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OBLIGATIONS AND CONTRACTS

Obligation
[1156] – a juridical necessity to give, to do or not to
do
Elements
1. Passive subject (Obligor/Debtor)
- person bound to fulfill obligation

2. Active subject (Obligee/Creditor)

- person who can demand fulfillment

3. Object (Prestation)

- conduct to be observed by parties
Real obligations – to give
Personal obligations – performance
Positive – to do
Negative – not to do
Simple – one prestation
Multiple – many prestations
Conjunctive – all are due and demandable
Distributive – one or some must be performed
Alternative – only one of the several
Facultative – prestation due may be
substituted by another

4. Juridical tie (Vinculum Juris)

Delict
Criminal or malicious intent
or criminal negligence
For punishment
Public interest
Criminal and civil liability

Quasi-delict
Negligence only
For indemnification
Private interest
Civil liability only

Classifications
Pure – not subject to a condition or period
Conditional – depends on a future event
With a period

– some space or time suspends demandability
or produces extinction of the obligation

Joint – obligation prorated among the parties
Solidary – each party is entitled to the entire

obligation but the party shouldering the
entire obligation may demand
reimbursement from the others

Divisible – may be partially performed
Indivisible – cannot be partially performed
With a penal clause
– an accessory undertaking (dependent upon

Kinds

Civil
obligations
Natural
obligations

Enforceability
Court action

Basis
Positive law

Conscience of
debtor

Equity and
natural justice

Sources
1. Law [1158]
2. Contracts [1159]

- stipulation of the parties

3. Quasi-contracts [2142]

- lawful, voluntary and unilateral acts which
are enforceable to the end that no one shall
be unjustly enriched at the expense of another
Negotiorum gestio [2144]
– voluntary management of the property
of another without the knowledge or
consent of the latter
Solutio Indebiti [2154]
– something is received when there is no
right to demand it and it was duly
delivered through mistake

4. Acts or Omissions punished by law

- civil liability arising from criminal offense
1. Restitution
2. Reparation for damages
3. Indemnification for consequential damages

5. Quasi-delicts [2176]

- damage arising from fault or negligence
1. there is an act or omission
2. there is fault or negligence
3. there is damaged caused
4. there is a direct relation of cause and effect
between the act or omission and the damage
5. there is no contractual relation

some other obligation to exist) to assume
greater liability in case of breach

Determinate – individualized or specified
Generic – referred by the class, kind or genus
Unilateral – one debtor and one creditor
Bilateral – reciprocal obligations

1. both obligation arise from same source
2. each prestation is equivalent to the other
3. performance of one is conditioned to performance
of the other

Individual – unipersonal
Collective – plurapersonal
1. Joint
2. Solidary

Accessory – existence depends on another
Principal – can stand alone
Nature and Effects of Obligations
(Prestations, Breach, Remedies, Subsidiary Remedies, Fortuitous
Event, Usurious Transactions, Fulfillment, Transmissibility of Rights)

Kinds of Prestations
1. To give – purpose to transfer title or real rights
Determinate thing
1. to deliver the thing itself [1244]
2. to preserve the thing – diligence of a good
father of a family (ordinary care) [1163]
3. to deliver the accessions and accessories
4. deliver the fruits [1166, 1164]
Generic thing – creditor cannot demand thing of
superior quality; debtor cannot deliver
thing of inferior quality [1246]

Act or forbearance cannot be substituted
by another act or forbearance against the
obligee’s will [1244]

2. To do
3. Not to do
Breach of Obligation
1.
2.
3.
4.
5.

Pre-existing obligation
Conduct of the party in violation of the contract
Accountability of the conduct
Absence of justification
Injury to the other party

Substantial breach – can cause the annulment or
rescission of the contract
Casual/Slight breach – breach is too small that it cannot
cause the rescission of the contract

Modes of Breach
1. Fraud (Dolo) [1171]
- voluntary execution of wrongful act
- waiver of action for future fraud is
void
Dolo Incidente
- committed while in the performance of the
contract; consent was not based on the fraud
Dolo Causante
- fraud is the root of the obligation; injured
party would not have entered the contract had
he known about the fraud

2. Negligence (Culpa) [1173]
- omission of the diligence which is required
by the nature of the obligation and
corresponds with the circumstances of
the persons, time and place
- if diligence not specified – good father of a
family applies
Culpa Contractual
- breach of contract as a result of negligence
Culpa Aquiliana
- failure to observe the care required by law
with respect to other persons who were not
bound by the contract

3. Delay (Mora) [1169]
- failure to perform obligation in due
time because of dolo or culpa
- delay incurred from the time obligee makes
judicial or extrajudicial demand
- demand not necessary when:

1. obligation or law expressly so declares
2. from the nature of the circumstances of
the obligation it appears that the time
was a controlling motive
3. demand would be useless as the obligor
has rendered it beyond his power to
perform

- in reciprocal obligations, delay by the other
begins from the moment one fulfills
his obligation

Mora Solvendi – failure of debtor to perform
1. obligation requires positive act
2. demandable, due and liquidated
3. delay due to fraud or negligence
4. creditor demands performance
Mora Accipiendi – failure of creditor to accept
1. obligation requires cooperation of
creditor for its fulfillment
2. debtor has done ALL that is incumbent
upon him
3. creditor refuses to accept
Compensatio Morae – delay of the obligor in a
reciprocal obligation
- neither party incurs delay if the other
does not comply or is not ready to comply
in a proper manner with what is incumbent
upon him [1169 par3]

4. Contravention of the tenor [1170]
- any act of defective performance which
impairs strict and faithful fulfillment
- liable for damages
Remedies of Creditor in Case of Breach

Culpa
Contractual

Culpa
Aquiliana

Damages may only be
claimed by heirs and
privies of the contracting
party

Damages may be claimed
by strangers or third
parties

Law presumes
negligence as the cause
of the damage

Negligence must be proved
as the cause of the
damage

Moral damages cannot
be recovered

Moral damages can be
recovered

Interest is due

Interest depends on the
contract

The employee is never
liable; it is always the
employer

The employer and the
employee are both liable if
diligence is absent

No need for diligence of
a good father of a family

May prove that he
exercised the diligence of a
good father of a family

1. Action for performance [1165]
Specific performance - SPECIFIC thing
- in addition to the rights in 1170, may compel
debtor to make delivery [par1]
Substituted performance – GENERIC thing
- obligation may be complied with at the
expense of the debtor [par2]
Substituted performance – undoing poor work
- what is poorly done be undone [1167]
Undoing in obligation not to do
- undone at his expense [1168]

2. Action for damages [1170]
- fraud, negligence, delay or contravention of
tenor
3. Action for rescission [1191, 1192]
- implied in reciprocal ones in case
one of the obligors should not comply

- injured party may choose between
fulfillment and rescission with
payment of damages
- court decree is necessary, unless
there is just cause authorizing the
fixing of a period
- no prejudice to rights of third
persons
- liability of first infractor shall be
equitably tempered by the courts if
both parties committed breach
- if it cannot be determined, liability is
extinguished and each shall bear his
own damages
Subsidiary Remedies of Creditor
1. Accion Subrogatoria (Subrogation)
- after exhausting the property of the
debtor, may exercise all the rights and
bring all the actions of the debtor for
the same purpose [1177]
- except those inherent in his person
(legal separation, nullity of marriage,
patria potestas, etc)
- the debtor of my debtor is also my
debtor
1. Interest of the creditor to bring the action
2. Inaction of the debtor whether wilful or not.
3. Existence of the credit even if not liquidated.
4. Credit must be due and demandable.
5. Exhaustion of assets in the hand of the
debtor.

2. Accion Pauliana (Rescission)
- action to rescind where the creditor
may impugn the acts which the debtor
may have done to defraud them
1.
2.
3.
4.

Prior existence of the credit
The credit must be due and demandable
Exhaustion of the assets of the debtor
Fraudulent intention if the transaction is
onerous
5. Bad faith of the debtor’s transferee
6. Prejudice to the creditor

Accion
Subrogatoria

Accion
Pauliana

Action can be brought
as long as debtor is
solvent

The credit must exist
before the fraudulent act

No need for fraudulent
intent

There must be a
fraudulent intent

No prescription period

Rescissory action shall
be brought within 4
years from the discovery
of the fraud

3. Sublesee liable to the lessor for any rent
due from lessee, but not beyond the amount
of rent due from him [1652]

4. Laborers have an action against the owner
up to the amount the owner owes the
contractor. [1729]
5. Vendor may bring action to third persons
who derived possession of things from the
vendee. [1608]
6. Principal has action against a substitute for
obligations which the latter contracted
under the substitution [1893]
Extinguishment of Liability in Case of Breach Due
to a Fortuitous Event
- no person shall be responsible for those
events which could not be foreseen or which,
though foreseen, were inevitable. [1174]
Act of God – independent of will of obligor
Act of Man – unavoidable accidents caused by man
1. Must be independent of the human will
2. Must be impossible to foresee or if it can be
foreseen, it must be impossible to avoid
3. Must render it impossible for the debtor to fulfill
the obligation in a normal manner
4. Debtor must be free of participation in the
aggravation of the injury to the creditor

- there is no liability except:
- in cases expressly specified by law or declared

by stipulation, or the nature of the obligation
requires the assumption of risk [1174]
- obligor delays or has promised to deliver the
same thing to two or more persons who do not
have the same interest [1165]
- when possessor acted with fraudulent intent or
negligence [552]
- bailee is liable for the loss of the thing (different
purpose from which is loaned) [1942]
- depositary is liable for the loss of the thing (no
permission of the owner) [1979]
- act of a thief or robber without use of arms or
irresistible force [2001]
-officious manager is liable for the loss of the
thing if there is bad faith [2147]

Usurious Transactions
- governed by special laws [1175]
- interest paid in excess of the interest
allowed by the usury laws may be recovered
by the debtor [1413]
Fulfillment of Obligations
- receipt of the principal by the creditor give
rise to the presumption that the interest has
been paid
- receipt of later instalment of a debt give rise
to presumption that the prior instalment have
been paid [1176]
Transmissibility of Rights
- all rights acquired in virtue of an obligation
are transmissible if there is no stipulation to
the contrary [1178]

Kinds of Obligations
(Pure and Conditional, Reciprocal, With a Period, Alternative, Joint
and Solidary, Divisible and Indivisible, With a Penal Clause

Pure and Conditional Obligations
Pure Obligations [1179]
- does not depend upon a future or
uncertain event, or upon a part event
unknown to the parties
- demandable at once
Conditional Obligations [1181]
- acquisition of rights, as well as
extinguishment or loss of those already
acquired depends upon the happening of
a future or uncertain event
- different from an obligation with a
period; latter depends on a future event
but not an uncertain one
- a thing is lost if it perishes, goes out of
commerce or disappears [1189]
As to EFFECT
Suspensive Condition
- condition precedent
- retroact to the day of the
constitution of the obligation [1187]
Resolutory Condition
- condition subsequent
- condition imposed after fulfillment
As to CAUSE [1182]
Potestative
- depends solely on the will of one
party – VOID!
Casual
- depends upon chance or will of a
stranger
Mixed
- depends partly upon the will of one
party and partly on chance
As to POSSIBILITY
Possible
- can be performed according to law
Impossible
- contrary to good customs or public
policy and those prohibited by law
- annuls the obligation [1183]

As to MODE
Positive
- happening of an event [1184]
Negative
- non-happening of an event [1185]

[1189]

Suspensive
With fault of the
Without fault of the
debtor
debtor

Loss
Deterioration

Obliged to pay damages

Obligation extinguished

Creditor may choose:
Rescission with
damages OR fulfillment
with damages
By nature or time:
Benefits goes to the
creditor

Impairment is to be
borne by the creditor

Improvement

At the expense of the
debtor:
Usufructuary rights

- same rules apply to resolutory
conditions with respect to the party bound
to return
- condition is deemed fulfilled when the
obligor voluntarily prevents its fulfillment
[1186]
e.g. Katz will sell her laptop to Yen upon the
condition that Yen will loan money from Cuayo.
Katz told Cuayo not to lend Yen money. The
condition is deemed fulfilled since Katz
prevented its fulfillment.

Reciprocal Obligations [1191]
- obligations arising from the same cause
and the performance of one is designed
to be equivalent and the condition for the
performance of the other
- power to rescind is implied
- remedies: fulfillment or rescission
- alternative remedy: rescission after
injured party chose fulfillment and it failed
- requisites and effect of rescission
1.
2.
3.
4.
5.

substantive breach must be by fault or fraud
judicial decree or notarial demand
obligation is extinguished
the juridical tie is invalidated
both parties is required to surrender what
they have received
6. parties may waive rescission in reciprocal
obligations

- rescission without judicial intervention –
UP vs de los Angeles
Obligation with a Period
- a period is a certain event upon the arrival
of which the obligation subject to it either
arises or is extinguished
- period is a certain event which must happen
sooner or later while a condition is an
uncertain event
- period refers only to the future while
condition may also refer to a past event
- period merely fixes the time for the
efficaciousness of the obligation while
condition causes an obligation to arise or to
cease
- 1189 applies in case of loss, deterioration or
improvement before the arrival of the day
certain
- court can fixed a period if it can be
inferred that a period was intended or if it
depends upon the will of the debtor
(take note: if it would have been a condition
dependent solely upon the will of the debtor,
it would have been void!)
As to EFFECT
Suspensive Period (ex die)
- obligation demandable only when the fixed
day comes
Resolutory Period (in diem)
- obligation takes effect at one but terminate
upon arrival of the day certain

As to EXPRESSION
Express
- period is specified
Implied
- from the nature and circumstances of the
obligation it can be inferred that a period was
intended
As to DEFINITENESS
Definite
- period is fixed
Indefinite
- duration is not fixed in an obligation to pay
when one’s means permit
As to SOURCE
Voluntary
- fixed by the parties
Legal
- fixed by law
Judicial
- fixed by the court

- anything paid in advance, the obligor being
unaware of the period, may be recovered with
the fruits and interests [1195]
- once the period is fixed by the court, the
period cannot be changed by the parties
[1197]
- period is presumed to be for the benefit of
both the creditor and debtor [1196]
- creditor cannot compel the debtor to pay in
advance of the date fixed [1198]
- the debtor cannot compel the creditor to
receive payment in advance
- debtor shall lose every right to make use of
the period [1198]:
- he becomes insolvent
- does not furnish the guaranties or securities
- he impaired the guaranties or securities
- violates any undertaking in which the creditor
based his consent to the period
- he attempts to abscond

Alternative Obligations
- debtor is required to perform completely
only
one of the several obligations provided [1199]
- right of choice belongs to the debtor unless
it
has been expressly granted to the creditor
[1200]
- the choice must be communicated to the
creditor [1201]
- in case of loss or improvement:
- if only one is lost, debtor shall chose between
the remaining ones
- if only one remains, the obligation ceases from
being an alternative obligation and becomes
simple
- if all alternatives are lost by fault of the
debtor, the creditor must be indemnified for
damages
- if all alternatives are lost by fortuitous event,
the creditor bears the loss

Facultative Obligations [1206]
- only one prestation has been agreed
upon but the obligor may render
another in substitution
- before substitution, the debtor is not
liable for the loss of the substitute
- after the substitution, the debtor is
liable for loss of the substitute
Joint and Solidary Obligations
Joint Obligations
- existing between several persons
among whom the benefit or the
burden of the obligation is divided
1. plurality of subjects
2. determination of shares

- other terms: mancomunada,
mancomunadamente, prorate,
proportionately, individually,
separately, “we promise to pay”
signed by two persons
- if one of the debtors is insolvent, the
others are not liable for his share
- there exists a presumption against
solidarity
Solidary Obligations
- each one of the debtors is bound to
render, and/or each one of the
creditors has a right to demand entire
compliance
1. plurality of subjects
2. intention to establish solidary liability must appear
3. express provision of solidarity

- other terms: joint and several, in
solidum, “I promise to pay” with two
or more persons, individually and
collectively
As to SOURCE
Legal
- derived by law
Conventional
- stipulation of the parties
Real
- nature of the obligation
As to PARTIES BOUND
Active
- creditors
Passive
- debtors
Mixed
- creditors and debtors
As to UNIFORMITY
Uniform
- same terms and conditions to all
Varied
- different periods and/or conditions
for each

Solidary creditors

Common debtor

Solidary co-creditors

Each creditor can collect the
entire debt

Creditor which collects the entire
debt id liable to the others for
their share

Debtor may pay any one of the
solidary co-debtors (but
payment shall be made to the
one making demand)

Each of the solidary creditors
may do whatever may be useful
to the others

Novation, compensation,
confusion or remission made by
any of the creditors shall
extinguish the obligation

One solidary creditor cannot
assign his rights without the
consent of the others

Solidary debtors

Common creditor

Solidary co-debtors

Each debtor is bound to perform
the whole obligation as the
creditor may proceed against
any one of them

Solidary debtor who made the
payment may claim from his codebtors only the share which
corresponds to each

Each debtor may utilize against
the creditor his own defenses

No contribution may be
demanded if payment is made
after obligation has prescribed

If two or more solidary debtors
offer to pay, the creditor may
choose which offer to accept
Mora of one is mora of all and
all shall bore the loss in case of
a fortuitous event

Remission made by the creditor
to the share which affects one of
the debtors does not release the
latter from his responsibility
towards his co-debtors when the
obligation was paid before the
remission was effected

Payment by one extinguishes
the obligation to the extent of
the payment

If one of the debtors is
insolvent, his share shall be
borne by all his co-debtors

If the thing was lost or became
impossible without the fault of
the debtors, the obligation is
extinguished

Share of debtors are presumed
equal

If there was fault on the part of
any one of the debtors, all are
liable to the creditor

Damages paid due to negligence
or fault of one are subject to
proportional contribution

debtor:

- defenses available to solidary
- from the nature of the obligation that
destroy the legal tie (prescription, illegality,
nullity ab initio, suspensive condition)
- personal defenses (incapacity, consent)
- pertaining to his own share
- personally belonging to other co-debtors
but he may avail himself thereof only as
regards that part of the debt for which the
co-debtors are responsible

Joint Indivisible Obligations
- several debtors and creditors but
prestation is indivisible
- necessity of collective fulfillment and
the action must be against all debtors
- indivisibility does not give rise to
solidarity nor does solidarity give rise
to indivisibility [1210]

Divisible and Indivisible Obligations
Divisible Obligations
- can be performed by parts
- presumed to be divisible when
obligation involves certain number of
days of word, work by metrical units
or analogous things
Indivisible Obligations
- by reason of their purpose are not
susceptible of being executed by parts
or fractions
- presumed to be indivisible when
obligation is to give a definite thing
and in obligations not to do

Indivisible

Solidary

Only one creditor and
one debtor

Many creditors and/or
many debtors

Arises from the nature
of the thing

Arises from the tie that
binds the parties

KINDS
Natural
- prestation is physically indivisible
Legal
- indivisible by law
Conventional
- intended by the parties

Obligations with a Penal Clause
- accessory stipulation added to an obligation
whereby the debtor promises to perform a
prestation in case the principal obligation is
not performed
As to EFFECT
Subsidiary
- when only the penalty may be enforced
Complementary
- when both the principal and penalty may be
enforced
As to SOURCE
Conventional
- stipulation of the parties
Legal
- provided by law
As to PURPOSE
Punitive
- damages may be collected
Reparatory
- penalty substitutes for damages

Effects of Penal Clause
1. Substitute for indemnity for damages and
payment for interest
2. Does not exempt debtor from performance
of the principal obligation
3. Creditor cannot demand both performance
and penalty at the same time

- creditor at the time of payment
- his successor in interest
- any person authorized to receive payment by
law or stipulation
- person not authorized provided the creditor is
benefited must prove said benefit except:
1. after the payment, the payee acquires
the rights of the creditor
2. creditor ratifies the payment
3. creditor by his conduct leads the debtor
to believe that the payee had authority
to receive payment
4. payment made in good faith to any
person in possession of the credit

4. Creditor cannot collect other damages in
addition to penalty
- judge shall equitably reduce the penalty
when there is partial performance or if it is
iniquitous or unconscionable [1229]
- nullity of penal clause does not carry with it
that of the principal obligation but the nullity
of the principal carried with it that of the
penal clause [1230]
Extinguishment of Obligations
[1231] (Payment or Performance, Loss or Impossibility, Condonation
or Remission, Confusion or Merger, Compensation, Novation)

3. Object (solutio)
What is to be paid?

- the thing or service or abstention due
- debtor cannot compel the creditor to receive a
different one
- in generic obligations, the thing paid must be
of the quantity and quality specified
- the legal tender in the Philippines includes all
notes and coins issued by he Central Bank
- payment by check or other negotiable
instruments shall only produce the effect of
payment when they have been cashed

Payment or Performance
- carrying out of an obligation
- delivery of the money due
- requires acceptance of the creditor
- debtor has burden of proving payment
1. payor (solvens)
2. payee (accipiens)
3. object (solution)

4.
5.
6.
7.

manner (integrity)
time
place
expenses of making payment

4. Manner (integrity)
How is payment made?

- payment must be complete
- no partial payment is allowed except:
1. in case of express stipulation
2. the debt it in part liquidated and in part
unliquidated
3. in case of compensation
4. several guarantors invoke the benefit of
division
5. debtor dies, each heir answers only for
his share
6. when work is to be done by parts

1. Payor (solvens)
Who can pay?

is

- debtor or his duly authorized agent
- debtor’s heir or successor in interest (privy)
- any person interested in the fulfillment
whether the debtor consents to it or not, and
even without the debtor’s knowledge [1302]
- a third person not interested but the creditor
not bound to accept payment by him [1236]

Without debtor’s
consent

With debtor’s
Consent

Cannot compel the creditor
to subrogate him in his
rights

May demand subrogation in
the creditor’s rights

Can recover only in so far
as the payment has been
beneficial to the debtor

May demand from the debtor
what he has paid

5. Time
When is payment made?
-

6. Place
Where is payment made?

- place designated by the obligation [1251]
- if no place is designated:
- specific thing: place wherever the
thing might be habitually
- generic thing: domicile of the

- payment made by a third person who does not
intend to be reimbursed is deemed a donation
which requires the debtor’s acceptance

Reimbursement
Personal action to recover
the amount paid

Subrogation
Not only reimbursement but
the exercise of other rights
attached to the original
obligation

- in obligations to give, payment by one who
does not have the free disposal of the thing due
shall not be valid except that voluntary payment
by a minor without the consent of his parent or
guardian of a fungible thing does not entitle him
to recover the payment made if the creditor
spent it in good faith [1427]

2. Payee (accipiens)
Who can accept payment? [1240]

upon demand judicial or extrajudicial
when debt has become due and demandable
when time is the essence of the agreement
when debtor loses the benefit of the period
obligation is reciprocal

debtor

7. Expenses of making payments
- paid according to stipulation

- in the absence of stipulation:
- extrajudicial expenses – debtor
- judicial costs – Rules of Court

Application of Payments
- designation of the debt to which should be
applied the payment made by a debtor who
has various debts of the same in favor of one
and the same creditor
1.
2.
3.
4.
5.

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

creditor to accept immediate
performance
- unjust refusal leads to consignment
Rules in Application of Payments
1. debtor has first choice; he must indicate
choice at the time of making payment
2. if the debtor does not apply payment,
creditor may make the designation by
specifying in the receipt which debt is
paid
3. if the creditor has not also made the
application, the most onerous
(burdensome) to the debtor is deemed
satisfied
4. if debts due are of the same burden,
payment shall be applied
proportionately to all
Payment by Cession [1255]
- Payment by Assignment
- debtor abandons all his property to
his creditors, so that the latter may
apply the proceeds to their credits
1.
2.
3.
4.

plurality of debts
plurality of creditors
partial or relative insolvency of the debtor
abandonment of the totality of the debtor’s
properties for the benefit of the creditors
5. acceptance by the creditors

- liberates the debtor up to the
amount of the net proceeds of the
sale of his assets
- assignment does not vest title to the
property in the creditors, who are only
authorized to sell it
Dation in Payment [1245]
- Datio in Solutum
- property of the debtor is alienated to
the creditor in satisfaction of a debt in
money

Consignation
- deposit of the thing due made by
the debtor in lawful form, whenever
the creditor refuses or cannot accept
payment
- purpose is to avoid delay
- not required when the payment is
voluntary and not coercible
- if creditor accepts consignation, the
obligation is extinguished
- if the court declares that the consignation
was properly made, the obligation is
extinguished
- if before approval of the court the debtor
withdraws the deposit, the obligation
subsists
- if without creditor’s approval,
guarantors and co-debtors remain
liable
- if with creditor’s approval, guarantors and
co-debtors are
liberated

- if consignation is disapproved, it is deemed
ineffective

Procedure in Consignation
1. Tender of payment and unjustified
rejection
2. First notice to the interested parties to
give creditors a chance to reconsider
and accept payment thereby avoiding
litigation
3. Filing the complaint against the creditor
4. Judicial deposit of the thing due with
proof of tender and notice
5. Second notice to interested parties
6. Trial and judgment
7. Incidents of consignation
Loss or Impossibility

Cession

Dacion

Only entitles creditors to
sell the thing and apply the
price to the credit

Transfers ownership of the
substituted thing to the
creditor

Extinguishes only to the
extent of the price
obtained

Extinguishes totally the credit

Two or more creditors

Can only be one creditor

Presupposes insolvency of
debtor

Debtor does not have to be
insolvent

Does not novate the
contract

Novatory

Tender of Payment
- declaration of intention by the
debtor
manifesting his firm decision to pay
- coupled with a demand upon a

Loss of the thing due [1189]
- perishes
- goes out of commerce
- disappears in such as way that its
existence is unknown
- cannot be recovered
- hence, a generic thing never
perishes
1. obligation is to deliver a specific thing
2. loss of the thing occurs without the fault of
the debtor
3. debtor is not guilty of delay

- presumption of fault whenever the
thing to be delivered is lost in the
possession of the debtor [1265]
- presumption of fault does not apply
in case of natural calamities
- effects of loss:

- to give specific thing, it extinguishes
obligation [1262]
- to give generic thing, it does not
extinguish the obligation [1263]
- in case of partial loss, the court shall
determine if the loss is important as
to the extinguishment of the
obligation [2164]
- creditor has all the rights of action
which the debtor may have against
third persons [1269]

Impossibility of performance [1266, 1267]
- not only legal or physical
impossibility but also impracticability
because of extreme difficulty,
manifestly beyond the contemplation
of the parties
- impossibility releases the obligor
1. without fault of the debtor
2. before the debtor incurs delay
3. after the obligation is constituted

Physical impossibility

– obligor dies or becomes physically
incapacitated to perform the obligation

Legal impossibility

– obligation cannot be performed because it is
rendered impossible by provision of law

Condonation or Remission
-gratuitous abandonment by a creditor of his
right
1.
2.
3.
4.
5.

it must be gratuitous
accepted by the obligor
parties must have capacity
must not be inofficious
made expressly and comply with the forms of donation

- whenever private document in which debt
appears is found in the possession of the
debtor, it is presumed that the creditor
delivered it voluntarily [1272]
- voluntary delivery of a private document
evidencing a credit implies renunciation of the
creditor’s action against the debtor [1271]
- accessory obligation of pledge has been
remitted when the thing pledged after delivery
is found in the possession of the debtor or a
third person who owns the thing [1274]
- creditor’s omission of a debt or of the name
of a debtor from an inventory does not imply
remission
Inter vivos – during the lifetime of the donor
Mortis causa – upon the death of the donor

- oral donation requires the simultaneous
delivery of the thing or of the document

Rules in Condonation
1. subject to the rules that govern
inofficious donations
2. remission in advance of future
obligation is void

3. renunciation of the principal debt
extinguishes accessory obligation, but
waiver of the latter shall leave the
former in force
Confusion or Merger
- meeting in one person of the qualities of
creditor and debtor with respect to the same
obligation
1. must take place between the principal debtor and
creditor
2. must be complete and definite

- obligation is extinguished from the moment
the characters of debtor and creditor are
totally merged in the same person [1275]
- does not extinguish a joint obligation except
as regards the share corresponding the
merged creditor and debtor [1277]
- merger benefits the guarantors [1276]
Compensation
- extinguishment to the concurrent amount of
the debts of two persons who, in their own
right, are debtors and creditors of each other

Compensation

Confusion

Two persons involved

Only one person is involved

Two obligations

Only one obligation

There is indirect payment

There is impossibility of
payment

As to EXTENT
Total
- both obligations are of the same amount and
are entirely extinguished [1281]
Partial
- when two obligations are of different amounts
and a balance remains

As to ORIGIN
Legal
- by operation of law even without the
knowledge of the parties
Conventional
- by agreement of the parties
Judicial
- effected by decision of the Court
Facultative
- one of the parties have the option to claim
compensation or to object to it

Legal Compensation
1. each one of the obligors be bound principally
2. both debts consist in a sum of money, or of
consumable things of the same kinds and quality
3. two debts are due and demandable
4. two debts are liquidated
5. no retention or controversy commenced by a
third person
6. compensation not prohibited

Prohibitions:

-

deposit or obligations of a depositary
commodatum or obligation of the bailee
future support due by gratuitous title
civil liability arising from a penal offense
damage to the partnership by a partner

- compensation takes place by
operation of law though the debts
may be in different places but there is
indemnity for expenses of exchange
transportation [1286]
- when one or both debts are
rescissible or voidable, they may be
compensated against each other
before they are judicially rescinded or
avoided [1284]
- compensation shall take place before
the assignment of rights of the
creditor [1285]

or

e.g. Katz owes Yen 20 pesos due
yesterday. Yen also owes Katz 10
pesos due yesterday. Hence, Katz
now only owes Yen 10 pesos. If Yen
assigns her rights to Cuayo, Cuayo
can collect the 10 pesos from Katz.
However, if Katz allowed the
assignment of creditor before the
compensation, she cannot assert such
defense. She can only collect the 10
pesos that Yen owes her but she shall
pay the 20 pesos to the new creditor,
Cuayo.

- there are three possible cases of
compensation after an assignment of
rights:
1. with consent of the debtor
2. with the knowledge but
without the consent of the
debtor
3. without the knowledge of
the debtor
- only in the first case is compensation
not allowed to be set up as defense
Novation
- extinction of an obligation through the
creation of a new one which substitutes it
As to FORM
Express
- declared in unequivocal terms
Implied
- old and new obligations are essentially
incompatible with each other
As to ORIGIN
Legal
- operation of law
Conventional
- by agreement of the parties
As to OBJECT
Subjective or Personal
- person of the debtor is substituted and/or
when a third person is subrogated in the
rights of the creditor
Objective or Real
- object or principal conditions are changed

- novation is VOID if original is void [1298]
- voidable obligations may be novated before
they are annulled, or after they are ratified
- obligations under the Statutes of Fraud and
Natural Obligations are not void; hence, they
can be novated
- if the new obligation is void, the original one
shall SUBSIST unless the parties intended that
the former relation be extinguished in any
event [1297]
- if the original obligation was subject to a
suspensive or resolutory condition, the new
obligation shall be under the same condition
[1299]
- a prescribed obligation may be novated
- accessory obligations are also extinguished
but may subsist insofar as they may benefit
third persons who did not give their consent
[1296]
e.g. Katz owes Yen 10 pesos at 2% interest.
Yen owes Cuayo 2 pesos. They agreed that the
2 peso interest will be paid by Katz directly to
Cuayo. If Katz and Yen novate the obligation in
such a way that Katz is only to make a digest
for Yen, the 2 peso interest subsists.

Objective Novation
1. change on the nature or quality of the
subject matter
2. change of causa or consideration
3. change of the principal conditions or
terms
Subjective Novation
1. substitution or by change of debtor
Expromision
1. consent of two parties: creditor and new
debtor
2. knowledge or consent of old debtor not
required
3. old debtor is released
4. insolvency of the new debtor does not
revive the old obligation

Delegacion
1. consent of the old debtor, new debtor
and the creditor
2. insolvency of the new debtor revives the
obligation of the old debtor

2. subrogation or by change of creditor
Conventional Subrogation
1. must be clearly established
2. consent of all is required
1. not presumed except:

Legal Subrogation- creditor pays another
1.
2.
3.
4.
5.

previous valid obligation
new valid obligation
substantial difference between the old and new
capacity of the parties
intention to extinguish or modify the old one

creditor who is preferred
- not interested third
person pays with approval of debtor
- person interested pays
without approval of debtor

2. contrary to morals

Contract
[1305] – a meeting of minds between two persons
whereby one binds himself with respect to the other to
give something or render some service

- norms of good and right conduct
evolved in a community

3. contrary to good customs

- habits and practices which through
long usage have been followed and
enforced by society

4. contrary to public order

- public safety or public weal

Elements
1. Essential

5. contrary to public policy

- for the common good

– without which there is no contract

1. Consent
2. Object
3. Cause

2. Natural

– presumed to exists unless the contrary is stipulated

3. Accidental

– exists only when stipulated

Characteristics
1. Obligatory force [1308]

Classification
1. Subject matter
Things
Services
2. Name
Nominate – law gives the contract a special name
Innominate [1307] – no special name

Do ut des – I give so that you may give
Do ut facias – I give so that you may do
Facio ut facias – I do so that you may do
Facio ut des – I do so that you may give

- obligations arising from contract have the
force of law between the contracting parties
- compliance in good faith is the observance of
the standards of loyalty, fairness and diligence
required by society

2. Mutuality [1308-1310]

- must bind both contracting parties and the
performance shall not be left to the will of one

3. Relativity

- contracts take effect only between the parties,
their assigns and heirs [1311]
- no one may contract in the name of another
[1317]

Parties
1. Auto-contracts

- one contracts with himself
- valid because the existence of a contract
is not determined by the number of persons
who intervene but by the number of parties

2. Freedom to contract

- the right to enter into contracts

Special disqualifications:

- spouses are disqualified to donate or sell to each
other [1490]
- guardian; property of his ward
- agents; property entrusted to them unless there is
consent of the principal
- executors and administrators; property under
administration
- public officers and employees; property of the state
- justices, judges, prosecuting attorneys, clerks or
superior and inferior courts and other officers and
employees connected with the administration of
justice; property in litigation

Limitations:
1. contrary to law

Pactum commissorium [2088]
- appropriate things given by way of
pledge or mortgage – VOID!
Pactum leonina [1799]
- stipulation which excludes one or more
partners from any share in the profits or
losses – VOID!
Pactum de non alienado [2130]
- forbidding owner from selling
immovable mortgaged – VOID!

3. Perfection
Consensual [1315] – consent is sufficient
Real [1316] – delivery is required
4. Degree of Dependence
Preparatory – contract based on future transaction
Principal – contract may exist alone
Accessory – depends upon some other contract
5. Form
Common/Informal - loan
Special/Formal – law requires formalities
6. Purpose
Transfer of Ownership
Conveyance of Use
Rendition of Services
7. Parties obligated
Unilateral – only one party is bound
Bilateral – both parties are bound to reciprocal ones
8. Cause
Onerous – exchange of correlative values
Gratuitous – no correlative prestation
9. Risk
Commutative – fulfillment is predetermined
Aleatory – fulfillment is dependent upon chances
Stages
1. Preparation

- negotiations are in progress

2. Perfection

- parties come to an agreement

3. Consummation or Death

- contract is fully executed

Promise
Perfect Promise

Offer

- tends only to assure and pave the way for the
celebration of a contract in the future
- rights and obligation not yet determined

Imperfect Promise (policitacion)
- a mere unaccepted offer

Third Persons
1. Stipulations pour autrui [1311]

- stipulation in a contract clearly and deliberately
conferring a favor upon a third
person who has a
right to demand its fulfillment
provided he
communicates his acceptance to
the obligor before
its revocation
e.g. Katz owes Yen 10 pesos at 2%
interest. Yen owes Cuayo 2 pesos. They
agreed that the 2 peso interest will be paid
by Katz directly to Cuayo. Cuayo shall
communicate his acceptance before Yen
revokes the stipulation por autri.

2. Contracts creating real rights [1312]

- third persons who came into possession of the
object of a contract over which there is a real
right are bound thereby even if they were not
parties to the contract
- real right is binding against the whole world and
attaches to the property over which it is
exercised wherever it goes
e.g. Katz owes Yen 1M pesos and she
mortgaged a parcel of land as a security.
Katz then sold the same land to Cuayo.
Cuayo is then bound by the contract
between Katz and Yen since the mortgage
followed the parcel of land.

Acceptance
- must be absolute [1319]
Express
- oral or written acceptance
Implied
- inferred by the conduct of the offeree

3. Entered into to defraud creditors [1313]

Qualified
- constitutes a counter-offer

- creditor has the rights to impugn contracts of his
debtor intended to defraud them
e.g. Katz owes Yen 1M. Katz’ only
remaining property is a house. She then
sold the house to Cuayo in order that Yen
may not attach the house to the payment
of her debt. Yen, who is a stranger to the
contract between Katz and Yen, may ask
the rescission of the sale.

- if acceptance is made by letter or
telegram, it does not bind the offerer
except from the time it came to his
knowledge
- when the offerer has allowed the
offeree a certain period to accept, the
offer may be withdrawn at any time
before acceptance by communicating
such withdrawal [1324]

4. Violated at the inducement of a third person
[1314]
- stranger can be sued for damages for his
unwarranted interference with the contract
e.g. Katz agreed to sell her laptop to Yen.
If Katz sells her laptop to Cuayo instead
because of his inducement, Yen can sue
for damages.

Contract of option [1324]
- one giving a person a certain period within

which to accept the offer of the offerer
- separate and distinct from the contract which
will be perfected upon the acceptance

Essential Requisites of Contracts
[1319] (Consent, Object, Cause)

Consent
- conformity of wills (offer and acceptance)
1. plurality of parties
2. parties be capable of formulating a desire or intent
Incapacity – VOIDABLE
Prohibition – VOIDABLE
Against public policy - VOID
3. no vice or defect in their wills; consent not vitiated
4. intent be expressed in due time and in proper form
5. no conflict between intent and expression or
declaration

- proposal made by one party to
another to enter into a contract
- a promise to act or to refrain from
acting on condition that the terms
thereof are accepted
- must be certain [1319]
- may fix time, place and manner of
acceptance [1321]
- offer made through an agent is
accepted from the time acceptance is
communicated [1322]
- offer becomes ineffective upon
death, civil interdiction, insanity,
insolvency before acceptance is
conveyed [1323]
- business advertisement of things for
sale are not definite offers but mere
invitations to make an offer [1325]
- advertisement for bidders are mere
invitations to make proposals [1326]

or

Legal Capacity
- unemancipated minors and insane
demented persons as well as deafmutes who do not know how to read
and write cannot give consent [1327]
Vices of Consent

- consent given through mistake,
violence, intimidation, undue influence
or fraud is VOIDABLE [1330]

– fraud committed before or at the

time of the celebration of the
contract; used to induce the other to
enter into a contract without which
the latter would not have agreed to

1. Mistake or Error
1. not intentional or reckless
2. excusable without failure to take
advantage of the opportunity to ascertain
the truth
3. mistake of fact, not of law
4. past or present mistake; non-realization of
the party’s expectation is not an error
5. material mistake; must refer to factors
inducing consent
- substance of the thing
- principal qualities of the object
- quantity
- identity of the party

- the general rule for error of law is
“ignorance of the law excuses no one”
- except: mutual error of law [1334]

- doubtful question, construction or
application of law, analogous to a
mistake of fact
e.g. Katz loaned 10 pesos
from Yen. As a security, she
mortgaged her phone. They
then signed a deed of sale
thinking that it has the
same effect as a mortgage.

- if one of the parties is unable to
read, the party enforcing the contract
shall prove that the said contract was
read and explained to the other party
[1332]
- there is no mistake when the party
alleging it knew the doubt,
contingency or risk affecting the
object of the contract [1333]
2. Violence and Intimidation [1335]
violence - serious or irresistible force
intimidation - reasonable and well-

ascendants

grounded fear of an imminent and grave evil
upon his person or property, or person or
property of his spouse, descendants,

3. Undue Influence [1337]
- improper advantage of his power
over the will of another, depriving the
latter of a reasonable freedom of
choice
1. confidential, family, spiritual and other
relations between parties
2. mental weakness
3. ignorance
4. financial distress

4. Fraud or Dolo [1338]
- insidious words or machinations
Dolo causante

is

1. misrepresentation or concealment
2. serious
3. employed by only one of the parties
bad faith or
withwhen
intent to
deceive
- failure4.toindisclose
facts
there
5. reveal
induced them
the consent
of the other
a duty to
constitutes

fraud (concealment) [1339]

- if it would have been unintentional,
is mistake not fraud

- usual exaggerations in trade when
the other party had an opportunity to
know the facts are not fraudulent
[1340]
- mere expression of an opinion does
not signify fraud unless made by an
expert and the other party has relied
on the former’s special knowledge
[1341]
5. Misrepresentation
- misrepresentation by a third person
does not vitiate consent unless such
misrepresentation has created
substantial mistake and the same is
mutual [1342]

e.g. Katz plans to sell her land to
Yen. The market value of the land is
50 pesos. However, Cuayo told Katz
that the value is only 25 pesos.
Hence, Katz sold the land to Yen for
25 pesos. The contract is valid unless
it is proven that Yen also deceived
Katz.
e.g. Katz had a bought a laptop for
her own use in class. Cuayo said that
laptops are not allowed in law school.
Hence, Katz sold her laptop to Yen.
Katz and Cuayo later found out that
laptops are actually allowed. The sale
to Yen is annullable since there was
mutual mistake.

- misrepresentation made in good
faith is not fraudulent but may
constitute error [1343]

6. Simulation of Contracts [1345]
- declaration of a non-existent will
made deliberately and by agreement
of the parties for the purpose of
producing the appearance of a
transaction that does not exist or
which is different from the one that
actually arose
1. declaration deliberately different from
true will of the parties
2. agreement to create the appearance
of a valid act
3. purpose of deceiving third persons

Absolute – contract does not really exist and

2. statement of a false cause, unless
there is another true and valid cause
[1353]

the parties do not intend to be bound at all –
VOID! [1346]

- parties bound by the true and valid
cause if there is any

Relative – contract entered into by the

parties is different from their true agreement
- apparent contract is VOID but hidden contract
is VALID

Object [1347]
- subject matter or the obligation created
- all things which are not outside the
commerce of men, including future things may
be the object of a contract
- all rights not intransmissible
- all services not contrary to law, morals, good
customs, public order or public policy
1.
2.
3.
4.

can legally be the subject of commercial transaction
must not be impossible, legally or physically
must be in existence or capable of coming to existence
must be determinate or determinable without the need
of a new contract between the parties

- future inheritance may not be the object of a
contract unless it is authorized by law
- impossible things or services cannot be
objects of contracts [1348]
e.g. opium, illicit acts, etc.

3. lesion or inadequacy of cause [1355]

- any damage cause by the fact that
the price is unjust or inadequate
- lesion does not invalidate a contract

Form of Contracts
General Rule and Exception [1356]

General Rule:
Contracts shall be obligatory, in whatever
form they may have been entered into,
provided all the essential requisites for their
validity is present.
Exception:
When the law requires that a contract be in
some form in order that it may be valid or
enforceable or that a contract be proved in a
certain way, that requirement is absolute and
indispensable.
Kinds of Formalities
1. For the validity of contracts
- oral donation of a movable requires the

simultaneous delivery of the thing or of the
document representing the right donated; if the
value of the personal property donated exceeds
five thousand pesos, donation and acceptance
shall be made in writing; otherwise, donation is
VOID! [748]
- donation of an immovable must be in a public
document; acceptance may be in the same or
separate public document but must be done
during the lifetime of the donor [749]
- the authority of the agent shall be in writing
when the sale is of a piece of land or any
interest therein; otherwise, sale shall be VOID!
[1874]
- amount of principal and interest must be
specified in writing; otherwise, contract of
antichresis shall be VOID! [2134]
- partnership may be constituted in any form,
except where immovable property or real rights
are contributed thereto, in which case a public
instrument is necessary [1771]
- when there is an immovable property which
an inventory is not made, contract of
partnership is VOID! [1773]

Cause [1350]
- essential or more proximate purpose which
the contracting parties have in view at the
time of entering into the contract
- consideration
In ONEROUS contracts
- cause for each contracting party is the prestation or
promise of a thing or service by the other
- reciprocal obligation
In REMUNERATORY contracts
- cause is the service or benefit which is remunerated
- purpose is to reward the service that had been
previously rendered
In GRATUITOUS contracts
- cause of which is the mere liberality of the benefactor

Motive – purely personal reason why a party enters into
a contract

Cause

2. For the effectivity against third persons

Motive

Immediate or direct reason

Remote or indirect reason

Always known to the other
contracting party

May be unknown

Essential element of a
contract

Not an essential element

Illegality of cause affects
the validity of the contract

Illegality of motive does not
render the contract void
3.

Defective causes
1. Absence of cause and unlawful case
[1352]

Formal

- public document is required for the
convenience of the parties in order that the
contract may be registered in the property
registry to make effective as against third
persons [1357]
- must be in public instrument: [1358]
1. creation of real rights over immovable
property
2. renunciation of hereditary rights or of
those conjugal partnership of gains
3. power to administer property
4. transfer of actions or rights

For the proving the existence of a contract
- Statute of Frauds [1403]

Real

Unenforceabl

Others

Contracts

Contracts

1. contains stipulations that admit several meanings

e

Statute of Frauds

- understood as bearing that import which is
most adequate to render it effectual [1373]

Not binding
unless
formality is
observed

Not binding until
thing is
delivered

Binding even if
made orally

Binding
even if
made orally

2. contains various stipulations that are doubtful

Not
enforceable by
action if
formality is
not observed

Not enforceable
if there is no
delivery

Not enforceable
without
memorandum in
writing

Enforceable
by action as
between
parties

3. contains words with different significations

Reformation of Instruments
- remedy in equity by means of which a
written instrument is made or construed so as
to express or conform to the real intention of
the parties when some error or mistake has
been committed
1. meeting of the minds upon the contract
2. true intention of the parties is not expressed
3. failure of the instrument to express the true intent is
due to mistake, fraud, inequitable conduct, accident or
relative simulation

When is reformation not allowed?
1. simple donations inter vivos wherein
no condition is imposed
2. wills
3. real agreement is void
Implied Ratification

- when one of the parties has brought an action
to enforce the instrument, he subsequently ask
for its reformation [1367]

Who may ask for reformation?
1. injured party

- person mistaken
- person defrauded
- victim of the inequity
- victim of the accident
- persons whose rights are prejudiced
by the relative simulation

2. heirs and assigns
Interpretation of Contracts

Intention
- deduced from the language employed by the
parties and the terms of the contract, where
unambiguous, are conclusive in the absence of
averment and proof of mistake
- the question being not what the intention
was but what is express in the language used
- if the words appear to be contrary to the
evident intention of the parties, the intention
shall prevail [1370]
- contemporaneous and subsequent acts of
the parties shall be principally considered
[1371]
Interpreting

- interpreted together with others, and given in
the sense that may result from making all of
them jointly [1374]
- understood in that most in keeping with the
nature and object of the contract [1375]

4. contains ambiguities and omissions of stipulations

- interpreted according to the usage or custom
of the place, that shall fill the omission of
stipulations ordinarily established [1375]

5. with respect to the party who cause the obscurity
- interpretation must not favor the party
causing the obscurity [1377]

6. absolutely impossible to settle doubts by the rules

- when doubts refer to incidental circumstances
of gratuitous contracts, doubts are resolved in
favor of the least transmission of interests
- when doubts refer to incidental circumstances
of onerous contracts, doubts are resolved in the
favor of greatest reciprocity
- when doubts refer to the principal
consideration and the intent cannot be
ascertained, the contract is VOID! [1378]

Defective Contracts
Rescissible, Voidable or Annullable, Unenforceable, Void or
Inexistent

Rescissible Contracts
- those contracts validly agreed upon because
the essential elements exist but due to injury
or damage, the remedy of rescission is
granted in interest of equity
Rescission – remedy granted by law to the contracting parties

and sometimes even to third persons in order to
secure reparation of damages caused them by a
contract even if the contract be valid, by means of
the restoration of the things to their condition prior
to the celebration of said contract

Kinds [1381]
1. entered into by guardians whenever the wards
whom they represent suffer lesion by more than
one-fourth of the value of the thing
2. agreed upon in representation of absentees, if the
absentee suffers lesion by more than one-fourth
of the value of the thing
3. undertaken in fraud of creditors
4. things under litigation if they have been entered
into by the defendant without the knowledge and
approval of the litigants or of competent judicial
authority
5. all other contracts specially declared by law

Characteristics
1. their defect consists in injury or damage either to
one of the contracting parties or to third persons
2. they are valid before rescission
3. they can be attacked directly only and not
collaterally
4. they can be attacked only either by a contracting
party or by a third person who is injured or
defrauded
5. they can be convalidated only by prescription and
not by ratification

Rescission in 1191 – Breach - principal action
Rescission in 1381 – Lesion - subsidiary action

-

1. contract is rescissible
2. party asking for rescission has no other legal
means
3. able to restore whatever he may be obliged to
restore
4. object of the contract is not in the possession of
a third person acting in good faith
5. actionshall
is brought
rescission
only within
be tothe
theprescriptive
extent toperiod
of four years

cover the damages caused [1384]

Presumptions of fraud [1387]
1. Alienation by gratuitous title with the
remaining property not sufficient to
cover existing debts
2. Alienation by onerous title when a
judgement has already been rendered
or writ of attachment has been issued
Badges of Fraud
1. consideration of the conveyance is inadequate
2. transfer made by debtor after suit has begun
and is still pending
3. sale upon credit by an insolvent debtor
4. evidence of large indebtedness or complete
insolvency
5. transfer of all or nearly all of his property
6. transfer is made between father and son
7. failure of vendee to take exclusive possession of
all the property

- purchaser in bad faith who acquired the
object alienated in fraud of creditor must
return the same if the sale is rescinded [1388]
- the action to claim rescission must
commence within four years from the fate the
contract was entered into, except:
1. for persons under guardianship, period shall
begin from the termination of incapacity
2. for absentees, from the time the domicile is
known

Voidable Contracts
- those contracts which possess all the
essential requisites of a valid contract but one
of the parties is incapable of giving consent,
or
consent is vitiated by mistake, violence,
intimidation, undue influence or fraud
- these are valid and binding unless annulled
by proper action in court
- once ratified, they become absolutely valid
[1390]
Annulment – remedy granted by law for reason of public

interest for the declaration of the inefficacy of a
contract based on a defect or vice in the consent
of one of the contracting parties in order to
restore them to their original position before the
contract was executed

Kinds [1390]
1. one of the parties is incapable of giving consent
2. consent is vitiated by mistake, violence,
intimidation, undue influence or fraud

Characteristics
1. their defect consists in the vitiation of consent of
one of the contracting parties
2. they are binding until they are annulled by a
competent court
3. they are susceptible of convalidation by ratification
or by prescription

Who may ask for annulment?

- the party whose consent was vitiated but not the other

- action for annulment shall be brought within
four years [1391]:
- from the time the intimidation,
violence or undue influence ceases
- from the discovery of the fraud or
false cause
- from majority of minors or removal
of disability of incapacitated persons
- contracting parties shall restore to each
other the things which have been the subject
matter of the contract with the fruits and the
price with its interest [1398]
- when the defect consists in the incapacity of
one of the parties, he is not obliged to make
any restitution except insofar as he has been
benefited by the thing or price [1399]
- when the thing was lost through the fault of
the party obliged to return the same, he shall
return the fruits received and the value of the
thing at the time of the loss [1400]
- action to annul is extinguished upon
ratification [1392]
- action to annul is extinguished when the
thing is lost by the person who has the right
to file the action due to his fault [1401]
Ratification of a voidable contract
- cures the contracts entered into
1. contract is voidable
2. ratification is made with the knowledge of
the cause for nullity
3. at the time of the ratification, the cause of
the nullity already ceased to exist
Express
- waiver of the right of annulment by the
party or his guardian
Implied
- an act which necessarily implies the
intention to waive nullity, which is
incompatible with the intention to annul
- done with knowledge of the ground or
cause of nullity

- ratification retroacts to the time that
the contract was entered into [1396]
Unenforceable Contracts
- those that cannot be enforced in court or
sued upon by reason of defects provided by
law until and unless they are ratified
according
to law
1. those entered into in the name of another
by one without or acting in excess of
authority

- in a contract where both parties are
incapable of giving consent, the contract is
unenforceable [1407]
- if the parent or guardian of one party ratifies
the contract, the contract becomes voidable
- if the parents or guardians of both parties
ratify the contract, the contract becomes valid
from inception

2. those that do not comply with the Statute
of Frauds
3. those where both parties are incapable of
giving consent

Statute of Frauds
1. agreement not to be performed within
one year from the making
e.g. Katz and Yen are freshies. Katz promised
Yen that she will make all her digests for her
come third year. If it is not done in writing, it is
unenforceable.

2. promise to answer for the debt, default
or miscarriage of another

Void Contracts
- those which, because of certain defects
produce no effect at all
- considered inexistent from the very
beginning
Characteristics

e.g. Katz owes Yen 10 pesos. Cuayo promised
to pay Yen in case Katz fails to pay for the
same. The promise is unenforceable if not made
in writing. However, Katz’ obligation to pay Yen
is in enforceable even if it is not in writing.

1. it cannot be ratified
2. right to set up the defense of illegality cannot be
waived
3. action or defense for declaration of nullity does
not prescribe
4. defense of illegality is available to third persons
whose interests are directly affected
5. cannot give rise to a valid contract

3. agreement in consideration of marriage
other than mutual promise to marry

e.g. Mico purchased a house in consideration of
Katz’ promise to marry him after doing so. For
the promise to be enforceable, it must be made
in writing.

Void Contracts [1409]
1. those whose cause, object or purpose
is contrary to law, morals, good customs,
public order or public policy

4. agreement for sale of goods at a price
not less than 500 pesos

e.g. Katz and Yen mutually promised to buy and
sell the former’s laptop for 1,000 pesos. This
contract must be in writing to be enforceable
unless there is delivery and partial or full
payment.

- act constitutes a criminal offense
- act is unlawful but does not constitute a
criminal offense
- purpose is illegal and money is paid or
property is delivered
- contract is illegal and one of the parties is
incapable of giving consent
- agreement is not illegal per se but is
prohibited
- amount paid exceeds the maximum fixed by
law
- by virtue of a contract a laborer undertakes
to work longer than the maximum number of
hours of work fixed by law
- laborer agrees to accept a lower wage than
that set by law
- illegal parts of a divisible contracts
- when contract is the direct result of a
illegal contract

5. agreement for leasing for a longer
period than one year
e.g. Katz leased her house to Yen for 2 years. It
must be in writing to be enforceable.

6. agreement for the sale of real property
or of an interest therein
e.g. Katz promised to sell a parcel of land to
Yen. This must be in writing to be enforceable.
However, if Katz has partially or fully paid the
price, it is already enforceable.

7. representation as to the credit of a third
person
e.g. Katz seeks a loan from Yen. Cuayo told Yen
that Katz is capable of paying her debts when in
fact she is insolvent. Due to Cuayo’s
representation, Yen agreed to extend a loan to
Katz. Cuayo’s representation of Katz’ solvency
must be in writing to be enforceable.

Ratification of an unenforceable contract
1. by failure to object to the presentation
of oral evidence to prove the contract;
this amounts to a waiver
2. by acceptance of benefits under the
contract
- when a public document is necessary for
registration, the contract must first be ratified
to be enforceable [1406]

e.g. Katz bought a land from Yen. The sale was
made orally. Katz cannot compel Yen to transfer
title to her as the contract is unenforceable.

previous

2. those whose object is outside the
commerce of men
3. those which contemplate an impossible
service
4. those where the intention of the parties
relative to the principal object of the
contract cannot be ascertained
5. those expressly prohibited or declared
void by law
Inexistent Contracts
1 those which are absolutely simulated or
fictitious
2. those whose cause or object did not
exist at the time of the transaction

Void

Voidable

Rescissible

Unenforceabl
e

Lack of
essential
elements or
illegality

Vitiated
consent or
incapacity of
one party

Lesion or
prejudice

Lack of formal
authority or
capacity of both
parties

Not cured by
prescription

Cured by
prescription

Cured by
prescription

Not cured by
prescription

Cannot be
ratified

Can be
ratified

No need to be
ratified

Can be ratified

Not binding

Binding until
annulled

Binding unless
rescinded

Binding unless
the defect used
as a defense

Natural Obligations

which he received by will or by law of
intestacy, payment is deemed valid [1429]
- when even after a will is declared void, an
heir pays a legacy in compliance with a clause
in the defective will, payment is effective and
irrevocable [1430]
Legacy – reward to friends, servants, etc

Estoppel

- based on equity and natural law, not positive
law, and do not grant right of action to
enforce their performance [1423]
Natural Obligations

- an admission or representation is rendered
conclusive upon the person making it, and
cannot be denied or disproved by him as
against the person relying thereon [1431]

Civil Obligations

Based not on positive law but on
equity and natural law

Arise from law, contracts, quasicontracts, delicts and quasi
delicts

Do not grant right of action to
enforce performance

Give a right of action to compel
their performance

Technical Estoppel
1. by record or judgement (res
judicata)
2. by deed, mortgage or bond
Equitable Estoppel
1. by express representation
2. by silence
3. by laches

- when right to sue upon a civil obligation has
lapsed by extinctive prescription, the obligor
who voluntarily performs the contract cannot
recover what he has delivered or the value of
the service he has rendered [1424]

- estoppel is effective only as between the
parties thereto or their successors in interest
even if one party is a minor [1439]

e.g. Katz owes Yen 10 pesos. After 10 years,
the debt prescribed for failure of Yen to file the
necessary action to recover the same. If Katz,
even if she knew that the debt has already
prescribed, paid Yen 10 pesos, she cannot
recover it anymore.

debt

- when a third person pays the prescribed
of the debtor, without the latter’s knowledge
or against his will, he is not obliged to
reimburse the former [1425]
- when a minor between 18 and 21 years old
entered a contract without the consent of the
parent or guardian, and the contract was later
on annulled, and the minor voluntarily returns
the whole thing or price received, there is no
right to demand the thing or price returned
[1426]
- when a minor between 18 and 21 years old
entered a contract without the consent of the
parent or guardian, voluntarily pays a sum of
money or delivers a fungible thing in
fulfillment of the obligation, there shall be no
right to recover the same from the obligee
who has spent or consumed it in good faith
[1427]
- if after the action to enforce a civil obligation
has failed, the debtor still voluntarily paid the
creditor, the former cannot demand the return
of what he has delivered [1428]
- when the heir voluntarily pays a debt of the
decedent exceeding the value of the property

On the party estopped:
1. conduct amounting to false representation or
concealment of material facts
2. intent or expectation that this conduct shall be acted
upon by the other party
3. knowledge of the truth
On the party invoking estoppel:
1. lack of knowledge and means to ascertain the truth
2. reliance upon the conduct of the party estopped
3. action or failure to act so as to change his position
prejudicially
4. prejudice unless estoppel is applied

own

- when a person who is not the owner of a
thing sells and delivers it, and later the seller
acquires title thereto, the title by operation of
law passes to the buyer [1434]
- when a person in representation of another
sells a thing, the former cannot set up his
title against the buyer [1435]
- the lessee or bailee is estopped from
asserting title to the thing leased or received
[1436]
- when in a contract between third persons
concerning immovable property, one of them
is misled by a person with respect to the
ownership or real right over the real estate,
the person who misrepresented cannot assert
his legal title or interest [1437]

- one who has allowed another to assume
apparent ownership of personal property for
purpose of making any transfer of it cannot, if
he received a pledge, set up his own title to
defeat the pledge [1438]

person
Trusts
- a fiduciary relationship with respect to
property, subjecting the person holding the
same to the obligation of dealing with the
property for the benefit of another person
- separation of the legal title from the
beneficial title
- differs from a stipulation pour autrui in that a
trust refers to a specific property
- differs from a condition in that
accomplishment of the latter is not
enforceable, but performance of a trust is
enforceable
- differs from guardianship in that the trustee
has legal title to the property
Parties [1440]
1. Trustee
- one who hold the property in trust

2. Trustor

- one who establishes or created a trust

3. Beneficiary
- person for whose benefit property is held for
by the trustee
Express Trust
- created by assent of the parties
Implied Trust
- created by law
1. Resulting trust
- imposed by law to carry out the
actual or presumed intent of the
parties, where express trust fails
2. Constructive trust
- established by law regardless of
intention, in order to prevent fraud,
oppression or unjust enrichment

to

Express trusts
- cannot be proved by parol evidence
[1443]
- no particular words required as long
as a trust is clearly intended [1444]
Implied trusts
- may be proved by oral evidence
[1457]

person
obtaining
considered a

- when property is sold, and the legal
estate is granted to one party but the
price is paid by another for the
purpose of having the beneficial
interest of the property; if the person
to whom the title is conveyed is a
child, legitimate or illegitimate, of the
one paying the price of the sale, no
trust is implied by law, it being
disputably presumed that there is a
gift in favor of the child [1448]
- when a donation is made to a
but it appears that although the legal
estate is transmitted to the donee, he
nevertheless is either to have no
beneficial interest or only a part
thereof [1449]
- price of a sale of property is loaned
or paid by one person for the benefit
of another and the conveyance is
made to the lender or payor to secure
the payment of the debt, a trust
arises by operation of law in favor of
the person to whom the money is
loaned or for whom its is paid [1450]
- when land passes by succession to
any person and he causes the legal
title to be put in the name of another,
a trust is established by implication of
law for the benefit of the true owner
[1451]
- if two or more persons agree to
purchase property and by common
consent the legal title is taken in the
name of one of them for the benefit
of all, a trust is created by force of
law in favor of the others in
proportion to the interest of each
[1452]
- when property is conveyed to a
person in reliance upon his declared
intention to hold it for, or transfer it
another or the grantor, there is an
implied trust in favor of the person
whose benefit is contemplated [1453]
- absolute conveyance of property is
made in order to secure the
performance of an obligation of the
grantor toward the grantee, a trust by
virtue of law is established [1454]
- when any trustee, guardian or other
person holding a fiduciary relationship
uses trust funds for the purchase of
property and causes the conveyance
to be made to him or to a third
person, a trust is established by
operation of law in favor of the
to whom the funds belong [1455]
- if property is acquired through
mistake or fraud, the person
it is, by force of law,
trustee of an implied trust for

the

benefit of the person from whom the
property comes [1456]