to comply immediately w/ his obligation **extrajudicial **preparatory act 1. two or more creditors 1. tender of payment 2. 2 or more debts must comply w/ the 3. debtor is partially insolvent rules of payment 4. all of the properties of the debtor 2. lawful currency are to be aliented 3. must be unconditional 5. cession accepted by creditors & for the whole 6. Creditors agree who will be paid amount 1st or the to the proportioning of 4. must actually be payment among themselves made 5. fusion of intent, ability & capability to make good such offer Effects: 1. Creditors dont become the owner, they are merely assignees w/ authority to sell 2. the debtor is released from his obligation only up to the net proceeds of the sale of the property assigned 3. the debtor is still liable if there is a balance 4. creditors will collect credits in the order of preference agreed upon, or in the order ordinarily established by law 2 Kinds of Insolvency: 1. Legal judicial, governed by insolvency law (total extinguisment) 2. Voluntary agreement of creditors (generally liable for the balance left) PAYMENT BY CESSION Assignment/abandonment of all the properties of the debtor for the benefit of his creditor in order that the latter may sell the same & apply the proceeds thereof to the satisfaction of their credits CONSIGNATION deposit of the object of the obligation in a competent court in accordance w/ the rules prescribed by law after refusal or inability of the creditor to accept the tender of payment **judicial **principal act 1. there is a debt due 2. the consignation has been made because the creditor refused, w/o just cause, to accept it 3. prior notice of the consignation to the person interested in the performance of the obligation 4. actual deposit; amount due was placed at the disposal of the court 5. subsequent notice was made after consignation **(absence of any requisites - void) Effects: 1. debtor may ask judge to order cancellation of obligation 2. running of interest is suspended 3. deterioration, loss of the thing/amount consigned w/o fault of debtor is borne by the creditor 4. increase in value inures to benefit of creditor 5. creditor bears expenses of consignation 6. before creditor accepts or before judge declares consignation has been properly made, obligation remains Consignation deemed properly made: 1. creditor accepts the thing/sum deposited, w/o objection, as payment 2. creditor questions its validity & the court, after hearing, declares that it has been properly made 3. creditor neither accepts nor questions its validity & the court, after hearing, orders the cancellation of the obligation **anytime beforehand, debtor may withdraw Consignation w/o Prior Tender: 1. creditor absent or unknown/does not appear at the place of payment 2. incapacitated to receive payment at the time it is due 3. refuses to issue receipt w/o just cause 4. 2 or more creditors claiming the same right to collect 5. Title of obligation has been lost **payment is made not to the creditor but to the court

1. 2. 3. 4. 5.

one debtor & one creditor 2 or more debts debts must be of the same kind all of the debts must be due payment made must not be sufficient to cover all the debts


Other Notes

Exceptions: Applications as to debts not yet due: 1. parties so stipulate 2. made by the party for whose benefit the period was constituted Effect: Limitations: -extinguishes obligation to the extent 1. creditor cannot be compelled to of the value of the thing delivered, accept partial payment unless the parties agree that the 2. if there is only 1 obligation entire obligation is extinguished bearing stipulated interest, he must 1st apply the payment to interest before the principal 3. debtor cannot apply the payment to the debt that is not yet liquidated 4. he cannot choose a debt w/ a period for the benefit of the creditor, when the period has not yet arrived - governed by the law on sales Rules in application of payment: - may be partial or full dation 1. apply accdg. to the agreement 2. if there is no agreement, debtor Traditional view: it is a sale has the right to apply Modern view: it is a novation 3. if the debtor does not choose, the creditor can choose 4. if the creditor has not also made application, or if application is not valid, apply to the most onerous Property Exempt debt (legal application) 1. debtor must reserve amount 5. if the debts due are of the same needed for support in case of nature & burden, apply donations proportionately 2. assignment cannot include family home More Onerous Obligations: 1. bound as principal than as surety 2. solely bound than in solidary ones 3. oldest debt of various debts 4. one w/ interest than w/o interest 5. one w/ higher interest rate 6. unsecured debt w/ interest than secured one w/o interest 7. liquidated than unliquidated debt **Does not comply w/ the requisite 8. one w/ a penal clause **There is no completeness of of identity. 9. Secured than one unsecured performance integrity.



- 14 LOSS OF THE THING DUE - The thing w/c constitutes the obligation perishes, goes out of commerce, or disappears in such a way that existence is unknown or it cannot be recovered - impossibility of compliance w/ the obligation through any cause 1. the thing w/c is lost is determinate 2. the thing is lost w/o any fault of the debtor (If lost through fault of debtor, its becomes an obligation to indemnify the creditor for damages) 3. the thing is lost before the debtor has incurred in delay CONDONATION/ REMISSION An act of liberality of the obligee, who w/o receiving any equivalent, renounces the enforcement of the obligation, as a result of w/c it is extinguished in its entirety or in part-; gratuitous abandonment by the creditor of his right 1. debt must be existing 2. it must be gratuitous 3. must be accepted by the obligor 4. parties must have capacity 5. must not be inofficious (infringes on the legitime of the compulsory heirs) 6. formalities of donation are required in express remission As to Form: 1. express donation - Art. 748: movables - Art. 749: immovables 2. implied waiver As to Extent: 1. total covers entire obligation 2. partial does not cover entire obligation As to Constitution: 1. inter vivos/agreement takes effect during lifetime of donor 2. mortis cause/will takes effect upon death of donor CONFUSION/ MERGER Meeting in one person of the qualities of creditor & debtor w/ respect to the same obligation COMPENSATION Mode of extinguishing in their concurrent amount those obligations of persons who in their own right are creditors & debtors of each other NOVATION Substitution/change of an obligation by another, resulting in its extinguishment/modification, either by changing its principal conditions, or by substituting another in place of the debtor, or by subrogating a 3rd person in the rights of the creditor 1. previous valid obligation 2. agreement of all the parties to the new contract 3. capacity & intention of the parties to modify/extinguish the obligation 4. modification or extinguishment of old obligation 5. new valid obligation

Definition of Terms



Physical: the obligor is not physically capacitated to perform the obligation Legal: obligation is rendered impossible by provision of law As to Time: 1. Original impossibility already exited when the contract was made; the result is not extinguishment but inefficacy of the obligation; the contract is void 2. Supervening impossibility must be subsequent to the execution of the contract to extinguish the obli. As to Nature: 1. Objective the act cannot be done by anyone; extinguishes the obligation 2. Subjective obligation is impossible only w/ respect to the obligor

1. must take place bet. creditor & principal debtor 2. merger must be clear & definite 3. the very same obligation must be involved 4. confusion must be total Confusion in Joint Obligations: - confusion taking place in the person of any debtor does not affect the others Confusion in Solidary Obligations: - merger in the person of one of the solidary debtors shall extinguish the entire obligation

1. 2 parties, who are principal creditors/ debtors of each other in their own right 2. both debts consist in money, or if the things due are fungibles, they are of the same kind/quality 3. both debts must be due 4. both debts liquidated & demandable 5. no retention/controversy commenced by 3rd person (neither debt is garnished) 6. compensation not be prohibited by law As to Cause: 1. Legal operation of law; when all requisites concur 2. Voluntary/Conventional/Contractual agreement of the parties is enough 3. Judicial set off; final judgement of the court (e.g. counterclaim) 4. Facultative claimable by only 1 of the parties but not of the other Facultative: 1. Commodatum by the bailor 2. Depositary by the depositor 3. Future support (support in arrears can be compensated) 4. Civil liability fr. a penal offense offended party

As to Essence: 1. objective/real change in the object or principal conditions 2. subjective/personal change of the subjects a. Subrogation change of creditor - Legal operation of law - Conventional all parties agree b. Substitution change of debtor - Expromision initiative fr new debtor - Delegacion initiative fr old debtor 3. mixed combination of subjective & objective novation As to Form/Constitution: 1. express declared in unequivocal terms 2. tacit the old & new obligation are incompatible w/ each other

When Not Allowed

When Debtor is still liable: 1. when by law, the obligor is liable for fortuitous event 2. when by stipulation, the obligor is liable for fortuitous events 3. when the nature of the obligation requires the assumption of risk 4. when the loss of the thing is due partly to the fault of the debtor 5. when the loss of thing occurs after the debtor has incurred in delay 6. when the debtor promised to deliver the same thing to 2 or more persons who dont have the same interest 7. when the obligation is generic 8. when the obligation to deliver a specific thing arises from a crime

Inofficious Donation: infringes on the legitime of the heirs of the donor. No on can give more than that which he can give by will. The excess shall be reduced by the court accordingly.

As to Effect: 1. Total 2 debts are of the same As to Extent/Effect: amount 1. total obli. extinguished 2. Partial 2 debts are not of the same 2. partial obli. merely modified amount When Compensation shall not take place: GR: No novation where new obligation is void 1. the law prohibits it E: parties stipulate to extinguish the old 1 in 2. debts arising from contracts of any event depositum 3. debts arising from contracts of GR: novation can take place where new commadatum obligation is voidable 4. claims for support due by gratuitous title E: when it is annulled, novation is considered 5. obligations arising from criminal as not having taken place offenses 6. certain obligations in favour of the govt Old Obligation has a condition: 7. there is renunciation of the effects of - resolutory & it occurred: old obligation is compensation extinguished; no new obligation since theres 8. there is a period w/c has not yet arrived nothing to novate 9. there is a suspensive condition w/c has - suspensive & it never occurred: no not yet happened obligation arises; also nothing to novate 10. obligation cannot be sued upon (natural obli.)



- 15 LOSS OF THE CONDONATION/ THING DUE REMISSION Effect of Impossibility in obli. to do: Effect of Partial Remission: - debtor is released if impossibility was 1. renunciation of the principal not due to his fault & it took place debt shall extinguish the before he was in delay (supervening & accessory obligations not original impossibility) 2. renunciation of the accessory obligation shall leave the Effect of Partial Loss: principal in force - Loss significant: enough to extinguish 3. obligation of guarantor is the obligation extinguished at the same time - Loss insignificant: not enough to as that of the debtor extinguish obli. 4. guarantors are released from their obligation whenever by Effect of Loss on Creditors Rights: some act of the creditor they - creditor shall have all the rights of cannot be subrogated to the action w/c the debtor may have rights of the latter against the 3rd person by reason of the loss Presumption: then the thing is lost in GR: waivers arent to be the possession of debtor, it is due to presumed his fault (res perit domino) E: Presumptions: - natural calamity, earthquake, flood 1. if a private document is found in - debtor not in possession of thing lost the possession of the debtor, it - there is proof to the contrary is presumed that the creditor voluntarily delivered it to him GR: debtor still liable for loss of 2. since the creditor voluntarily generic thing delivered the private document, E: then there is a presumption of - delimited generic thing remission - the thing becomes illegal 3. it is presumed that the accessory obligation of pledge GR: impossibility of performance has been remitted when the releases the obligor thing pledged, after its delivery - service has become so difficult as to to the creditor, is found in the be manifestly beyond contemplation of possession of the debtor, or of parties 3rd person who owns the thing Rebus Sic Stantibus/Doctrine of Extreme Difficulty: agreement is valid only if the same conditions prevailing at the time of contracting continue to exist at the time of performance Requisites: 1. the event/change could not have been foreseen at the time of execution of contract 2. performance is extremely difficult, but not impossible 3. event was not due to the act of any of the parties 4. contract is for a future prestation **Pledge: a contract where the Usual Causes: debtor delivers to the creditor or 1. succession rd to a 3 person a movable or 2. donation instrument evidencing incorporeal 3. negotiation of rights for the purpose of securing negotiable the fulfilment of the principal instrument obligation; the thing delivered shall be returned w/ all its fruits & accessions CONFUSION/ MERGER Effect in the person of principal debtor or creditor: - extinguishes the obligation as well as the accessory obligation Effect in the person of guarantor: - extinguishment of accessory obligation doesnt carry w/ it that of the principal obligation COMPENSATION NOVATION


1. both debts are extinguished to the 1. if old obligation has condition, must be concurrent amount compatible w/ new obligation; if new is 2. interests stop accruing w/o condition deemed attached to new 3. period of prescription stops 2. if new obligation has condition 4. all accessory obligations of the principal - if resolutory: valid obligation are also extinguished - if suspensive & didnt materialize, old obligation is enforced Effect of Total Subrogation: transfer to the new creditor the credit & all the rights & actions that could have been exercised by the former creditor, either against the debtor or 3rd persons Effect of Partial Subrogation: the creditor to whom partial payment has been made by the new creditor remains a creditor to the extent of the balance of the debt GR: Novation is never presumed E (legal subrogation presumed) 1. the creditor pays another creditor who is preferred, even w/o the debtors knowledge rd 2. a 3 person, not interested in the obligation, pays w/ the express/tacit approval of debtor 3. w/o knowledge of the debtor, a person interested in the fulfilment of the obligation pays, w/o prejudice to the effects of confusion as the latters share GR: Extinguishment of the principal carries w/ it that of accessory obligations E: those created in favour of a 3rd person unless the latter gives consent to the novation; in active subjective novation, the guarantors/pledgors/mortgagors are not released


Rules on Assignment of Credit to 3rd Person: 1. assignment after compensation: - no effect because obligation has already extinguished 2. assignment before compensation: - w/ consent of debtor: debtor is estopped unless he reserves his right & gave notice to assignee - w/ knowledge but w/o consent: compensation may be set up as to debts maturing prior to assignment - w/o knowledge: compensation may be set-up on all debts prior to his knowledge

Other Notes

Novation by Substitution: Novation by Substitution: rd 1. Expromision: a 3rd person of his own 2. Delegacion: a creditor accepts a 3 person to take the place of the debtor at the initiative & w/o knowledge or against instance of the latter the will of the old debtor assumes the latters obli. w/ consent of creditor - initiative/with consent of old debtor - all parties must consent - initiative from 3rd person/new debtor - reimbursement & subrogation - w/ consent of creditor & new debtor - GR: if new debtor insolvent, old debtor not - w/o knowledge/against will of old debtor responsible because obli. extinguished - E: - old debtor released fr. obligation - insolvency already existing & of public - beneficial reimbursement - if new debtor is insolvent, not responsible knowledge or known to him at time of delegacion since w/o his consent - new debtor is only secondarily liable - 3rd person is only an agent of the debtor - new debtor is bound solidarily w/ old debtor



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TITLE II - CONTRACTS CHAPTER 1 GENERAL PROVISIONS Contract: Meeting of the minds between 2 contracting parties w/c takes place when an offer by one party is accepted by the other. One or more persons bind himself/themselves w/ respect to another, or reciprocally, to the fulfilment of a prestation to give, to do or not to do. Contracts: Essential Elements 1. Consent 2. Object 3. Cause CONTRACT One of the sources of obligations There can be no contract if there is no obligation CONTRACT Agreements enforceable through proceedings Elements: consent, object, cause All contracts are agreements OBLIGATION The legal tie/relation itself that exists after a contract has been entered into An obligation may exist even w/o a contract Degree of Dependence



CLASSIFICATION OF CONTRACTS Preparatory: its object is the establishment of a condition in law w/c is necessary as a preliminary step towards the celebration of another subsequent contract Principal: can subsist independently from other contracts Accessory: can exist only as a consequence or, or in relation w/, another prior contract Consensual: perfected by mere consent Real: perfected by the delivery of the thing Common/Informal: does not require some particular form Special/Formal: requires some particular form Transfer of Ownership Conveyance of Use Rendition of Service Things Service Bilateral: gives rise to reciprocal obligations for both parties Unilateral: gives rise to an obligation for only 1 of the parties Onerous: each of the parties aspires to procure for himself a benefit through the giving of an equivalent Gratuitous: one of the parties proposes to give to the other a benefit w/o any equivalent Remuneratory: purpose is to reward the service that had been previously rendered by the party remunerated Commutative: each of the parties acquires an equivalent of his prestation & such equivalent is pecuniarily appreciable & already determined from the moment of the celebration of the contract Aleatory: each of the parties has to account the acquisition of an equivalent prestation, but such equivalent, although pecuniarily appreciable, is not yet determined, at the moment of the celebration of the contract, since it depends upon the happening of an uncertain event, thus charging the parties w/ the risk of loss or gain Nominate: has a specific name or designation in law & is regulated by special provisions of law Innominate: does not have a specific name & is not regulated by special provisions of law

Agency Partnership

Lease, Sale Pledge, mortgage, Suretyship Purchase, sale Commodatum Loan, lease Donation, chattel mortgage Sale Commodatum Deposit, pledge Agency Sale, pledge, mortgage Deposit, agency, Purchase, sale Commodatum, gratuitous deposit Purchase, sale Commodatum

AGREEMENT Agreements which cannot be enforced by action in the courts of justice are not contracts but merely moral/social agreements An agreement is broader than a contract because the former may not have all the elements of a contract Not all agreements are contracts



CONTRACT Establishes & determines the obligations arising therefrom

PROMISE Tends only to assure and pave the way for the celebration of a contract in the future Until the contract is actually made, the rights and obligations are not yet determined. An imperfect promise also constitutes a mere unaccepted offer.

Nature of Obligation

Characteristics of Contracts 1. Autonomy - The contracting parties may establish such stipulations as they may deem convenient, as long as they are not contrary to law, morals, good customs, public order, or public policy 2. Mutuality contract must be binding upon both contracting parties; its validity & performance cannot be left to the will of only 1 of them (may be left to a 3rd party, except when inequitable) 3. Relativity - it is binding only upon the parties, their, assigns & heirs; strangers cannot demand enforcement 4. Obligatory Force parties are bound fr. perfection of contract Classes of Elements to a Contract 1. Essential - those w/o w/c no contract can validly exist; also known as requisites of a contract 2. Natural - those which exist as part of the contract even if the parties do not provide for them, because the law, as suppletory to the contract, creates them 3. Accidental - the particular stipulations, clauses, terms or conditions established by the parties in their contract & w/c cannot exist w/o being stipulated A Contract must not be contrary to 1. law 2. morals 3. good customs 4. public order 5. public policy Rules Governing Innominate Contracts 1. Agreement of the parties 2. Provisions of the Civil Code on obligations and contracts 3. Rules governing the most analogous contracts 4. Customs of the place





sale, lease, agency Do ut des Do ut facias Facias ut des Facias ut facias


Contracts of Adhesion: One party has already a prepared form of a contact containing the stipulation he desires, & he simply asks the other party to agree to them if he wants to enter into the contract



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Persons Affected by a Contract GR: Principle of Relativity - contracts take effect only bet. the parties, their assigns & heirs Exception: the contract is effective only between the parties when the rights & obligations arising from a contract are not transmissible 1. By their nature (contract involving personal qualifications) 2. By stipulation (principle of freedom to contract) 3. By provision of law (agency, partnership, commodatum, when death extinguishes the legal relationships) Cases when a Stranger/3 Persons are Affected by a Contract 1. Stipulation pour autrui: contracts containing a stipulation in favour of a 3rd person 2. contracts containing real rights 3. contracts entered into to defraud creditors (accion pauliana) 4. contracts w/c have been violated at the inducement of a 3rd person 5. accion directa Stipulation Pour Autrui: a stipulation in a contract clearly & deliberately conferring a favour upon a 3rd person who has a right to demand its fulfilment provided he communicates his acceptance to the obligor before its revocation Stipulation Pour Autrui: Requisites 1. a stipulation in favour of a 3rd person 2. which should be a part, not the whole, of the contract 3. the contracting parties must have clearly & deliberately conferred a favour upon a 3rd person, not a mere incidental benefit 4. the favourable stipulation should not be conditioned or compensated by any kind of obligation 5. the 3rd person must have communicated his acceptance to the obligor before its revocation 6. neither of the contracting parties bears the legal representation or authorization of the 3rd party, otherwise the rules on agency will apply Liability of a 3rd Person for Breach of Contract: Requisites 1. existence of a valid contract 2. knowledge of by the 3rd person of the existence of the contract 3. interference by the 3rd person in the contractual relation w/o legal justification Stages 1. 2. 3. in the Life of a Contract Preparation politicacion, negotiation, conception, generation Perfection birth, meeting of the minds Consummation performance, fulfillment

Offer: unilateral proposition w/c 1 party makes to the other for the celebration of the contract Offer: Requisites 1. definite 2. complete 3. intentional Requisites for Silence to Produce Effect of Tacit Acceptance 1. There is a duty or possibility to express oneself 2. The manifestation of the will cannot be interpreted in any other way 3. There is a clear identity in the effect of the silence & the undisclosed will Acceptance of Offer: Forms 1. express oral or written 2. implied inferred from act or conduct Matters 1. 2. 3. 4. 5. That May be Fixed by the Offeror time place manner of acceptance terms conditions

When Offer becomes Ineffective 1. death 2. civil interdiction 3. insanity 4. insolvency 5. express/implied revocation of the offer by the offeree 6. qualified/conditional acceptance of the offer (counter offer) 7. subject matter becomes illegal/impossible 8. expiration of the period fixed in the offer for acceptance Rule on Advertisements as Offers 1. business advertisements not a definite offer, but a mere invitation to make an offer unless it appears otherwise 2. advertisements for bidders only invitation to make proposals & advertiser is not bound to accept the highest or lowest bidder, unless it appears otherwise Option Contract: giving a person for a consideration a certain period w/in w/c to accept the offer of the offeror; & binds the person who has given the option not to enter into the principal contract w/ any other person during the designated period; it is a continuing offer RIGHT OF FIRST REFUSAL Right to have the 1st opportunity to purchase Separate consideration NOT required No definite offer since vendor has option to sell or not GR: Specific performance may be filed & actual vendee may be required to sell the property to the holder of the right of 1st refusal at the price he bought it OPTION CONTRACT Limits the promissors power to revoke an offer Separate consideration required There is a definite offer GR: buyer can file for specific performance if seller does not want to sell E: if sold to an innocent purchaser for value Remedy: buyer may sue seller for damages

When a Persons is Bound by the Contract of Another: Requisites 1. the person entering into the contract must be duly authorized by the person in whose name he contracts 2. the person must act within his power CHAPTER 2 ESSENTIAL REQUISITES Section 1 Consent Consent: manifested by the meeting of the certain/definite offer & the absolute acceptance upon the thing & cause w/c constitute the contract Consent: Elements 1. plurality of subjects 2. capacity 3. intelligence and free will 4. manifestation of intent of the parties 5. cognition by the other party 6. conformity of the manifestation & cognition Consent: Characteristics 1. intelligent 2. free/voluntary 3. conscious/spontaneous

GR: the offer may be withdrawn as a matter of right any time before acceptance Exception: if the option is founded upon a consideration, as something paid or promised Theory of Cognition: the offer & acceptance concur only when the offeror comes to know &not when the offeree merely manifests his acceptance (as opposed to the Theory of Manifestation) Acceptance: Requisites 1. unequivocal 2. unconditional (if qualified, it is a counter-offer)



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Amplified Acceptance: an acceptance of the original offer, plus a new offer w/c is contained in the amplification Persons 1. 2. 3. 4. 5. Who Cannot Give Consent minors insane/demented persons deaf/mutes who do now know how to write intoxicated under hypnotic spell

Undue Influence (even if employed by 3rd person) Fraud (if employed by 3rd person, remedy is damages)

Special Disqualifications: Incompetents 1. persons suffering the accessory penalty civil interdiction 2. hospitalized lepers 3. prodigals (spendthrifts) 4. deaf & dumb who are unable to read and write 5. those of unsound mind even though they have lucid intervals 6. those who, by reason of age, disease, weak mind and other similar causes, cannot w/o outside aid, take care of themselves & manage their property, becoming thereby an easy prey for deceit & exploitation INCAPACITY TO GIVE CONSENT Restriction upon the exercise of a right Renders the contract voidable Based upon subject circumstances of certain persons Contracts entered into are voidable SPECIAL DISQUALIFICATIONS Restriction upon the very right itself Makes the contract void Based upon public policy & morals Contracts entered into are void

When a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice False representation of a material fact made by word or conduct w/ knowledge of its falsehood or reckless disregard of its truth, in order to induce another to execute an act

1. misrepresentation or concealement 2. must be serious 3. employed by only 1 of the parties 4. made in bad faith or w/ intent to deceive 5. induced the consent of the other 6. resulted in damage/injury 7. proved by clear & convincing evidence

CAUSES VITIATING CONSENT Temporary Refers to the contract itself

CAUSES OF INCAPACITY More or less permanent Refers to the person entering into the contract Both make a contract voidable only, and not void

IGNORANCE Complete absence of any notion about a particular thing

GR: contracts entered into by incapacitated persons are voidable Exceptions: 1. 1. when necessaries such as food, are sold & delivered to a minor or other person w/o capacity to act, he must pay a reasonable price therefore 2. a minor 18 years old or above may contract for life, health and accident insurance, provided the insurance is taken on his life & the beneficiary appointed is the minors estate or the minors father, mother, husband, wife, child, brother or sister 3. valid if entered into through a guardian/legal rep. 4. valid where minor misrepresented his age & convincingly led the other party to believe in his legal capacity 5. valid where a minor voluntarily pays a sum of money or delivers a fungible thing in fulfillment of his obligation thereunder & the oblige has spent/consumed it in good faith VICES OF CONSENT Mistake Substantial mistake of fact, such that the party wouldnt have given his consent had he known of the mistake Violence When, in order to (even if wrest consent, employed by serious or irresistible rd 3 person) force is employed Intimidation (even if employed by 3rd person) When 1 of the parties is compelled by a reasonable & wellgrounded fear of an imminent & grave evil upon his person/property, or that of his spouse, descendants, ascendants, to give consent REQUISITES 1. mistake of fact 2. must be mutual 3. such mutual mistake frustrates the real purpose of the parties 1. irresistible physical force of such a degree that the victim has no other course but to submit 2. it is the determining cause for giving consent 1. produces a reasonable & well-grounded fear of an evil 2. imminent & grave evil 3. threatened evil is unlawful/unjust 4. evil must be upon his person or property, or that of his spouse, descendants or ascendants 5. it is the determining cause for the contract

MISTAKE wrong/false notion about such a matter, a belief in the existence of some circumstance, fact or even w/c in reality doesnt exist There is a lack of full & correct knowledge about the thing Juridically, they produce the same effect

Mistake of Fact Which Vitiates Consent 1. Substance of the thing w/c is the object of the contract 2. mistakes re: the nature of the contract, in w/ case is an essential mistake, because it is one w/c has determining influence upon the will of the party 3. principal condition of the thing as its essential/substantial character, w/o w/c the thing ceases to be what it is 4. Identity/qualifications of 1 of the parties provided the same was the principal cause of the contract Mistake of Fact Which Does NOT Vitiate Consent 1. incidents of a thing or accidental qualities not taken as the principal consideration of the contract 2. Error in the value of the thing 3. Quantity or amount 4. Motives of the contract 5. Identity/Qualification of a party because contracts are entered into more in consideration of the things/services w/c form their subject matter rather than of persons 6. Error in the name 7. Error as to solvency of the other party is not a cause of nullity 8. Mistake as to the motive of a party doesnt affect the contract 9. Error as to account is purely a mistake in computation (mathematical error) 10. Error as to estimates 11. Error in unilateral decision VIOLENCE External Degree of constraint or danger actually inflicted Physical force/compulsion To prevent an act fr. being done INTIMIDATION internal Danger threatened or impending; evil or harm arising from an unlawful act Moral force/compulsion Induces the performance of an act

INTIMIDATION UNDUE INFLUENCE Threatened unlawful/unjust act that There need not be an causes consent to be given unjust/unlawful act There is moral coercion (threats, or harassing tactics)



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Factors 1. 2. 3.

to Determine Degree of Intimidation age sex condition

Undue Influence: Circumstances to be Considered 1. confidential/family/spiritual, & other relations bet. the parties 2. mental weakness 3. ignorance 4. financial distress of the person unduly influenced Causal Fraud: How Committed 1. insidious words or machinations 2. concealing/omitting facts where there is a duty to reveal them, as when the parties are bound by confidential relations 3. opinion of an expert & the other party relied on the formers special knowledge Requisites for an Opinion to Amount to Fraud 1. must be made by an expert 2. the other contracting party has relied on the experts opinion 3. the opinion turned out to be false/erroneous FRAUD VIOLENCE/ INTIMIDATION Contract is annulled

Objects: Kinds 1. things not outside the commerce of man 2. rights not intransmissible 3. services not contrary to law, morals, good customs, public order or public policy Things Which cannot be the Object of the Contract 1. things outside the commerce of man 2. services w/c are contrary to law, morals, good customs, public order or public policy 3. impossible things/services (original & not supervening) 4. objects w/c are not possible of determination as to their kind 5. intransmissible rights 6. future inheritance Things Outside the Commerce of Man 1. Services w/c imply an absolute submission by those who render them, sacrificing their liberty, their independence or beliefs, or disregarding in any manner the equality & dignity of persons (e.g. perpetual servitude/slavery) 2. Personal rights (e.g. patria potestas or marital authority, the status & capacity of persons, & honorary titles & distinctions) 3. Public offices, inherent attributes of the public authority, & political rights of individuals (e.g. right of suffrage) 4. Property while they pertain to the public domain (e.g. roads, plazas, squares, & rivers 5. Sacred things, common things (e.g. the air, the sea, and res nullius, as long as they havent been appropriated) EMPTIO REI SPERETAE Conditional sale; there is a suspensive condition If the condition does not come into existence, there is not contract of sale EMPTIO SPEI Sale of hope Even if the future thing does not materialize, the buyer must pay since the buyer is taking a chance (e.g. sale of lotto ticket)

Doesnt annul the contract unless it produces a substantial mutual mistake on the part of both contracting parties The party has nothing to do w/ fraud by Can easily be more a 3rd person & cannot be blamed for it resisted than fraud It has been advocated that both fraud & violence nullify the consent, whoever may have employed the same. Where there is the same necessity, the remedy must likewise be the same. Simulation of a Contract: The act of deliberately deceiving others, by feigning or pretending by agreement, the appearance of a contract w/c is neither non-existent or concealed. Simulation: Kinds 1. Absolute/Simulados Void because he contract doesnt really exist and the parties do not intend to be bound at all 2. Relative/Disimulado - When the contract entered into by the parties is different from their true agreement; The parties are bound by their real agreement provided it does not prejudice a 3rd person and is not intended for a purpose contrary to law, morals, good customs, public order or public policy ABSOLUTE SIMULATION Implies there is no existing contract; no real act executed Can be attacked by any creditor, including 1 subsequent to the contract Insolvency of 1 debtor making the simulated transfer is not a prerequisite to the nullity of the contract Does not prescribe FRAUDULENT ALIENATION There is a true & existing transfer or contract Can be assailed only by the creditors before the alienation Action to rescind, accion pauliana, requires that the creditor cannot recover in any other manner what is due him Prescribes in 4 years

Impossibility: Kinds 1. physical the thing/service in the very nature of things cannot exist or be performed a. Absolute: the act cannot be done in any case so that no one can perform it; nullifies the contract b. Relative: it arises from the special circumstances or special conditions/qualifications of the obligor; if temporary, it doesnt nullify the contract 2. legal - the thing/service is contrary to law, morals, good customs, public order or public policy Partly Impossible 1. Indivisible: there is no contract; the consent would be wanting, because it was either for the whole obligation or for none at all 2. Divisible: the contract is valid to the extent that is possible

Section 3 Cause of Contracts Cause: the immediate/proximate cause why the parties enter into the contract (the why) Cause: 1. 2. 3. Requisites exists at the time the contract is entered into true/real licit/lawful

Section 2 Object of Contracts Object: the prestation; it is always a conduct w/c is to be observed Object: Requisites 1. within the commerce of man (already existing or in potency) 2. licit not contrary to law, morals, good customs, public order or public policy 3. possible legally/physically 4. determinate/determinable (determinate as to its kind; need not be individualized) 5. transmissible

Classification of Contracts According to Cause 1. onerous the cause is the prestation/promise of a thing or service by the other 2. remuneratory the cause is the service/benefit w/c is remunerated 3. gratuitous the cause is the liberality of the benefactor



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CAUSE The why of contracts, the essential reason w/c impels the contracting parties to celebrate the contract Need not be material at all, & may consist in a moral satisfaction of the promissor CAUSE Proximate why Objective, intrinsic & juridical reason for the existence of the contract itself Essential or more proximate purpose w/c the contracting parties have in view at the time of entering into the contract The cause of each kind of contract is always the same Immediate/direct reason Always known to the other contracting party Essential element of a contract Its illegality affects the validity of a contract

CONSIDERATION The reason, motive, or inducement, by w/c a man is moved to bind himself by an agreement Requires a legal detriment to the promise w/c must be more than a moral duty MOTIVE Ultimate why Psychological, individual or personal purpose of a party to the contract Purely personal/private reason which a party has in entering into a contract Motive differs w/ each person Remote/indirect reason May be unknown Not an essential element Its illegality does not render the contract void

CHAPTER 4 REFORMATION OF INSTRUMENTS Reformation: That remedy by means of w/c a written instrument is amended/rectified so as to express or conform to the real agreement/intention of the parties when by reason of mistake, fraud, inequitable conduct, or accident, the instrument fails to express such agreement or intention Effect of Reformation: takes effect from it original execution Reformation: Requisites 1. meeting of the minds of the parties to the contract 2. written instrument doesnt express the true agreement/intention of the parties 3. the failure to express the true intention is due to mistake, fraud, inequitable conduct (i.e. any act/omission w/c is unjust/unfair), or accident 4. the facts upon w/c relief by way of reformation of the instrument is sought are put in issue by the pleadings 5. clear & convincing evidence of the mistake, fraud, inequitable conduct, or accident REFORMATION There has been a meeting of the minds of the parties A contract exists but the written instrument purporting to embody the contract doesnt express the true intention of the parties by reason of mistake, fraud, inequitable conduct or accident Gives life to it upon certain corrections ANNULMENT There has been no meeting of the minds The consent of one of the parties was vitiated by mistake, fraud, violence, intimidation Complete nullification of the contract

Motive Affects the Contract if: 1. motive becomes a suspensive condition 2. realization of the motive is the cause for the contract & there is an intervening serious mistake of fact When Motives of a Party may Affect the Juridical Act 1. rescissible when the motive of a debtor in alienating property is to defraud creditors 2. voidable when the motive of a person in giving his consent is to avoid a threatened injury, (i.e. intimidation), 3. voidable when the motive of a person induced him to act on the basis of fraud or misrepresentation by the other party Absence of Cause Illegality of Cause Falsity of Cause Causa Not Stated in Contract Inadequacy of Causa Void produces no legal effect Void produces no legal effect Voidable the party must prove that cause is unlawful; presumption of validity but rebuttable Presumed to Exist burden of proof is on the person assailing it GR: Does not Invalidate Contract per se Exceptions: - fraud - mistake - undue influence - cases specified by law - contracts entered when ward suffers lesion of more than 25 % CHAPTER 3 FORM OF CONTRACTS Form: the manner in w/c a contract is executed/manifested GR: Contracts are binding & enforceable in whatever form they may be Exceptions: 1. for validity a. donations b. antichresis c. interest in a loan d. sale of land by an agent e. contribution of immovables in a partnership 2. for enforceability a. Statute of Frauds b. Express trusts over an immovable 3. for registrability (to make it binding upon 3rd parties)

Cases Where Reformation is Proper 1. when mutual mistake of the parties causes the failure of the instrument to disclose the real agreement 2. if one party was mistaken & the other acted fraudulently or inequitably in such a way that the instrument doesnt show the true intention 3. when one party was mistaken & the other knew or believed that the instrument didnt state their real agreement, but concealed that fact from the former 4. when through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the instrument doesnt express the true intention of the parties 5. if 2 parties agreed upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely or w/ a right of repurchase Requisites for Mutual Mistake to be Basis for Reformation 1. mistake of fact 2. mutual, i.e. common to both parties 3. caused the failure of the instrument to express their true intention 4. proved by clear & convincing evidence When Reformation is NOT Allowed 1. Simple donations inter vivos where no condition is imposed 2. Wills 3. When the real agreement is void 4. When one party has brought an action to enforce the instrument Party Entitled to Reformation 1. either of the parties, if the mistake is mutual 2. in all other cases, the injured party 3. the heirs/successors in interest of the party entitled



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DEFECTIVE CONTRACTS: MORE NOTES CHAPTER 6: RESCISSIBLE CONTRACTS RESCISSION There is real alienation, but its fraudulent Can be alleged only by creditors prior to the act Impossibility of satisfying the plaintiffs claim is required Accion pauliana an action to set aside a valid contract Right of Transferee 1. Gratuitous - the creditor will have a better right than the transferee who has given nothing & would unjustly be enriched at the expense of the creditor if the transfer were upheld A. Good faith: o transferee obliged to restore the thing o but he isnt obliged to pay the fruits received by him o he is entitled to reimbursement for necessary & useful expenses incurred on the thing o he returns the thing in the condition that it may be found o he isnt liable for losses or deteriorations, except in cases in w/c its proved that he has acted w/ fraudulent intent or negligence after judicial summons B. Bad faith: Transferee isnt entitled to indemnity for damages from the debtor, in the even that rescission is decreed 2. Onerous - the transferee in good faith is protected; as between 2 persons who both stand to suffer loss, the possessor of the property should be preferred in that possession, the ownership having been transferred by delivery Badges of Fraud: 1. consideration of the conveyance is inadequate/fictitious 2. transfer was made by a debtor after a suite has begun & while its pending against him 3. sale upon credit by an insolvent debtor 4. evidence of indebtedness or complete insolvency 5. transfer of all his property by a debtor when he is financially embarrassed or insolvent 6. transfer made bet. father & son where there is present any of the above circumstances 7. failure of the vendee to take exclusive possession of the property Due to a Fortuitous Event SIMULATION There is in fact no alienation but a mere pretense that one has been made Can be alleged by all creditors, before or after the simulation Impossibility of satisfying the plaintiffs claim is NOT required Does not seek to set aside the simulated contract, but merely to declare its inexistence Due to his Fault or Fraud

CHAPTER 7 VOIDABLE CONTRACTS LOSS OF THING BY PLAINTIFF he cannot ask for annulment & the action is extinguished, even if at the time of the loss the plaintiff was still a minor or was insane action for annulment isnt extinguished but the defendant cannot be obliged to make restitution to the plaintiff until annulment of the contract, it is valid & produces legal effect res perit domino(owner bears the loss): plaintiff who was in possession of the object at the time of its loss, must still be considered the owner thereof & must bear the loss by fortuitous event Since the plaintiff cannot return what he is bound to restore, the defendant cannot be compelled to make restitution But if the plaintiff offers to pay the value of the thing as a substitute for the thing itself, the defendant should be obliged to make restitution, except plaintiff need not pay interest LOSS OF THING BY DEFENDANT he must return the fruits received, the value of the thing at the time of its loss, w/ interest fr. the same date Action for annulment cannot be extinguished for any event not imputable to the fault/fraud of the plaintiff Defendant required to pay the value of the thing at the time of the loss by fortuitous event, but w/o interest because the loss wasnt due to his fault Defendant must suffer the loss because he is still the owner at the time of the loss



- 22 RESCISSIBLE VOIDABLE Defect consists in injury/damage either to Defect consists in the vitiation of consent or 1 of the contracting parties or to 3rd in the legal incapacity of 1 of the persons; may be set aside in whole/part, to contracting parties the extent of the damage caused - (defect is in the effects) 1. those entered into by guardians 1. those where 1 of the contracting parties is whenever the wards whom they incapable of giving his consent to a represent suffer lesion by more than contract of the value of the things w/c are the a. minors object thereof b. insane/demented persons 2. those agreed upon in representation of c. deaf/mutes who do not know how to absentees, if the latter suffer the lesion write stated in the preceding # d. intoxicated 3. those undertaken in fraud of creditors e. under hypnotic spell when the latter cannot in any other 2. those where the consent is vitiated by manner collect the claims due them mistake, violence, intimidation, undue 4. those w/c refer to things under litigation influence or fraud if they have been entered into by the defendant w/o the knowledge & approval of the litigants or of competent judicial authority 5. contracts specifically declared by law to be subject to rescission 6. payments made in a state of insolvency for obligations whose fulfillment the debtor could not be compelled at the time they were effected Note: No rescission is allowed if contract/transaction is approved by court the the UNENFORCEABLE Defect consists in the fact that they were entered into in excess or w/o any authority, or they do not comply w/ Statute of Frauds, or both contracting parties are legally incapacitated 1. Unauthorized or no sufficient authority: a) no authority conferred b) in excess of authority conferred 2. Curable by Acknowledgement: Those that do not comply with the Statute of Frauds a) agreement is not to be performed w/in a year from the making thereof b) special promise to answer for the debt/default/miscarriage of another c) agreement 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 P500 e) agreement for leasing for a period longer than one year, or for the sale of real property or of an interest therein f) representation as to the credit of a 3rd person 3. Curable by ratification: both parties are incapable of giving consent to a contract ***Statute of Frauds: statute w/c requires certain classes of contracts to be in writing to prevent fraud applicable only to executory contracts (where no performance has yet been made by both parties) 4. Express trusts over immovables Valid but cannot be enforced by a proper action in court, unless ratified Ratification only, not by prescription VOID All requisites prescribed by law are present, but the cause/object/purpose is contrary to law, morals, good customs, public order or public policy, or are prohibited by law, or are declared by law to be void - (defect is inherent) 1. cause, object or purpose is contrary to law, morals, good customs, public order or public policy 2. absolutely simulated or fictitious 3. cause/object did not exist at the time of the transaction 4. object is outside the commerce of men 5. contemplate an impossible service 6. intention of the parties relative to the principal object of the contract cannot be ascertained 7. expressly prohibited/declared void by law i. Contracts upon future inheritance expect in cases expressly authorized by law ii. Sale of property bet. husband & wife except when there is a separation of property iii. Purchase of property by persons who are specifically disqualified by law because of their position/relation w/ the person/property under their care iv. Every donation bet. spouses during the marriage shall be void except moderate gifts w/c the spouses may give each other on the occasion of any family rejoicing v. A testamentary disposition in favour of a disqualified person, even though made under the guise of an onerous contract, or made through an intermediary, shall be void vi. Any stipulation that household service is w/o compensation is void vii. Congressmen are prohibited fr. being financially interested, directly/indirectly, in any contract w/ the govt or any subdivision/instrumentality Void from the beginning; produces no effect No susceptible of convalidation, either by ratification or prescription; cannot give rise to a valid contract *** validity cannot be given to it by estoppel or by reason of equity



Validity/ Effectivity

Before rescission, they are valid & effective Prescription only, not by ratification


Valid & binding until they are annulled by a competent court 1. prescription 2. confirmation: express/tacit-retroactive 3. loss of the thing w/c is the object of the contract through fraud/fault of the person entitled to annul the contract GR: the action for annulment must be commenced w/in 4 years fr. the date the contract was entered into Exceptions: - for incapacitated persons, from the the guardianship ceases - in case of intimidation, violence or undue influence, from the time the defect of consent ceases - in case of mistake or fraud, from the time of its the discovery ***prescriptive period not interrupted by extra-judicial demand

Prescriptive Period

GR: the action to claim rescission must be commenced w/in 4 years fr. the date the contract was entered into Exceptions: - for persons under guardianship, the period shall begin from the termination of incapacity - for absentees, from the time the domicile is known - for creditors, from the time of discovery of fraud & after all means are exhausted - for litigants, from the time of knowledge of transaction




- 23 VOIDABLE UNENFORCEABLE Requisites of Confirmation: Modes of Ratification 1. contract is voidable/annulable 1. failure to object to the presentation 2. confirmation should be effected by the of oral evidence to prove the person who is entitled to do so contract (waiver) 3. it should be effect w/ knowledge of the 2. acceptance of benefits under the reasons w/c render the contract voidable contract 4. the reason w/c renders the contract voidable have already disappeared **Directly & not collaterally **Directly ** Cannot be attacked - the injured party/defrauded creditor - Cannot be attacked by 3rd persons Cannot be assailed by 3rd persons - his heirs/assigns/successors in interest - plaintiff must have an interest in the ***The defense of the Statute of - the creditors of the above entitled to contract & the victim must be the 1 who Frauds is personal to the parties subrogation must assert it ***The defense may be waived - person capacitated cant allege the incapacity of those he contracted with Effect of Rescission Effect of Annulment (prospective) GR: Mutual Restitution GR: Mutual Restitution - things w/ its fruits - things w/ its fruits - Price w/ interest - Price w/ interest Exceptions: - value of service as amount of damages - creditor did not receive anything from the Exceptions: contract - Incapacitated person: restitution only to - thing is already in possession of a party the extent that he was benefited in good faith - loss of thing w/ fault RESCISSIBLE VOID


Attack of Contract/ Who may Institute an Action

** Collaterally or directly - Can be attacked/assailed by a contracting party or by a 3rd person whose interest is directly affected *** judgment of nullity would be merely declaratory

Effects/ Restitution/ Recovery

When Not Applicable

Other Notes

When Rescission Shall Not Take Place: 1. if the party who demands rescission cannot return what he is obliged to restore under the contract 2. the property is legally in the possession of a 3rd persons who acted in good faith; he acquired the property & registered it under the Torrens System of Registry of Property unaware of the flaw in his title or mode of acquisition Requisites: 1. contract must be validly agreed upon 2. lesion or pecuniary prejudice to 1 of the parties or to a 3rd person 3. rescission must be based upon a case especially provided by law 4. there must be no other legal remedy to obtain reparation for the damage 5. the object of the contract must not legally be in the possession of 3rd persons who did not act in bad faith 6. the period for filing the action for rescission must not have prescribed 7. the party asking for rescission must be able to return what he is obliged to restore by reason of the contract (required only if a party to the contract & NOT if a 3rd person) - based on equity & private interest

Action for Annulment will not prosper: 1. the contract has been confirmed 2. the action to annul has prescribed 3. the thing w/c is the object of the contract is lost through the fault/fraud of the person who has right to institute the proceedings 4. estoppel

Statute of Frauds does Not Apply: 1. Actions w/c are neither for damages because of violation of a contract, nor for specific performance 2. Contracts totally/partially performed 3. When the contract is admitted expressly/impliedly by the failure to deny specifically its existence 4. Where a writing doesnt express the true agreement of the parties

GR: they produce no legal effects Exceptions: when recovery may be made: 1. if performed 2. payment of usurious interest 3. contract was entered into for illegal purpose but was repudiated before the purpose was accomplished, so that public interest is subserved 4. incapacitated person in the interest of justice 5. contract is not illegal per se but merely prohibited for protection of the plaintiff 6. amount paid in excess of ceiling price 7. addtl compensation for service rendered beyond time limit 8. recovery of amount of wages less than min. fixed The right to set up the defense of absolute nullity or inexistence cannot be renounced ***In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced

- Direct influence of the public interest

Constitutes a criminal offense 1. both parties in pari delicto - neither may demand specific performance - neither party may ask for restitution - the things/price of the contract shall be confiscated - both shall be prosecuted 2. only one party is guilty - only the innocent party can demand specific performance - only the innocent party may ask for restitution Does NOT constitutes a criminal offense 1. both parties are in pari delicto - neither party may ask for restitution - neither may demand specific performance 2. only one party is guilty - only innocent party may ask for restitution - only the innocent party can demand specific performance