REPUBLIC ACT NO.

386

The Civil Code of The Philippines

OBLIGATIONS AND CONTRACTS

Reference:
Obligations and Contracts
By De Leon

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 3. An act or omission in breach or violation of
OBLIGATIONS
said right by the defendant with
consequential injury or damage to the
CHAPTER 1
plaintiff for which he may maintain an action
GENERAL PROVISIONS
for the recovery of damages or other
appropriate relief
OBLIGATION

Cause of action based upon a written contract

Article 1156. An obligation is a juridical necessity to
Actions based upon a written contract should be
give, to do or not to do.
brought within 10 years from the time the right of
action accrues. (Art. 1144)
Juridical necessity
In case of non-compliance, courts may be called upon Kinds of obligation according to subject matter
to enforce its fulfillment or, in default thereof, the
economic value that it represents 1. Real obligation – that in which the subject
matter is a thing which the obligor must
Civil obligation deliver to the oblige (obligation to give)
Gives a right of action to compel their performance, in
contrast with natural obligation under Title III 2. Personal obligation – that in which the
subject matter is an act to be done or not to
Requisites of obligation be done (obligation to do or not to do)
1. Passive subject – debtor or obligor
2. Active subject – creditor or obligee a. Positive personal obligation –
3. Object or prestation obligation to do or to render service
a. To give
b. To do b. Negative personal obligation –
c. Not to do obligation not to do and not to give
4. Juridical tie or efficient cause
SOURCES OF OBLIGATION
Form of obligation
As a general rule, the law does not require any form in
Article 1157. Obligations arise from:
obligations arising from contracts for their validity or
1. Law
binding force. (Art. 1356)
2. Contracts
3. Quasi-contracts
Obligations arising from other sources do not have
4. Acts or omissions punished by law; and
any form at all.
5. Quasi-delicts

Cause of action
FROM LAW
It is an act or omission of one party in violation of the
When they are imposed by the law itself (ex:
legal right or rights of another, causing injury to the
obligation to pay taxes)
latter.

Article 1158. Legal obligations not presumed

Elements of cause of action
Obligations derived from law are not presumed. Only
1. Legal right in favor of creditor/ plaintiff
those expressly determined in this Code or in special
2. A correlative legal obligation on the part
laws are demandable, and shall be regulated by the
debtor/ defendant to respect or not to
precepts of the law which establishes them; and as to
violate said right

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what has not been foreseen, by the provisions of this
Book.
FROM CONTRACTS
When they arise from the stipulation of the parties (ex:
obligation to pay a loan by virtue of an agreement)
Article 1161. Obligations arising from delicts
Civil obligations arising from criminal offenses shall be
governed by the penal laws, subject to the provisions
of article 2177, and of the pertinent provisions of
Chapter 2, Preliminary Title, on Human Relations, and
of Title XVIII of this Book, regulating damages.

Article 1159. Contractual obligations Scope of civil liability

Obligations arising from contracts have the force of 1. Restitution
law between the contracting parties and should be 2. Reparation for damages caused
complied with in good faith. 3. Indemnification for consequential damages

FROM QUASI-CONTRACTS FROM QUASI-DELICTS OR TORTS

When they arise from lawful, voluntary and unilateral When they arise from damage caused to another
acts and which are enforceable to the end that no one through an act or omission, there being fault or
shall be unjustly enriched or benefited at the expense negligence, but no contractual relation exists between
of another (Art. 2142) the parties (Art. 2176)

Article 1160. Obligations derived from quasi- Article 1162. Obligations derived from quasi-delicts
contracts shall be subject to the provisions of Chapter shall be governed by the provisions of Chapter 2, Title
1, Title XVII, of this Book. XVII of this Book, and by special laws.

Kinds of quasi-contracts Requisites of quasi-delict

1. An act or omission by the defendant
1. Negotiorum gestio – the voluntary 2. Fault or negligence of the defendant
management of the property or affairs of 3. Damage caused to the plaintiff
another without the knowledge or consent of 4. Direct relation of cause and effect between
the latter (Art. 2144) the act or omission and the damage
5. There is no pre-existing contractual relation
Ex: If through the efforts of neighbor X, the between the parties
house of Y was saved from being burned, Y
has the obligation to reimburse X for the Crime/ Delict Quasi-delict
expenses X incurred although Y did not There is criminal or Only negligence
actually give his consent to the act of X malicious intent or criminal
negligence
2. Solutio indebiti – the juridical relation which Affects public interest concerns private interest
is created when something is received when The purpose is punishment the purpose is
there is no right to demand it and it was indemnification
unduly delivered through mistake (Art. 2154) Criminal liability cannot be liability for quasi-delict
compromised or settled by can be compromised as
FROM ACTS OR OMISSIONS PUNISHED BY LAW the parties themselves any other civil liability
When they arise from civil liability which is the The guilt of the accused the fault or negligence
consequence of a criminal offense (ex: the obligation must be proved beyond of the defendant need
of a thief to return the car stolen by him) reasonable doubt only be proved by
preponderance of
evidence

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The liability of the person it is direct and primary accessories performance of
responsible for the author 5. To answer for his obligation,
of the negligent act or damages in case or contravention
omission is subsidiary of non- of the tenor
fulfillment or thereof
CHAPTER 2 breach
NATURE AND EFFECTS OF OBLIGATIONS
Obligation to take care of the thing due
OBLIGATION TO TAKE CARE OF THE THING DUE
GR: Use proper diligence of a good father of a
Article 1163. Diligence of a good father of a family family
Every person obliged to give something is also
obliged to take care of it with the proper diligence of XPN: When the law requires another standard of
a good father of a family care (ex: common carriers must use
extraordinary diligence in carrying
Exception passengers)
Unless the law or the stipulation of the parties
requires another standard of care CREDITOR’S RIGHT TO FRUITS

➢ Refers to obligation to give a specific or Article 1164. The creditor has a right to the fruits of
determinate thing the thing from the time the obligation to deliver it
arises. However, he shall acquire no real right over it
SPECIFIC OR GENERIC OR until the same has been delivered to him.
DETERMINATE THING INDETERMINATE
THING Kinds of fruits
When it is particularly When it refers only to a
designated or physically class or genus to which it 1. Natural fruits – spontaneous products of the
segregated from all pertains and cannot be soil, and the young and other products of
others of the same class pointed out with animals (ex: all plants and trees without
particularity human intervention)
Ex: Toyota car with Plate
No. AAV 344 Ex: a police dog 2. Industrial fruits – those produced by lands of
Duties of debtor in Duties of debtor in any kind through cultivation or human labor
obligation to give a obligation to give an (ex: vegetables)
determinate thing indeterminate thing
3. Civil fruits – those derived by virtue of a
1. To preserve or 1. To deliver a juridical relation (ex: rents of a building)
take care of the thing which is of
thing due the quality Q: When does obligation to deliver arises?
2. To deliver the intended by the A: The obligation to deliver the thing due and the
thing itself parties taking fruits arises from the perfection of the contract.
3. To deliver the 2. To be liable for
fruits of the damages in case PERSONAL RIGHT REAL RIGHT
thing of fraud, The right of a person to The right or interest of a
4. To deliver its negligence, or demand from another, person over a specific
accessions and delay, in the the fulfillment of the thing (ex: ownership)

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latter’s obligation to give, without a definite passive thing to 2 or more persons
to do, or not to do subject If the obligor delays, or has promised to deliver the
1. Definite active 1. Definite active same thing to two or more persons who do not have
subject subject the same interest, he shall be responsible for any
2. Definite passive fortuitous event until he has effected the delivery.
subject
Binding or enforceable Binding or enforceable Remedies of creditor
only against a particular against the whole world 1. Specific performance or fulfillment + right to
person indemnity for damages
2. Rescission or cancellation + right to damages
CREDITOR’S RIGHT TO 3. Right to damages where it is the only
ACCESSORIES AND ACCESSIONS feasible remedy

Article 1166. The obligation to give a determinate
thing includes that of delivering all its accessions and
accessories, even though they may not have been
mentioned.
➢ This rule is based on the principle of law that
the accessory follows the principal.
Accessions
These are the fruits of, or additions to,
improvements upon, a thing (the principal)
Accessories
These are the things joined to, or included with, the
principal thing for the latter’s embellishment, better
use, or completion.
REMEDIES OF CREDITOR
REMEDIES OF CREDITOR IN REAL OBLIGATIONS
Article 1165. Remedy in specific real obligation
When what is to be delivered is a determinate thing,
the creditor, in addition to the right granted him by
Article 1170, may compel the debtor to make the
delivery.
Remedy in generic real obligation
If the thing is indeterminate or generic, he may ask
that the obligation be complied with at the expense of
the debtor.
If obligor delays or promised to deliver the same
REMEDIES OF CREDITOR IN POSITIVE PERSONAL
OBLIGATION
Article 1167. Failure to do obligation to do
If a person obliged to do something fails to do it, the
same shall be executed at his cost.
In contravention of the tenor of the obligation
This same rule shall be observed if he does it in
or contravention of the tenor of the obligation.
Obligation is poorly done
Furthermore, it may be decreed that what has been
poorly done be undone.
REMEDIES OF CREDITOR IN NEGATIVE PERSONAL
OBLIGATION
Article 1168. When the obligation consists in not
doing, and the obligor does what has been forbidden
him, it shall also be undone at his expense.
DELAY
Delay or Mora
It is the failure to perform an obligation on time which
failure, constitutes a breach of the obligation
Requisites of delay or default by debtor
1. Failure of the debtor to perform his (positive)
obligation on the date agreed upon
2. Judicial or extrajudicial demand by creditor

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 3. Failure of the debtor to comply with such
demand
When does the obligor incurs delay?
Article 1169. Those obliged to deliver or to do
something incur in delay from the time the obligee
judicially or extrajudicially demands from them the
fulfillment of their obligation.
When demand is not necessary
However, the demand by the creditor shall not be
necessary in order that delay may exist:
1. When the obligation or the law expressly so
declare; or
2. When from the nature and the circumstances
of the obligation it appears that the
designation of the time when the thing is to
be delivered or the service is to be rendered
was a controlling motive for the
establishment of the contract; or
3. When demand would be useless, as when
the obligor has rendered it beyond his power
to perform.
Delay in reciprocal obligations
In reciprocal obligations, neither party incurs in delay
if the other does not comply or is not ready to comply
in a proper manner with what is incumbent upon him.
From the moment one of the parties fulfills his
obligation, delay by the other begins.
Kinds of delay
1. Mora solvendi – delay on the part of the
debtor to fulfi ll his obligation (to give or to
do) by reason of a cause imputable to him
EFFECTS OF MORA SOLVENDI:
a. Debtor is guilty of breach of obligation
b. He is liable for interest in case of
obligations to pay money or damages in
other obligations.
c. He is liable even for a fortuitous event
when the obligation is to deliver a
determinate thing. 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
the damages.
2. Mora accipiendi – delay n the part of the
creditor without justifi able reason to accept
the performance of the obligation
EFFECTS OF MORA ACCIPIENDI:
a. Creditor is guilty of breach of obligation;
b. He is liable for damages suffered, if any,
by the debtor
c. He bears the risk of loss of the thing due
d. Where the obligation is to pay money,
the debtor is not liable for interest from
the time of the creditor’s delay
e. The debtor may release himself from the
obligation by the consignation of the
thing or sum due
3. Compensatio morae – delay of the obligors
in reciprocal obligations
EFFECT OF COMPENSATIO MORAE:
The delay of the obligor cancels out the
delay of the obligee and vice versa. There is
no actionable default as if neither one is
guilty of delay.
No delay in negative personal obligation
In an obligation not to do, non-fulfillment may take
place but delay is impossible for the debtor fulfills by
not doing what has been forbidden him
GROUNDS FOR DAMAGES
Article 1170. Those who in the performance of their
obligations are guilty of:
a. Fraud
b. Negligence, or
c. Delay, and
d. Those who in any manner contravene the
tenor thereof, are liable for damages
BREACH OF CONTRACT
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It is the failure to comply with the terms of a contract which is to be observed in the performance, that
without justifiable excuse. The breach may be willful or which is expected of a good father of a family shall be
done unintentionally. required.

FRAUD or DOLO Kinds of negligence

It is the deliberate or intentional evasion of the normal 1. Culpa contractual – negligence in contracts
fulfillment of an obligation. resulting in their breach

Article 1170 refers to incidental fraud (dolo incidente)
Article 1171. Demandability
Responsibility arising from fraud is demandable in all
obligations.
2. Culpa aquiliana – negligence which by itself
is the source of an obligation between the
parties not formally bound before by any
pre-existing contract. It is also called “tort” or
“quasidelict.

Waiver of action for future fraud 3. Culpa criminal – negligence resulting in the
Any waiver of an action for future fraud is void. commission of a crime

NEGLIGENCE or CULPA Factors to be considered

1. Nature of the obligation
It is any voluntary act or omission, there being no 2. Circumstances of the person
malice, which prevents the normal fulfillment of an 3. Circumstances of time
obligation. 4. Circumstances of the place

Article 1172. Demandability When negligence equivalent to fraud

Responsibility arising from negligence in the Where the negligence shows bad faith or is so gross
performance of every kind of obligation is also that it amounts to malice or wanton attitude on the
demandable part of the defendant, the rules on fraud shall apply.

Subject to mitigation Fraud Negligence

but such liability may be regulated by the courts, Voluntary Voluntary
according to the circumstances. There is deliberate There is no such intention
intention to cause
Article 1173. Fault or negligence damage or injury
The fault or negligence of the obligor consists in the Waiver of the liability for Such waiver may, in a
omission of that diligence which is required by the future fraud is void certain sense, be allowed
nature of the obligation and corresponds with the in negligence;
circumstances of the persons, of the time and of the Must be clearly proved, Negligence is presumed
place. mere preponderance of from the breach of a
evidence not being contractual obligation
When negligence amounts to fraud sufficient
When negligence shows bad faith, the provisions of Liability for fraud cannot Liability for negligence
articles 1171 and 2201, paragraph 2, shall apply. be mitigated by the may be reduced
courts according to the
Diligence required circumstances
If the law or contract does not state the diligence

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 DELAY comply with his obligation in a normal
manner
See Art. 1169 4. The obligor must be free from any
participation in, or the aggravation of the
CONTRAVENTION OF TENOR injury to the obligee (no contributory
negligence)
It refers to the violation of the terms and conditions
stipulated in the obligation. The contravention must USURIOUS TRANSACTIONS
not be due to a fortuitous event or force majeure.
Article 1175. Usurious transactions shall be governed
FORTUITOUS EVENTS by special laws.

Fortuitous event Simple loan or mutuum

It is any extraordinary event which cannot be foreseen,
or which, though foreseen, is inevitable. It is an event
which is either impossible to foresee or impossible to
avoid.
Article 1174. Exception
a. Except in cases expressly specified by the law
b. When it is otherwise declared by stipulation,
c. When the nature of the obligation requires
the assumption of risk
It is 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 and
quality shall be paid. It may be gratuitous or with a
stipulation to pay interest. (Art. 1933)
Usury
It is contracting for or receiving interest in excess of
the amount allowed by law for the loan or use of
money, goods, chattels, or credits

General rule Kinds of interest

No person shall be responsible for those events which 1. Simple interest
could not be foreseen, or which, though foreseen, 2. Compound interest
were inevitable. 3. Legal interest
4. Lawful interest
Acts of man 5. Unlawful interest
Fortuitous event is an event independent of the will of
the obligor but not of other human wills (ex: war, fire, Requisites for recovery of interest
robbery, murder, insurrection) 1. The payment of interest must be expressly
stipulated
Acts of God or Force Majeure 2. The agreement must be in writing
They are those events which are totally independent 3. The interest must be lawful
of the will of every human being (ex: earthquake,
flood, rain, lightning, eruption of volcano) Central Bank Circular No. 905 (Dec. 10, 1982,
effective Jan. 1, 1983.)
Requisites of fortuitous event The rate of interest and other charges on a loan or
1. The event must be independent of the forbearance of money, goods, or credit, regardless of
human will or at least of the obligor’s will maturity and whether secured and unsecured, that
2. The event could not be foreseen or if it could may be charged or collected shall not be subject to
be foreseen, must have been impossible to any ceiling prescribed under the Usury Law. Usury is
avoid now legally non-existent. Interest can be charged as
3. The event must be of such a character as to lender and borrower may agree upon.
render it impossible for the obligor to

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According to the Supreme Court, the circular did not GR: Rights acquired in virtue of an obligation are
repeal or in any way amend the Usury Law but simply transmissible.
suspended the latter’s effectivity.
XPN:
PRESUMPTION OF PAYMENT OF
INTEREST AND INSTALLMENT 1. Prohibited by law (ex: partnership,
agency and commodatum)
Article 1176. The receipt of the principal by the 2. Prohibited by stipulation of the parties
creditor without reservation with respect to the
interest, shall give rise to the presumption that said
interest has been paid. CHAPTER 3
DIFFERENT KINDS OF OBLIGATIONS
The receipt of a later installment of a debt without
reservation as to prior installments, shall likewise raise 1. Pure and conditional obligations
the presumption that such installments have been 2. Obligations with a period
paid. 3. Alternative and facultative obligations
4. Joint and solidary obligations
REMEDIES AVAILABLE TO CREDITORS FOR THE 5. Divisible and indivisible obligations (Arts.
SATISFACTION OF THEIR CLAIMS 1223-1225.); and (f) Obligations with a penal
clause. (Arts. 1226-1230.)
Article 1177. The creditors, after having pursued the
property in possession of the debtor to satisfy their PURE AND CONDITIONAL OBLIGATIONS
claims, may exercise all the rights and bring all the
actions of the latter for the same purpose, save those Article 1179. Every obligation whose performance
which are inherent in his person; they may also does not depend upon a future or uncertain event, or
impugn the acts which the debtor may have done to upon a past event unknown to the parties, is
defraud them. demandable at once.

1. Specific performance + right to damages Every obligation which contains a resolutory condition
2. Pursue the leviable property of the debtor shall also be demandable, without prejudice to the
3. After having pursued the property in effects of the happening of the event.
possession of the debtor, he may exercise all
the rights (ex: right to redeem) and bring all PURE OBLIGATION
the actions of the latter for the same purpose One which is not subject to any condition and no
(ex: right to collect from the debtor of his specific date is mentioned for its fulfillment and is,
debtor) save those which are inherent in his therefore, immediately demandable
person
4. Impugn the acts which the debtor may have When is obligation demandable at once?
done to defraud them 1. When it is pure (Art. 1179, par. 1.)
2. When it is subject to a resolutory condition
TRANSMISSIBILITY OF RIGHTS (Ibid., par. 2.)
3. When it is subject to a resolutory period (Art.
Article 1178. Subject to the laws, all rights acquired in 1193, par. 2.)
virtue of an obligation are transmissible, if there has
been no stipulation to the contrary. CONDITIONAL OBLIGATION
One whose consequences are subject in one way or
another to the fulfillment of a condition

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 (a) Positive. — the condition consists in the
Condition performance of an act; and
It is a future and uncertain event, upon the happening (b) Negative. — the condition consists in
of which, the effectivity or extinguishment of an the omission of an act
obligation (or rights) subject to it depends
(6) AS TO NUMBER
Characteristics of condition (a) Conjunctive. — there are several
1. Future and uncertain conditions and all must be fulfilled; and
2. Past but unknown (b) Disjunctive. — there are several
conditions and only one or some of
Classifications of condition them must be fulfilled

(1) AS TO EFFECT (7) AS TO DIVISIBILITY

(a) Suspensive. — the happening of which (a) Divisible. — the condition is susceptible
gives rise to the obligation; and of partial performance;
(b) Resolutory. — the happening of which (b) Indivisible. — the condition is not
extinguishes the obligation susceptible of partial performance

(2) AS TO FORM Period depending upon the will of debtor

(a) Express. — condition is clearly stated; Article 1180. When the debtor binds himself to pay
(b) Implied. — condition is merely inferred when his means permit him to do so, the obligation
shall be deemed to be one with a period, subject to
(3) AS TO POSSIBILITY the provisions of Article 1197.

(a) Possible. — the condition is capable of Period

fulfillment, legally and physically Future and certain event upon the arrival of which the
(b) Impossible. — the condition is not obligation subject to it either arises or is extinguished
capable of fulfillment, legally or
physically a. When the debtor binds himself to pay when
his means permit him to do so
(4) AS TO CAUSE OR ORIGIN b. “As soon as possible”
c. “From time to time”
(a) Potestative. — the condition depends d. “As soon as I have money”
upon the will of one of the contracting e. “When I am in a position to pay”
parties;
(b) Casual. — the condition depends upon See further discussions in Art. 1193-1198
chance or upon the will of a third
person; and Effects of happening of condition
(c) Mixed. — the condition depends partly
upon chance and partly upon the will of Article 1181. In conditional obligations, the
a third person acquisition of rights, as well as the extinguishment or
loss of those already acquired, shall depend upon the
(5) AS TO MODE happening of the event which constitutes the
condition.

DIAMOND NOTES | Valdez, Iana Jill F. | 10

 SUSPENSIVE RESOLUTORY
CONDITION CONDITION
If fulfilled, the obligation If fulfilled, the obligation
arises is extinguished
POTESTATIVE, CASUAL AND MIXED CONDITION
It is a suspensive condition which depends upon the
sole will of one of the contracting parties
Effects of potestative condition
Article 1182. If condition depends upon the sole
will of the debtor
When the fulfillment of the condition depends upon
the sole will of the debtor, the conditional obligation
shall be void.
Ex: “I will pay you if I want.”
NOTE: But if the condition depends exclusively upon
the will of the creditor, the obligation is valid.
If condition depends upon chance or upon the will
of a third persson
If it depends upon chance or upon the will of a third
person, the obligation shall take effect in conformity
with the provisions of this Code.
Q: When is only the condition void, not the entire
conditional obligation?
A: If the obligation is a pre-existing one, and,
therefore, does not depend for its existence upon the
fulfillment by the debtor of the potestative condition,
only the condition is void leaving unaffected the
obligation itself.
ILLUSTRATION
D borrowed P10,000.00 from C payable within 2
months. D promised to pay C “after D sells his car” to
which C agreed. In this case, only the condition is void
but not the pre-existing obligation of D to pay C.
CASUAL CONDITION
If the suspensive condition depends upon chance or
upon the will of a third person, the obligation subject
to it is valid.
Ex: Where A binds himself to sell his land to B if he
wins a case which is still pending before the Supreme
Court, the obligation is valid.
MIXED CONDITION
The obligation is valid if the suspensive condition
depends partly upon chance and partly upon the will
of a third person.
IMPOSSIBLE CONDITIONS
These are conditions which cannot exist or cannot be
done (physically impossible) or are contrary to law,
morals, good customs, public order, or public policy
(legally impossible)
Effects of impossible condition
Article 1183. Conditional obligation void
Impossible conditions, those contrary to good
customs or public policy and those prohibited by law
shall annul the obligation which depends upon them.
Ex: “I will give you a car if you kill Pedro.”
Only the affected obligation void
If the obligation is divisible, that part thereof which is
not affected by the impossible or unlawful condition
shall be valid.
Ex: “I will give you P10,000 if you sell my land, and a
car, if you kill Pedro.” Only the obligation to give a car
is void, the obligation to give P10,000 is valid.
Conditional obligation valid
The condition not to do an impossible thing shall be
considered as not having been agreed upon.
POSITIVE CONDITION
It is a condition which depends upon the happening
of an event at a determinate time, and the happening
of which extinguishes the obligation.
When shall obligation be extinguished?
DIAMOND NOTES | Valdez, Iana Jill F. | 11
Article 1184. The condition that some event happen
at a determinate time shall extinguish the obligation
a. As soon as the time expires or
b. If it has become indubitable that the event
will not take place
ILLUSTRATION: X obliged to support Y, a law student,
until Y passes the bar exam. As soon as Y passes the
bar exam or if there are circumstances that the event
will not take place, X’s obligation is extinguished.
CONSTRUCTIVE FULFILLMENT OF CONDITION
Article 1186. The condition shall be deemed fulfilled
when the obligor voluntarily prevents its fulfilment.
REQUISITES
1. The condition is suspensive
2. The obligor actually prevents the fulfillment
of the condition
3. He acts voluntarily
ILLUSTRATION: X agreed to give Y a 5% commission if
the latter could sell his land. Y found a buyer. To
evade the payment of the commission, X himself sold
to the buyer the property at a lower price without the
aid of Y. Here, the condition is deemed fulfilled.
RETROACTIVE EFFECTS OF CONDITION
Article 1187. In conditional obligation to give
The effects of a conditional obligation to give, once
the condition has been fulfilled, shall retroact to the
day of the constitution of the obligation.
Nevertheless, when the obligation imposes reciprocal
prestations upon the parties, the fruits and interests
during the pendency of the condition shall be deemed
to have been mutually compensated.
If the obligation is unilateral, the debtor shall
appropriate the fruits and interests received, unless
from the nature and circumstances of the obligation it
should be inferred that the intention of the person
constituting the same was different.
In conditional obligation to do and not to do
In obligations to do and not to do, the courts shall
determine, in each case, the retroactive effect of the
condition that has been complied with.
RIGHTS PENDING FULFILLMENT OF CONDITION
Article 1188. Creditor’s rights
The creditor may, before the fulfillment of the
condition, bring the appropriate actions for the
preservation of his right.
Debtor’s right
The debtor may recover what during the same time he
has paid by mistake in case of a suspensive condition.
LOSS, IMPROVEMENT AND DETERIOATION
Article 1189. When the conditions have been
imposed with the intention of suspending the efficacy
of an obligation to give, the following rules shall be
observed in case of the improvement, loss or
deterioration of the thing during the pendency of the
condition:
1. If the thing is lost without the fault of the
debtor, the obligation shall be extinguished
2. If the thing is lost through the fault of the
debtor, he shall be obliged to pay damages;
it is understood that the thing is lost when it
perishes, or goes out of commerce, or
disappears in such a way that its existence is
unknown, or it cannot be recovered
3. When the thing deteriorates without the fault
of the debtor, the impairment is to be borne
by the creditor
4. If it deteriorates through the fault of the
debtor, the creditor may choose between the
rescission of the obligation and its
fulfillment, with indemnity for damages in
either case
DIAMOND NOTES | Valdez, Iana Jill F. | 12
 5. If the thing is improved by its nature, or by
time, the improvement shall inure to the
benefit of the creditor
6. If it is improved at the expense of the debtor,
he shall have no other right than that
granted to the usufructuary
Requisites for application of Art. 1189
1. The obligation is a real obligation;
2. The object is a specific or determinate thing
3. The obligation is subject to a suspensive
condition
4. The condition is fulfilled
5. There is loss, deterioration, or improvement
of the thing during the pendency of the
happening on one condition
LOSS
A thing is lost when it perishes (physical loss), goes
out of commerce (legal loss), or disappears in such a
way that its existence is unknown (civil loss)
a. Loss of thing without debtor’s fault – the
obligation shall be extinguished (ex: in case
of fortuitous events)
b. Loss of thing through debtor’s fault – he shall
be obliged to pay damages
DETERIORATION
A thing deteriorates when its value is reduced or
impaired
a. Deterioration of thing without debtor’s fault
– the impairment is borne by creditor
b. Deterioration of thing through debtor’s fault
– creditor may choose between (a) rescission
or (b) fulfillment, + damages in either case
IMPROVEMENT
A thing is improved when its value is increased or
enhanced by nature or by time or at the expense of
the debtor or creditor
a. Improvement of thing by nature or by time –
the improvement shall inure to the benefit of
the creditor
b. Improvement of thing at debtor’s expense –
debtor shall have a right of usufructuary
EFFECTS OF FULFILLMENT OF
RESOLUTORY CONDITION
Article 1190. Mutual restitution in case of
obligations to give
When the conditions have for their purpose the
extinguishment of an obligation to give, the parties,
upon the fulfillment of said conditions, shall return to
each other what they have received.
In case of the loss, deterioration or improvement of
the thing, the provisions which, with respect to the
debtor, are laid down in the preceding article shall be
applied to the party who is bound to return.
In case of obligations to do and not to do
As for the obligations to do and not to do, the
provisions of the second paragraph of Article 1187
shall be observed as regards the effect of the
extinguishment of the obligation.
RECIPROCAL OBLIGATIONS
Kinds of obligation according to the person
obliged
(1) Unilateral obligation
When only one party is obliged to comply
with a prestation
(2) Bilateral obligation
When both parties are mutually bound to
each other; In short, both parties are debtors
and creditors of each other
a. Reciprocal obligation
Those which arise from the same cause
and in which each party is a debtor and
creditor of the other, such that the
general rule is that they are to be
DIAMOND NOTES | Valdez, Iana Jill F. | 13
 performed simultaneously or at the
same time
b. Non-reciprocal obligation
Those which do not impose
simultaneous performance on both
parties; In other words, the performance
of one party is not dependent upon the
simultaneous performance by the other.
Remedies in reciprocal obligations
Article 1191. Power to rescind
The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
Remedies available to injured party
The injured party may choose between:
a. The fulfillment and
b. The rescission of the obligation
c. With the payment of damages in either case.
d. He may also seek rescission, even after he
has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the
rights of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the
Mortgage Law.
Limitations on the right to demand rescission
1. The injured party has to resort to the courts
to assert his rights judicially
2. The court has discretionary power to allow a
period within which a person in default may
be permitted to perform his obligation if
there is a just cause for giving time to the
debtor (Art. 1191)
3. It can be demanded only if a party thereto is
ready, willing, and able to comply with his
own obligations thereunder
4. It creates the obligation of mutual restitution.
But if the thing is in the hands of a third
person who acted in good faith, rescission is
not available as a remedy. In such case, the
injured party may recover damages from the
person responsible for the transfer.
5. It will not be granted for slight or casual
breaches of contract. The violation should be
substantial and fundamental.
6. The right to rescind may be waived, expressly
or impliedly.
Rescission
It is the “unmaking of a contract, or its undoing from
the beginning, and not merely its termination.”
Rescission may be effected by both parties by mutual
agreement; or unilaterally by one of them declaring a
rescission of contract without the consent of the
other, if a legally sufficient ground exists or if a decree
of rescission is applied for before the courts.
Termination
Termination refers to an “end in time or existence; a
close, cessation or conclusion.”
Rescission vs. Termination
When an agreement is rescinded, it is deemed
inexistent, and the parties are returned to their status
quo ante. Hence there is mutual restitution of benefits
received. However, when it is terminated, it is deemed
valid at its inception. Prior to termination the contract
binds the parties who are thus obliged to observe its
provisions.
BREACH OF OBLIGATION
Breach of an obligation occurs when there is a failure
or refusal, by a party without legal reason or excuse to
perform, in whole or in part the obligation or
undertaking which is incumbent upon him.
Under the rule of exceptio non adimpleti contractus,
the party who has not performed his part of the
agreement is not entitled to sue
In case both parties committed breach
Article 1192. In case both parties have committed a
breach of the obligation, the liability of the first
DIAMOND NOTES | Valdez, Iana Jill F. | 14
infractor shall be equitably tempered by the courts. court to fi x the duration invalidates the obligation

If it cannot be determined which of the parties first Kinds of period or term

violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages. (1) According to effect:

OBLIGATIONS WITH A PERIOD (a) Suspensive period (ex die). — The

obligation begins only from a day
An obligation with a period is one whose certain upon the arrival of the
consequences are subjected in one way or another to period (Art. 1193, par. 1)
the expiration of said period or term. (b) Resolutory period (in diem). — The
obligation is valid up to a day
Article 1193. Obligations with suspensive period certain and terminates upon the
Obligations for whose fulfillment a day certain has arrival of the period. (par. 2.)
been fixed, shall be demandable only when that day
comes. (2) According to source:

Obligations with resolutory period
Obligations with a resolutory period take effect at
once, but terminate upon arrival of the day certain.
Day certain
A day certain is understood to be that which must
necessarily come, although it may not be known
when.
If the uncertainty consists in whether the day will
come or not, the obligation is conditional, and it shall
be regulated by the rules of the preceding Section.
(a) Legal period — When provided by law
(b) Conventional or voluntary period. —
When it is agreed to by the parties
(c) Judicial period. — When it is fixed by
the court. (Art. 1197.)
(3) According to definiteness:
(a) Definite period. — When it is fixed or it
is known when it will come
(b) Indefinite period — When it is not fixed
or it is not known when it will come.

Period or term Where the period is not fixed but a

It is future and certain event upon the arrival of which
the obligation (or right) subject to it either arises or is
terminated. It is a day certain which must necessarily
come (ex: next Christmas), although it may not be
known when (ex: death of a person)
PERIOD CONDITION
Future and certain Future and uncertain
refers only to the future may refer also to a past
event unknown to the
parties;
Has no retroactive effect Has retroactive effect
A period which depends A condition which
upon the will of the depends upon the sole
debtor empowers the will of the debtor
period is intended, the courts are usually
empowered by law to fix the same
Loss, Improvement and Deterioration
Article 1194. In case of loss, deterioration or
improvement of the thing before the arrival of the day
certain, the rules in Article 1189 shall be observed.
PAYMENT BEFORE ARRIVAL OF PERIOD
Article 1195. Anything paid or delivered before the
arrival of the period, the obligor being unaware of the
period or believing that the obligation has become
due and demandable, may be recovered, with the

DIAMOND NOTES | Valdez, Iana Jill F. | 15

fruits and interests. In every case, the courts shall determine such period
as may under the circumstances have been probably
Debtor presumed aware of period contemplated by the parties.
The presumption is that the debtor knew that the
debt was not yet due. He has the burden of proving Period fixed cannot be changed by the courts
that he was unaware of the period. Once fixed by the courts, the period cannot be
changed by them.
ILLUSTRATION: D owes C P2,000 which was supposed
to be paid on December 31 this year. By mistake, D DEMANDABILITY OF PERIOD
paid his obligation on December 31 last year.
Assuming that today is June 30, D can recover the Obligations for whose fulfillment a day certain has
P2,000 plus P120, which is the interest or a total of been fixed, shall be demandable only when that day
P2,120. But D cannot recover, except the interest, if comes.
the debt had already matured. Neither can there be a
right to recovery if D had knowledge of the period. GR: The obligation is not demandable before the
lapse of the period
No recovery in personal obligations
Article 1195 Applies only to obligations to give and XPN: Art. 1198
has no application to obligations to do or not to do
because as to the former, it is physically impossible to Article 1198. The debtor shall lose every right to
recover the service rendered, and as to the latter, he make use of the period:
cannot, of course, recover what he has not done.
1. When after the obligation has been
BENEFIT OF THE PERIOD contracted, he becomes insolvent, unless he
gives a guaranty or security for the debt
Article 1196. General rule 2. When he does not furnish to the creditor the
Whenever in an obligation a period is designated, it is guaranties or securities which he has
presumed to have been established for the benefit of promised
both the creditor and the debtor 3. When by his own acts he has impaired said
guaranties or securities after their
Exception establishment, and when through a
Unless from the tenor of the same or other fortuitous event they disappear, unless he
circumstances it should appear that the period has immediately gives new ones equally
been established in favor of one or of the other. satisfactory
4. When the debtor violates any undertaking, in
POWER OF COURT TO FIX A PERIOD consideration of which the creditor agreed to
the period
Article 1197. Judicial period 5. When the debtor attempts to abscond
1. If the obligation does not fix a period, but
from its nature and the circumstances it can
be inferred that a period was intended, the Here, the debtor shall lose every right to make use of
courts may fix the duration thereof. the period, that is, the period is disregarded and the
2. The courts shall also fix the duration of the obligation becomes pure and, therefore, immediately
period when it depends upon the will of the demandable.
debtor.
Basis

DIAMOND NOTES | Valdez, Iana Jill F. | 16

Based on the fact that the debtor might not be able to
comply with his obligation
ALTERNATIVE OBLIGATIONS
An alternative obligation is one wherein various
prestations are due but the performance of one of
them is sufficient.
Article 1199. A person alternatively bound by
different prestations shall completely perform one of
them.
The creditor cannot be compelled to receive part of
one and part of the other undertaking.
Ex: D borrowed from C P10,000. It was agreed that D
could comply with his obligation by giving C P10,000,
or a color TV set, or by painting the house of C.
The delivery of the P10,000, or a color television set,
or the painting of the house of C, is sufficient to
comply with the obligation. Performance must be
complete. C cannot be compelled to accept, for
instance, P5,000 and half of the television, thereby
establishing a co-ownership between them, or P5,000,
and the painting of a part of his house.
RIGHT OF CHOICE BELONGS TO DEBTOR
Article 1200. General rule
The right of choice belongs to the debtor
Exception
Unless it has been expressly granted to the creditor
The debtor shall have no right to choose those
prestations which are impossible, unlawful or which
could not have been the object of the obligation.
Limitation on debtor’s right to choose
1. Debtor cannot choose those prestations
which are impossible, unlawful or which
could not have been an object of obligation.
2. Debtor has no more right of choice when
among the prestations he is alternatively
bound, only one is practicable (Art. 1202)
3. Debtor cannot choose part of one prestation
and part of another prestation
Effect of notice
Article 1201. The choice shall produce no effect
except from the time it has been communicated.
Conversion from alternative to simple obligation
Article 1202. The debtor shall lose the right of choice
when among the prestations whereby he is
alternatively bound, only one is practicable.
When debtor may rescind the contract
Article 1203. If through the creditor's acts the debtor
cannot make a choice according to the terms of the
obligation, the latter may rescind the contract with
damages.
EFFECT OF LOSS OF ALTERNATIVE OBJECTS
Loss of some of the objects
The debtor is not liable since he has the right of
choice and the obligation can still be performed.
Loss of all the objects
The creditor shall have a right to indemnity for
damages since the obligation can no longer be
complied with. Of course, if the cause of the loss is a
fortuitous event, the obligation is extinguished.
Article 1204. Right to indemnity
The creditor shall have a right to indemnity for
damages when, through the fault of the debtor, all the
things which are alternatively the object of the
obligation have been lost, or the compliance of the
obligation has become impossible.
Basis of indemnity
The indemnity shall be fixed taking as a basis the
value of the last thing which disappeared, or that of
the service which last became impossible.
Damages other than the value of the last thing or
DIAMOND NOTES | Valdez, Iana Jill F. | 17
service may also be awarded.
a. The loss or deterioration of the thing
RIGHT OF CHOICE BELONGS TO CREDITOR intended as a substitute, through the
negligence of the obligor, does not render
Article 1205. When the choice has been expressly him liable. (before substitution)
given to the creditor, the obligation shall cease to be
alternative from the day when the selection has been b. But once the substitution has been made, the
communicated to the debtor. obligor is liable for the loss of the substitute
on account of his delay, negligence or fraud.
Until then the responsibility of the debtor shall be (after substitution)
governed by the following rules:
ALTERNATIVE FACULTATIVE
1. If one of the things is lost through a Several prestations are Only one prestation is
fortuitous event, he shall perform the due but compliance with due although the debtor
obligation by delivering that which the one is suffi cient is allowed to substitute
creditor should choose from among the another
remainder, or that which remains if only one Right of choice may be The right to make the
subsists given to the creditor or substitution is given only
third person to the debtor
2. If the loss of one of the things occurs The loss of one or more The loss of the thing due
through the fault of the debtor, the creditor of the alternatives through a fortuitous
may claim any of those subsisting, or the through a fortuitous event extinguishes the
price of that which, through the fault of the event does not extinguish obligation
former, has disappeared, with a right to the obligation,
damages Loss of one or more of The loss of the thing due
the alternatives through through his fault makes
3. If all the things are lost through the fault of fault of debtor does not him liable
the debtor, the choice by the creditor shall render him liable
fall upon the price of any one of them, also The nullity of a prestation The nullity of the
with indemnity for damages. does not invalidate the prestation agreed upon
others and the debtor or invalidates the obligation
The same rules shall be applied to obligations to do or creditor shall choose and the debtor is not
not to do in case one, some or all of the prestations from among the bound to choose the
should become impossible. remainder substitute

FACULTATIVE OBLIGATION JOINT AND SOLIDARY OBLIGATIONS

Article 1206. Facultative obligation JOINT OBLIGATION

When only one prestation has been agreed upon, but It is one where the whole obligation is to be paid or
the obligor may render another in substitution, the fulfilled proportionately by the debtors and/or is to be
obligation is called facultative. demanded proportionately by the different creditors.

Ex: “I will give you my piano but I may give my SOLIDARY OBLIGATION
television set as a substitute.” It is one where each one of the debtors is bound to
render, and/or each one of the creditors has a right to
Effect of loss substitute demand entire compliance with the prestation.

DIAMOND NOTES | Valdez, Iana Jill F. | 18


Article 1207. The concurrence of two or more
creditors or of two or more debtors in one and the
same obligation does not imply that each one of the
former has a right to demand, or that each one of the
latter is bound to render, entire compliance with the
prestation.
When is there solidary liability
a. There is a solidary liability only when the
obligation expressly so states
b. When the law requires solidarity
c. When the nature of the obligation requires
solidarity
Presumption of joint obligation
Article 1208. If from the law, or the nature or the
wording of the obligations to which the preceding
article refers the contrary does not appear, the credit
or debt shall be presumed to be divided into as many
shares as there are creditors or debtors, the credits or
debts being considered distinct from one another,
subject to the Rules of Court governing the
multiplicity of suits.
Words indicating joint liability
Pro rata, proportional, jointly, conjoint, etc.
Words indicating solidary liability
Severally, jointly and severally, solidarily, etc.
Kinds of solidarity
(1) ACCORDING TO THE PARTIES BOUND
(a) Passive solidarity – solidarity on the
part of the debtors, where anyone of
them can be made liable for the
fulfillment of the entire obligation.
(b) Active solidarity – solidarity on the part
of the creditors, where anyone of them
can demand the fulfillment of the entire
obligation.
(c) Mixed solidarity – solidarity on the part
of the debtors and creditors, where each
one of the debtors is liable to render,
and each one of the creditors has a right
to demand, entire compliance with the
obligation
(2) ACCORDING TO SOURCE
(a) Conventional solidarity – where
solidarity is agreed upon by the parties
(b) Legal solidarity – where solidarity is
imposed by the law
(c) Real solidarity – where solidarity is
imposed by the nature of the obligation
JOINT INDIVISIBLE OBLIGATION
It is joint as to liabilities of the debtors or rights of the
creditors but indivisible as to compliance. This
obligation constitutes the middle ground between a
joint obligation and a solidary obligation.
Article 1209. If the division is impossible, the right of
the creditors may be prejudiced only by their
collective acts, and the debt can be enforced only by
proceeding against all the debtors.
If one of the latter should be insolvent, the others
shall not be liable for his share.
Indivisibility is not solidarity
Article 1210. The indivisibility of an obligation does
not necessarily give rise to solidarity. Nor does
solidarity of itself imply indivisibility.
Diverse stipulations
Article 1211. Solidarity may exist although the
creditors and the debtors may not be bound in the
same manner and by the same periods and
conditions.
DIAMOND NOTES | Valdez, Iana Jill F. | 19
Mutual agency in solidary creditors EFFECT OF PAYMENT BY SOLIDARY DEBTORS

Article 1212. Each one of the solidary creditors may Article 1217. Extinguishment of obligation
do whatever may be useful to the others, but not Payment made by one of the solidary debtors
anything which may be prejudicial to the latter. extinguishes the obligation.

Article 1213. A solidary creditor cannot assign his If two or more solidary debtors offer to pay, the
rights without the consent of the others. creditor may choose which offer to accept.

Payment to solidary creditors Right to reimbursement

He who made the payment may claim from his co-
Article 1214. Payment to any solidary creditor debtors only the share which corresponds to each,
The debtor may pay any one of the solidary creditors; with the interest for the payment already made. If the
payment is made before the debt is due, no interest
Payment to one who made the demand for the intervening period may be demanded.
But if any demand, judicial or extrajudicial, has been
made by one of them, payment should be made to When one of the solidary debtors cannot, because of
him. his insolvency, reimburse his share to the debtor
paying the obligation, such share shall be borne by all
Liability of solidary creditor in case of novation, his co-debtors, in proportion to the debt of each.
compensation, confusion, or remission
Effect of payment where obligation has already
Article 1215. Novation, compensation, confusion or prescribed or become illegal
remission of the debt, made by any of the solidary
creditors or with any of the solidary debtors, shall Article 1218. Payment by a solidary debtor shall not
extinguish the obligation, without prejudice to the entitle him to reimbursement from his co-debtors if
provisions of Article 1219. such payment is made after the obligation has
prescribed or become illegal.
The creditor who may have executed any of these
acts, as well as he who collects the debt, shall be liable 10-year prescription
to the others for the share in the obligation 1. Upon a written contract
corresponding to them. 2. Upon an obligation created by law
3. Upon a judgment
Right of creditor to proceed against any solidary
debtor 6-year prescription
1. Upon an oral contract
Article 1216. The creditor may proceed against any 2. Upon a quasi-contract
one of the solidary debtors or some or all of them
simultaneously. 4-year prescription
1. Upon an injury to the rights of the plaintiff
The demand made against one of them shall not be 2. Upon a quasi-delict
an obstacle to those which may subsequently be
directed against the others, so long as the debt has REMISSION OF SHARE BY CREDITOR
not been fully collected.
Article 1219. Remission after payment
The remission made by the creditor of the share which

DIAMOND NOTES | Valdez, Iana Jill F. | 20

affects one of the solidary debtors does not release
the latter from his responsibility towards the co-
debtors, in case the debt had been totally paid by
anyone of them before the remission was effected.
Article 1220. No reimbursement in remission
The remission of the whole obligation, obtained by
one of the solidary debtors, does not entitle him to
reimbursement from his co-debtors.
LOSS OR IMPOSSIBILITY OF THE PRESTATION
Article 1221. Without solidary debtors’ fault
If the thing has been lost or if the prestation has
become impossible without the fault of the solidary
debtors, the obligation shall be extinguished.
Through solidary debtors’ fault
If there was fault on the part of any one of them, all
shall be responsible to the creditor, for the price and
the payment of damages and interest, without
prejudice to their action against the guilty or
negligent debtor.
Through fortuitous event
If through a fortuitous event, the thing is lost or the
performance has become impossible after one of the
solidary debtors has incurred in delay through the
judicial or extrajudicial demand upon him by the
creditor, the provisions of the preceding paragraph
shall apply.
DEFENSES AVAILABLE TO SOLIDARY DEBTOR
Article 1222. A solidary debtor may, in actions filed
by the creditor, avail himself of all defenses which are
derived from the nature of the obligation and of those
which are personal to him, or pertain to his own share.
With respect to those which personally belong to the
others, he may avail himself thereof only as regards
that part of the debt for which the latter are
responsible.
1. Defenses derived from the nature of the
obligation
2. Defenses personal to, or which pertain to
share of, debtor sued
3. Defenses personal to other solidary debtors
DIVISIBLE AND INDIVISIBLE OBLIGATIONS
Article 1223. The divisibility or indivisibility of the
things that are the object of obligations in which there
is only one debtor and only one creditor does not
alter or modify the provisions of Chapter 2 of this
Title.
DIVISIBLE OBLIGATION
It is one the object of which, in its delivery or
performance, is capable of partial fulfilment
INDIVISIBLE OBLIGATION
It is one the object of which, in its delivery or
performance, is not capable of partial fulfillment.
Kinds of division
(1) Qualitative division
It is one based on quality, not on number or
quantity of the things that are the object of
the obligation.
Ex: A and B are heirs of C. They agreed to
divide the inheritance: to A — a house and
lot and home appliances and to B — a
ricefield, a car and P100,000 cash
(2) Quantitative division
It is or one based on quantity rather than on
quality. (Ex: A and B divide the P100,000 cash
equally)
(3) Ideal or intellectual division
It is one which exists only in the minds of the
parties.
Ex: Before the land is actually divided
between A and B, they are merely co-owners,
and neither one of them can say that he is
the absolute owner of a specific portion
thereof.
DIAMOND NOTES | Valdez, Iana Jill F. | 21
Kinds of indivisibility It is one which can stand by itself and does not
1. Legal depend for its validity and existence upon another
2. Conventional obligation
3. Natural
Accessory obligation
JOINT INDIVISIBLE OBLIGATION It is one which is attached to a principal obligation
and, therefore, cannot stand alone.
Article 1224. A joint indivisible obligation gives rise
to indemnity for damages from the time anyone of Penal clause
the debtors does not comply with his undertaking. It is an accessory undertaking attached to an
obligation to assume greater liability on the part of
The debtors who may have been ready to fulfill their the obligor in case of breach of the obligation
promises shall not contribute to the indemnity
beyond the corresponding portion of the price of the Purposes of penal clause
thing or of the value of the service in which the 1. To insure their performance
obligation consists. 2. To substitute the indemnity for damages and
the payment of interests with penalty
OBLIGATIONS DEEMED INDIVISIBLE 3. To punish the debtor for the non-fulfillment
or violation of his obligation
Article 1225. For the purposes of the preceding
articles, obligations to give definite things and those PENALTY SUBSTITUTES FOR
which are not susceptible of partial performance shall DAMAGES AND INTERESTS
be deemed to be indivisible.
Article 1226. In obligations with a penal clause, the
When the obligation has for its object the execution penalty shall substitute the indemnity for damages
of a certain number of days of work, the and the payment of interests in case of
accomplishment of work by metrical units, or noncompliance, if there is no stipulation to the
analogous things which by their nature are susceptible contrary.
of partial performance, it shall be divisible.
Penalty + damages
However, even though the object or service may be Nevertheless, damages shall be paid
physically divisible, an obligation is indivisible if so a. If the obligor refuses to pay the penalty or
provided by law or intended by the parties. b. Is guilty of fraud in the fulfillment of the
obligation
In obligations not to do, divisibility or indivisibility
shall be determined by the character of the prestation When may penalty be enforced
in each particular case. The penalty may be enforced only when it is
demandable in accordance with the provisions of this
OBLIGATIONS WITH A PENAL CLAUSE Code.

An obligation with a penal clause is one which
contains an accessory undertaking to pay a previously
stipulated indemnity in case of breach of the principal
prestation intended primarily to induce its fulfillment.
Principal obligation
PENALTY NOT SUBSTITUTE FOR PERFORMANCE
Article 1227. The debtor cannot exempt himself from
the performance of the obligation by paying the
penalty, save in the case where this right has been
expressly reserved for him.

DIAMOND NOTES | Valdez, Iana Jill F. | 22

 4. By the confusion or merger of the rights of
GR: Prohibition on fulfillment + penalty creditor and debtor
Neither can the creditor demand the fulfillment of the 5. By compensation
obligation and the satisfaction of the penalty at the 6. By novation
same time, unless this right has been clearly granted
him. Other causes of extinguishment of obligations:
a. Such as annulment
XPN: Fulfillment → penalty b. Rescission
However, if after the creditor has decided to require c. Fulfillment of a resolutory condition, and
the fulfillment of the obligation, the performance d. Prescription, are governed elsewhere in this
thereof should become impossible without his fault, Code
the penalty may be enforced.
PAYMENT OR PERFORMANCE
Proof of actual damages not necessary
PAYMENT
Article 1228. Proof of actual damages suffered by the
creditor is not necessary in order that the penalty may Article 1232.Payment means not only the delivery of
be demanded. money but also the performance, in any other
manner, of an obligation.
REDUCTION OF PENALTY
Elements of payment
Article 1229. The judge shall equitably reduce the 1. Persons, who may pay and to whom
penalty when the principal obligation has been partly payment may be made
or irregularly complied with by the debtor. 2. Thing or object in which payment must
consist
Even if there has been no performance, the penalty 3. The cause thereof
may also be reduced by the courts if it is iniquitous or 4. The mode or form thereof
unconscionable. 5. The place and the time in which it must be
made
NULLITY OF PENAL CLAUSE 6. The imputation of expenses occasioned by it;
7. The special parts which may modify the same
Article 1230. The nullity of the penal clause does not and the effects they generally produce
carry with it that of the principal obligation.
Burden of proving payment
The nullity of the principal obligation carries with it It devolves upon the debtor who pleads payment or
that of the penal clause. offers such a defense to the claim of the creditor
rather than on the latter to prove non-payment
CHAPTER 4
When debt considered paid
EXTINGUISHMENT OF OBLIGATIONS
Article 1233. A debt shall not be understood to have
Article 1231. Obligations are extinguished: been paid unless the thing or service in which the
obligation consists has been completely delivered or
1. By payment or performance rendered, as the case may be.
2. By the loss of the thing due
3. By the condonation or remission of the debt

DIAMOND NOTES | Valdez, Iana Jill F. | 23

 1. Integrity of the prestation – the prestation
must be fulfilled completely Article 1237. Whoever pays on behalf of the debtor
without the knowledge or against the will of the latter,
2. Identity of the prestation – the very cannot compel the creditor to subrogate him in his
prestation due must be delivered or rights, such as those arising from a mortgage,
performed guaranty, or penalty.

Recovery in case of substantial performance Payment by a third person deemed as donation

Article 1234. If the obligation has been substantially Article 1238. Payment made by a third person who
performed in good faith, the obligor may recover as does not intend to be reimbursed by the debtor is
though there had been a strict and complete deemed to be a donation, which requires the debtor's
fulfillment, less damages suffered by the obligee. consent.

Waiver of incomplete or irregular performance
Article 1235. When the obligee accepts
performance, knowing its incompleteness
irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied
with.
REQUISITES:
1. The obligee knows that the performance is
incomplete or irregular
2. He accepts the performance
expressing any protest or objection
PAYMENT BY THIRD PERSON
Article 1236. Creditor not bound to accept
payment or performance by third person
The creditor is not bound to accept payment or
performance by a third person who has no interest in
the fulfillment of the obligation, unless there is a
stipulation to the contrary.
Right to recover of third person
Whoever pays for another may demand from the
debtor what he has paid, except that if he paid
without the knowledge or against the will of the
debtor, he can recover only insofar as the payment
has been beneficial to the debtor.
Payment by third person without the knowledge
or against the debtor’s will
But the payment is in any case valid as to the creditor
who has accepted it.
the
or Free disposal and capacity to alienate
Article 1239. In obligations to give, payment made by
one who does not have the free disposal of the thing
due and capacity to alienate it shall not be valid,
without prejudice to the provisions of article 1427
under the Title on "Natural Obligations."
without TO WHOM PAYMENT SHALL BE MADE
Article 1240. Payment shall be made:
a. To the person in whose favor the obligation
has been constituted (the creditor)
b. His successor in interest, or
c. Any person authorized to receive it
Article 1241. Payment to an incapacitated person
Payment to a person who is incapacitated to
administer his property shall be valid
a. If he has kept the thing delivered, or
b. Insofar as the payment has been beneficial to
him
Payment to a third person
Payment made to a third person shall also be valid
insofar as it has redounded to the benefit of the
creditor. Such benefit to the creditor need not be
proved in the following cases:

DIAMOND NOTES | Valdez, Iana Jill F. | 24

 1. If after the payment, the third person
acquires the creditor's rights
2. If the creditor ratifies the payment to the
third person
3. If by the creditor's conduct, the debtor has
been led to believe that the third person had
authority to receive the payment.
Article 1242. Payment to third person in
possession of credit
Payment made in good faith to any person in
possession of the credit shall release the debtor.
When payment to creditor not valid
Article 1243. Payment made to the creditor by the
debtor after the latter has been judicially ordered to
retain the debt shall not be valid.
Identity of the prestation
Article 1244. The debtor of a thing cannot compel
the creditor to receive a different one, although the
latter may be of the same value as, or more valuable
than that which is due.
In obligations to do or not to do, an act or
forbearance cannot be substituted by another act or
forbearance against the obligee's will.
SPECIAL FORMS OF PAYMENT
1. Dation in payment (Art. 1245.)
2. Application of payments (Art. 1253)
3. Payment by cession (Art. 1255)
4. Tender of payment and consignation. (Arts.
1256-1261.)
DATION IN PAYMENT
Article 1245. Dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law of sales.
Dation en pago
It is the conveyance of ownership of a thing by the
debtor to creditor as an accepted equivalent of
performance of a monetary obligation.
Requisites
1. Performance of the prestation in lieu of
payment (animo solvendi) which may consist
in the delivery of a corporeal thing or a real
right or a credit against a third person
2. Difference between the prestation due and
that which is given in substitution
3. Agreement between the creditor and debtor
that the obligation is immediately
extinguished by reason of the performance
of a prestation different from that due
The undertaking really partakes in one sense of the
nature of sale, that is, the creditor is really buying the
thing or property of the debtor, payment for which is
to be charged against the debtor’s debt.
Rule of medium quality
Article 1246. When the obligation consists in the
delivery of an indeterminate or generic thing, whose
quality and circumstances have not been stated, the
creditor cannot demand a thing of superior quality.
Neither can the debtor deliver a thing of inferior
quality.
The purpose of the obligation and other
circumstances shall be taken into consideration.
Debtor liable for extraordinary expenses
Article 1247. Unless it is otherwise stipulated, the
extrajudicial expenses required by the payment shall
be for the account of the debtor.
With regard to judicial costs, the Rules of Court shall
govern.
COMPELETE PAYMENT OR PERFORMANCE
Article 1248. Unless there is an express stipulation to
DIAMOND NOTES | Valdez, Iana Jill F. | 25
that effect, the creditor cannot be compelled partially
to receive the prestations in which the obligation Article 1250. In case an extraordinary inflation or
consists. deflation of the currency stipulated should supervene,
the value of the currency at the time of the
Neither may the debtor be required to make partial establishment of the obligation shall be the basis of
payments. payment, unless there is an agreement to the
contrary.
However, when the debt is in part liquidated and in
part unliquidated, the creditor may demand and the REQUISITES:
debtor may effect the payment of the former without 1. There is an official declaration of
waiting for the liquidation of the latter. extraordinary inflation or deflation from BSP
2. The obligation is contractual in nature
When partial performance allowed 3. The parties expressly agreed to consider the
1. Express stipulation to that effect effects of the extraordinary inflation or
2. When the debt is in part liquidated and in deflation
part unliquidated (par. 2.); (3)
3. When the different prestations in which the Place of payment
obligation consists are subject to different
terms or conditions which affect some of Article 1251.
them. a. Payment shall be made in the place
4. When the parties know that the obligation designated in the obligation.
reasonably cannot be expected to be b. There being no express stipulation and if the
performed completely at one time undertaking is to deliver a determinate thing,
5. When there is abuse of right or if good faith the payment shall be made wherever the
requires acceptance thing might be at the moment the obligation
was constituted.
Currency c. In any other case the place of payment shall
be the domicile of the debtor.
Article 1249. The payment of debts in money shall be
made in the currency stipulated, and if it is not If the debtor changes his domicile in bad
possible to deliver such currency, then in the currency faith or after he has incurred in delay, the
which is legal tender in the Philippines. additional expenses shall be borne by him.

Payment by means of credit instruments These provisions are without prejudice to venue under
The delivery of promissory notes payable to order, or the Rules of Court.
bills of exchange or other mercantile documents shall
produce the effect of payment only: APPLICATION OF PAYMENTS

a. When they have been cashed, or
b. When through the fault of the creditor they
have been impaired
In the meantime, the action derived from the original
obligation shall be held in the abeyance.
Basis of payment in case of extraordinary inflation
or deflation
Article 1252. He who has various debts of the same
kind in favor of one and the same creditor, may
declare at the time of making the payment, to which
of them the same must be applied.
Unless the parties so stipulate, or when the
application of payment is made by the party for
whose benefit the term has been constituted,

DIAMOND NOTES | Valdez, Iana Jill F. | 26

application shall not be made as to debts which are the proceeds thereof to the satisfaction of their
not yet due. credits.

If the debtor accepts from the creditor a receipt in Article 1255. The debtor may cede or assign his
which an application of the payment is made, the property to his creditors in payment of his debts.
former cannot complain of the same, unless there is a
cause for invalidating the contract. Effect of payment by cession
This cession, unless there is stipulation to the contrary,
Application of payment shall only release the debtor from responsibility for
It is the designation of the debt to which should be the net proceeds of the thing assigned.
applied the payment made by a debtor who has
various debts of the same kind in favor of one and the The agreements which, on the effect of the cession,
same creditor. are made between the debtor and his creditors shall
be governed by special laws.
Requisites of application of payment
1. One debtor and one creditor Requisites of payment by cession
2. Two or more debts 1. Two or more creditors
3. The debts must be of the same kind 2. The debtor must be (partially) insolvent
4. The debts to which payment made by the 3. The assignment must involve all the
debtor has been applied must be due properties of the debtor
5. The payment made must not be sufficient to 4. The cession must be accepted by the
cover all the debts creditors

Interest first policy DATION CESSION

There is usually only one There are several
Article 1253. If the debt produces interest, payment creditor creditors;
of the principal shall not be deemed to have been Does not presuppose the The debtor is insolvent at
made until the interests have been covered. insolvency of the debtor the time of assignment
or a situation of financial
Application of payment to more onerous debts difficulties
Oes not involve all the Extends to all the
Article 1254. When the payment cannot be applied in property of the debtor property of the debtor
accordance with the preceding rules, or if application subject to execution
cannot be inferred from other circumstances, the debt The creditor becomes the The creditors only acquire
which is most onerous to the debtor, among those owner of the thing given the right to sell the thing
due, shall be deemed to have been satisfied. by the debtor and apply the proceeds
to their credits pro rata;
If the debts due are of the same nature and burden, Substitute form of Substitute form of
the payment shall be applied to all of them payment or performance payment or performance
proportionately.
TENDER OF PAYMENT AND CONSIGNATION
PAYMENT BY CESSION
TENDER OF PAYMENT
It is the assignment or abandonment of all the It is the act, on the part of the debtor, of offering to
properties of the debtor for the benefit of his creditors the creditor the thing or amount due.
in order that the latter may sell the same and apply

DIAMOND NOTES | Valdez, Iana Jill F. | 27

It is an act preparatory to consignation.
Requisites of tender of payment
1. Must comply with the rules on payment
2. Must be unconditional and for the whole
amount
3. Must be actually made
CONSIGNATION
It is the act of depositing the thing or amount due
with the proper court when the creditor does not
desire, or refuses to accept payment, or cannot
receive it.
It is always judicial and it generally requires a prior
tender of payment.
Requisites of consignation
1. Existence of a valid debt which is due
2. Tender of payment by the debtor and refusal
without justifiable reason by the creditor to
accept it
3. Previous notice of consignation to persons
interested in the fulfillment of the obligation
4. Consignation of the thing or sum due
5. Subsequent notice of consignation made to
the interested parties.
Article 1256. Tender of payment and consignation
releases debtor from responsibility
If the creditor to whom tender of payment has been
made refuses without just cause to accept it, the
debtor shall be released from responsibility by the
consignation of the thing or sum due.
When tender of payment not required
Consignation alone shall produce the same effect in
the following cases:
1. When the creditor is absent or unknown, or
does not appear at the place of payment
2. When he is incapacitated to receive the
payment at the time it is due
3. When, without just cause, he refuses to give
a receipt
4. When two or more persons claim the same
right to collect
5. When the title of the obligation has been lost
Prior notice of consignation
Article 1257. In order that the consignation of the
thing due may release the obligor, it must first be
announced to the persons interested in the fulfillment
of the obligation.
The consignation shall be ineffectual if it is not made
strictly in consonance with the provisions which
regulate payment.
How consignation is made
Article 1258. Consignation shall be made by
depositing the things due at the disposal of judicial
authority, before whom the tender of payment shall
be proved, in a proper case, and the announcement of
the consignation in other cases.
Subsequent notice of consignation
The consignation having been made, the interested
parties shall also be notified thereof.
Expenses of consignation
Article 1259. The expenses of consignation, when
properly made, shall be charged against the creditor.
Withdrawal of the thing
Article 1260. After proper consignation
Once the consignation has been duly made, the
debtor may ask the judge to order the cancellation of
the obligation.
Before proper consignation:
(a) Before the creditor has accepted the consignation,
or (b) before a judicial declaration that the
consignation has been properly made, the debtor may
withdraw the thing or the sum deposited, allowing the
obligation to remain in force.
Article 1261. If, the consignation having been made,
DIAMOND NOTES | Valdez, Iana Jill F. | 28
the creditor should authorize the debtor to withdraw
the same, he shall lose every preference which he may
have over the thing. The co-debtors, guarantors and
sureties shall be released.
LOSS OF THE THING DUE
The thing is lost when it perishes, or goes out of
commerce or disappears in such a way that its
existence is unknown or it cannot be recovered.
LOSS OF DETERMINATE OR SPECIFIC THING
Article 1262. An obligation which consists in the
delivery of a determinate thing shall be extinguished if
it should be lost or destroyed without the fault of the
debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even
for fortuitous events, the loss of the thing does not
extinguish the obligation, and he shall be responsible
for damages. The same rule applies when the nature
of the obligation requires the assumption of risk.
When loss of determinate thing extinguishes
obligation to give, requisites
1. The obligation is to deliver a specific or
determinate thing
2. The loss occurs without debtor’s fault
3. The debtor is not guilty of delay
When loss of determinate thing does not
extinguish obligation to give
1. When the law so provides
2. When the stipulation so provides
3. When the nature of the obligation requires
the assumption of risk
4. When the obligation to deliver a specific
thing arises from a crime (Art. 1268.)
LOSS OF GENERIC OR INDETERMINATE THING
Article 1263. In an obligation to deliver a generic
thing, the loss or destruction of anything of the same
kind does not extinguish the obligation.
Genus nunquam perit
A generic thing never perishes
The debtor can still be compelled to deliver a thing of
the same kind. The creditor, however, cannot demand
a thing of superior quality and neither can the debtor
deliver a thing of inferior quality. (Art. 1246)
PARTIAL LOSS OF SPECIFIC THING
Partial loss
When only a portion of the thing is lost or destroyed
or when it suffers depreciation or deterioration
Article 1264. The courts shall determine whether,
under the circumstances, the partial loss of the object
of the obligation is so important as to extinguish the
obligation.
PRESUMPTION OF DEBTOR’S FAULT
Article 1265. When is debtor’s fault presumed
Whenever the thing is lost in the possession of the
debtor, it shall be presumed that the loss was due to
his fault, unless there is proof to the contrary, and
without prejudice to the provisions of article 1165.
When presumption not applicable
This presumption does not apply in case of
earthquake, flood, storm, or other natural calamity.
IMPOSSIBILITY OF PERFORMANCE
Article 1266. The debtor in obligations to do shall
also be released when the prestation becomes legally
or physically impossible without the fault of the
obligor.
DIFFICULTY OF PERFORMANCE
Article 1267. When the service has become so
difficult as to be manifestly beyond the contemplation
of the parties, the obligor may also be released
therefrom, in whole or in part.
Effect of difficulty of performance
DIAMOND NOTES | Valdez, Iana Jill F. | 29
Obligor may be released from the obligation, in whole It is the gratuitous renunciation by the creditor of his
or in part right against the debtor resulting in the
extinguishment of the latter’s obligation in its entirely
Modification of contract not covered or in that part of the same to which the renunciation
What Article 1267 authorizes is a total or partial refers. It is thus a form of donation.
release from an obligation, not a modification or
revision of the terms and conditions of the contract. Requisites
1. It must be gratuitous
The court shall either release or not release a party 2. It must be accepted by the obligor
from a contract, but it cannot modify the terms 3. The parties must have capacity
thereof and order the parties to comply with the 4. It must not be inofficious
contract as modified by it. 5. If made expressly, it must comply with the
forms of donation
OBLIGATION PROCEEDING FROM A
CRIMINAL OFFENSE Remission must be gratuitous
Otherwise, the nature of act is changed, and becomes:
Article 1268. When the debt of a thing certain and a. Dation in payment if a thing is received by
determinate proceeds from a criminal offense, the the creditor instead of the amount due
debtor shall not be exempted from the payment of its b. Cession, if the assignment of property is for
price, whatever may be the cause for the loss, unless the benefit of creditors
the thing having been offered by him to the person c. Novation, if the object or circumstances of
who should receive it, the latter refused without the obligation are changed
justification to accept it. d. Compromise, if what is renounced is a
doubtful or litigious right in exchange of
Even a fortuitous event does not exempt the debtor other concessions obtained by the creditor
from liability
Kinds of remission
Right of creditor to proceed against third persons
A. AS TO EXTENT
Article 1269. The obligation having been 1. Complete
extinguished by the loss of the thing, the creditor shall 2. Partial
have all the rights of action which the debtor may B. AS TO FORM
have against third persons by reason of the loss. 3. Express
4. Implied
CONDONATION OR C. AS TO DATE OF EFFECTIVITY
REMISSION OF THE DEBT 5. Inter vivios – when it will take effect
during the lifetime of the donor
Article 1270. Condonation or remission is essentially 6. Mortis causa – when it will become
gratuitous, and requires the acceptance by the effective upon the death of the
obligor. It may be made expressly or impliedly. donor

One and the other kind shall be subject to the rules

Effect of inofficious remission
which govern inofficious donations. Express
Shall be reduced by the court accordingly
condonation shall, furthermore, comply with the forms
of donation.
PRESUMPTION OF RENUNCIATION IN CASE OF
Condonation or remission DELIVERY OF DOC EVIDENCING CREDIT

DIAMOND NOTES | Valdez, Iana Jill F. | 30

Article 1271. The delivery of a private document
evidencing a credit, made voluntarily by the creditor
to the debtor, implies the renunciation of the action
which the former had against the latter. If in order to
nullify this waiver it should be claimed to be
inofficious, the debtor and his heirs may uphold it by
proving that the delivery of the document was made
in virtue of payment of the debt.
Article 1272. Whenever the private document in
which the debt appears is found in the possession of
the debtor, it shall be presumed that the creditor
delivered it voluntarily, unless the contrary is proved.
Effect of renunciation of principal debt on
accessory obligation and vice versa
Article 1276. Merger which takes place in the person
of the principal debtor or creditor benefits the
guarantors. Confusion which takes place in the person
of any of the latter does not extinguish the obligation.
Confusion in joint obligation
Article 1277. Confusion does not extinguish a joint
obligation except as regards the share corresponding
to the creditor or debtor in whom the two characters
concur.
COMPENSATION
Article 1278. Compensation shall take place when
two persons, in their own right, are creditors and
debtors of each other.

Article 1273. The renunciation of the principal debt Compensation

shall extinguish the accessory obligations; but the It is the extinguishment to the concurrent amount of
waiver of the latter shall leave the former in force. the debts of two persons who, in their own right, are
reciprocally principal debtors and creditors of each
➢ Accessory follows the principal. other.

Article 1274. It is presumed that the accessory Kinds of compensation

obligation of pledge has been remitted when the
thing pledged, after its delivery to the creditor, is A. BY EFFECT OR EXTENT
found in the possession of the debtor, or of a third
1. Total
person who owns the thing.
2. Partial
B. BY CAUSE OR ORIGIN
CONFUSION OR MERGER OF RIGHTS
3. Legal
4. Conventional
Article 1275. The obligation is extinguished from the
time the characters of creditor and debtor are merged 5. Judicial
in the same person. 6. Facultative

Confusion or merger REQUISITES OF LEGAL COMPENSATION

It is the meeting in one person of the qualities of
creditor and debtor with respect to the same
obligation
Requisites
1. It must take place between the principal
debtor and creditor
2. It must be complete and definite
Effect of merger in the person of principal debtor
or creditor vis-à-vis guarantor
Article 1279. In order that compensation may be
proper, it is necessary:
1. That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other
2. That both debts consist in a sum of money,
or if the things due are consumable, they be
of the same kind, and also of the same
quality if the latter has been stated
3. That the two debts be due
4. That they be liquidated and demandable
5. That over neither of them there be any

DIAMOND NOTES | Valdez, Iana Jill F. | 31

 retention or controversy, commenced by
third persons and communicated in due time Article 1284. When one or both debts are rescissible
to the debtor or voidable, they may be compensated against each
other before they are judicially rescinded or avoided.
Compensation against the government
Compensation vis-à-vis assignment
1. Taxes
Article 1285. The debtor who has consented to the
GR: Not subject to set-off or compensation assignment of rights made by a creditor in favor of a
XPN: Where both the claims of the third person, cannot set up against the assignee the
compensation which would pertain to him against the
government and the taxpayer against each
assignor, unless the assignor was notified by the
other have already become due and
debtor at the time he gave his consent, that he
demandable as well as fully liquidated reserved his right to the compensation.

2. Contractual obligations – may be If the creditor communicated the cession to him but
compensated the debtor did not consent thereto, the latter may set
up the compensation of debts previous to the cession,
but not of subsequent ones.
Compensation benefits guarantor

If the assignment is made without the knowledge of

Article 1280. Notwithstanding the provisions of the
preceding article, the guarantor may set up
compensation as regards what the creditor may owe
the principal debtor.
Total or partial compensation
the debtor, he may set up the compensation of all
credits prior to the same and also later ones until he
had knowledge of the assignment.
Compensation takes place by operation of law

Article 1286. Compensation takes place by operation

Article 1281. Compensation may be total or partial.
When the two debts are of the same amount, there is
a total compensation.
Voluntary compensation
Article 1282. The parties may agree upon the
compensation of debts which are not yet due.
GR: Only debts which are due and demandable
can be compensated
of law, even though the debts may be payable at
different places, but there shall be an indemnity for
expenses of exchange or transportation to the place
of payment.
Instances when legal compensation not allowed
Article 1287. Compensation shall not be proper when
one of the debts arises from a depositum or from the
obligations of a depositary or of a bailee in
commodatum.

Neither can compensation be set up against a creditor

XPN: Art. 1282
who has a claim for support due by gratuitous title,
without prejudice to the provisions of paragraph 2 of
Judicial compensation article 301.

Article 1283. If one of the parties to a suit over an Article 1288. Neither shall there be compensation if
obligation has a claim for damages against the other, one of the debts consists in civil liability arising from a
the former may set it off by proving his right to said penal offense.
damages and the amount thereof.

Compensation of rescissible or voidable debts

DIAMOND NOTES | Valdez, Iana Jill F. | 32

 1. Where one of the debts arises from a c. By subrogating a third person in the rights of
depositum the creditor
2. Where one of the debts arises from a
commodatum Dual function or purpose of novation
3. Where one of the debts arises from a claim 1. To extinguish/ modify an existing obligation
for support due by gratuitous title 2. To substitute a new one in its place
4. Where one of the debts consists in civil
liability arising from a penal offense Kinds of novation

Rules on application of payments applicable to A. AS TO ORIGIN

order of compensation 1. Legal
2. Conventional
Article 1289. If a person should have against him B. AS TO CONSTITUTION
several debts which are susceptible of compensation, 3. Express
the rules on the application of payments shall apply to 4. Implied
the order of the compensation.
C. AS TO EXTENT
5. Total
If a debtor has various debts which are susceptible of
6. Partial
compensation, he must inform the creditor which of
D. AS TO SUBJECT
them shall be the object of compensation. In case he
7. Real
fails to do so, then the compensation shall be applied
8. Personal
to the most onerous obligation.
9. Mixed

Consent not required in legal compensation

Requisites of novation
1. The existence of a previous valid obligation
Article 1290. When all the requisites mentioned in
2. The intention or agreement and capacity of
article 1279 are present, compensation takes effect by
operation of law, and extinguishes both debts to the the parties to extinguish or modify the
concurrent amount, even though the creditors and obligation
debtors are not aware of the compensation. 3. The extinguishment or modification of the
obligation
NOVATION 4. Creation or birth of a valid new obligation

Article 1291. Obligations may be modified by: NOVATION NOT PRESUMED

1. Changing their object or principal conditions
2. Substituting the person of the debtor
3. Subrogating a third person in the rights of
the creditor
Novation
It is the total or partial extinction of an obligation
through the creation of a new one which substitutes
it.
Article 1292. In order that an obligation may be
extinguished by another which substitute the same, it
is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on
every point incompatible with each other.
Burden of showing novation
Lies on the party who asserts its existence

Modes of novation PERSONAL NOVATION

a. By changing its object or principal conditions
b. By substituting another in place of the Article 1293. Novation which consists in substituting
debtor a new debtor in the place of the original one, may be

DIAMOND NOTES | Valdez, Iana Jill F. | 33

made even without the knowledge or against the will
of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the
rights mentioned in articles 1236 and 1237.
Kinds of personal novation
1. Substitution
a. Expromission – that which takes
place when a third person of his
own initiative and without the
knowledge or against the will of the
original debtor assumes the latter’s
obligation with the consent of the
creditor (requires the consent of the
third person and the creditor)
b. Delegacion – that which takes place
when the creditor accepts a third
person to take the place of the
debtor at the instance of the latter
(requires the consent of the old
debtor, the new debtor and the
creditor)
2. Subrogation
Effects of insolvency of new debtor
Article 1294. If the substitution is without the
knowledge or against the will of the debtor, the new
debtor's insolvency or nonfulfillment of the
obligations shall not give rise to any liability on the
part of the original debtor.
Article 1295. The insolvency of the new debtor, who
has been proposed by the original debtor and
accepted by the creditor, shall not revive the action of
the latter against the original obligor, except when
said insolvency was already existing and of public
knowledge, or known to the debtor, when the
delegated his debt.
Effect of novation on accessory obligations
Article 1296. When the principal obligation is
extinguished in consequence of a novation, accessory
obligations may subsist only insofar as they may
benefit third persons who did not give their consent.
Effect where the new obligation void
Article 1297. If the new obligation is void, the original
one shall subsist, unless the parties intended that the
former relation should be extinguished in any event.
Effect where the old obligation void or voidable
Article 1298. The novation is void if the original
obligation was void, except when annulment may be
claimed only by the debtor or when ratification
validates acts which are voidable.
Presumption where original obligation subject to a
condition
Article 1299. If the original obligation was subject to
a suspensive or resolutory condition, the new
obligation shall be under the same condition, unless it
is otherwise stipulated.
SUBROGATION
Article 1300. Subrogation of a third person in the
rights of the creditor is either legal or conventional.
The former is not presumed, except in cases expressly
mentioned in this Code; the latter must be clearly
established in order that it may take effect.
Subrogation
It is the substitution of one person in the place of
another with reference to a lawful claim or right, so
that he who is substituted succeeds to the right of the
other in relation to a debt or claim, including its
remedies and securities
Kinds of subrogation
1. Legal
2. Conventional
Conventional subrogation
Article 1301. Conventional subrogation of a third
person requires the consent of the original parties and
of the third person.
Consent required in conventional subrogation
DIAMOND NOTES | Valdez, Iana Jill F. | 34
 1. Debtor
CONTRACTS
2. Old or original creditor
3. New creditor
CHAPTER 1
GENERAL PROVISIONS
Presumption of legal subrogation

CONTRACT
Article 1302. It is presumed that there is legal
subrogation:
1. When a creditor pays another creditor who is Article 1305. A contract is a meeting of minds
preferred, even without the debtor's between two persons whereby one binds himself, with
knowledge respect to the other, to give something or to render
2. When a third person, not interested in the some service.
obligation, pays with the express or tacit
approval of the debtor
Number of parties to a contract
3. When, even without the knowledge of the
There must be at least 2 persons or parties, because it
debtor, a person interested in the fulfillment
of the obligation pays, without prejudice to is impossible for one to contract with himself
the effects of confusion as to the latter's
share Termination or cancellation of contract
a. By stipulation of the parties
Effects of legal subrogation b. By stipulation, at option of one party
c. By one party with conformity of the other
Article 1303. Subrogation transfers to the persons
subrogated the credit with all the rights thereto Contract vs. Obligation
appertaining, either against the debtor or against
Contract is one of the sources of obligations. On the
third person, be they guarantors or possessors of
other hand, obligation is the legal tie or relation itself
mortgages, subject to stipulation in a conventional
subrogation. that exists after a contract has been entered into.

Effect of partial subrogation There can be no contract if there is no obligation. But

an obligation may exist without a contract.
Article 1304. A creditor, to whom partial payment has
been made, may exercise his right for the remainder, Characteristics of contracts
and he shall be preferred to the person who has been 1. Freedom or autonomy of contracts
subrogated in his place in virtue of the partial 2. Obligatoriness of contracts
payment of the same credit. 3. Mutuality of contracts
4. Consensuality of contracts
5. Relativity of contracts

Classifications of contract

ACCORDING TO NAME OR DESIGNATION

Nominate
Innominate

ACCORDING TO PERFECTION
Consensual
Real

DIAMOND NOTES | Valdez, Iana Jill F. | 35

ACCORDING TO CAUSE AUTONOMY OF CONTRACTS
Onerous
Remuneratory or remunerative Article 1306. The contracting parties may establish
Gratuitous such stipulations, clauses, terms and conditions as
they may deem convenient
ACCORDING TO FORM:
Informal or common Limitation on contractual stipulations
Formal or solemn Provided they are not contrary to law, morals, good
customs, public order, or public policy.
ACCORDING TO OBLIGATORY FORCE
Valid Law
Rescissible It is a rule of conduct, just, obligatory, promulgated by
Voidable legitimate authority, and of common observance and
Unenforceable benefit.
Void or inexistent
Morals
ACCORDING TO PERSON OBLIGED It deals with norms of good and right conduct evolved
Unilateral in a community. These norms may differ at different
Bilateral times and places and with each group of people.

AS TO DEPENDENCE TO ANOTHER CONTRACT Good customs

Preparatory (e.g., agency, partnership), when it is
entered into as a means to an end
Accessory (e.g., mortgage, guaranty), when it is
dependent upon another contract it secures or
guarantees for its existence and validity
Principal (e.g., sale, lease), when it does not depend
for its existence and validity upon another contract
but is an indispensable condition for the existence of
an accessory contract
ACCORDING TO RISKS
Commutative (e.g., sale, lease), when the undertaking
of one party is considered the equivalent of that of
the other
Aleatory (e.g., insurance, sale of a hope6 ), when it
depends upon an uncertain event or contingency
both as to benefi t or loss.
ACCORDING TO LIABILITY
Unilateral (e.g., commodatum, gratuitous deposit),
when it creates an obligation on the part of only one
of the parties
Bilateral (e.g., sale, lease), when it gives rise to
reciprocal obligations for both parties.
Customs consist of habits and practices which through
long usage have been followed and enforced by
society or some part of it as binding rules of conduct.
It has the force of law when recognized and enforced
by law. A custom must be proved as a fact, according
to the rules of evidence.
Public order
It refers principally to public safety although it has
been considered to mean also the public weal.
Public policy
It is that principle of law which holds that no subject
or citizen can lawfully do that which has a tendency to
be injurious to the public or against the public good
which may be termed the “policy of the law,’’ or
“public policy in relation to the administration of the
law.”
INOMINATE CONTRACTS
Article 1307. Innominate contracts shall be regulated
by the stipulations of the parties, by the provisions of
Titles I and II of this Book, by the rules governing the
most analogous nominate contracts, and by the

DIAMOND NOTES | Valdez, Iana Jill F. | 36

customs of the place.
Classification of contracts according to its name or
designation
1. Nominate contract or that which has a
specific name or designation in law (e.g.,
commodatum, lease, agency, sale, etc.); and
2. Innominate contract or that which has no
specific name or designation in law
No party can renounce or violate the law of the
contract unilaterally or without the consent of the
other
DETERMINATION OF PERFORMANCE
Article 1309. The determination of the performance
may be left to a third person, whose decision shall not
be binding until it has been made known to both
contracting parties.

Kinds of innominate contract Article 1310. The determination shall not be

1. Do ut des (I give that you may give) obligatory if it is evidently inequitable. In such case,
2. Do ut facias (I give that you may do) the courts shall decide what is equitable under the
3. Facio ut des (I do that you may give) circumstances.
4. Facio ut facias (I do that you may do)
REALATIVITY OF CONTRACTS
Do ut des is, however, no longer an innominate
contract. It has already been given a name of its own, Article 1311. General rule
i.e., barter or exchange. (Art. 1638) Contracts take effect only between:
a. The parties
Basis b. Their assigns and
Innominate contracts are based on the principle that c. Heirs
“no one shall unjustly enrich himself at the expense of
another.” Exception
Except in case where the rights and obligations arising
Rules governing innominate contracts from the contract are not transmissible:
1. The agreement of the parties a. By their nature
2. The provisions of the Civil Code on b. By stipulation or
obligations and contracts c. By provision of law
3. The rules governing the most analogous
contracts The heir is not liable beyond the value of the property
4. The customs of the place he received from the decedent.

MUTUALITY OF CONTRACTS Contract stipulation in favor of a third person

If a contract should contain some stipulation in favor
Article 1308. The contract must bind both of a third person, he may demand its fulfillment
contracting parties; its validity or compliance cannot provided he communicated his acceptance to the
be left to the will of one of them. obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The
A contract containing a condition which makes its fulfi contracting parties must have clearly and deliberately
llment or extinguishment dependent exclusively upon conferred a favor upon a third person.
the uncontrolled will of one of the contracting parties
is void. STIPULATION POUR AUTRIU

Stipulation pour autrui is a stipulation in a contract

clearly and deliberately conferring a favor upon a third

DIAMOND NOTES | Valdez, Iana Jill F. | 37

person who has a right to demand its fulfi llment,
provided, he communicates his acceptance to the
obligor before its revocation by the obligee or the
original parties.
Requisites of stipulation pour autriu
1. The contracting parties by their stipulation
must have clearly and deliberately conferred
a favor upon a third person
2. The third person must have communicated
his acceptance to the obligor before its
revocation by the obligee or the original
parties
3. The stipulation in favor of the third person
should be a part and not the whole of the
contract or the contract itself
4. The favorable stipulation should not be
conditioned or compensated by any kind of
obligation whatever
5. Neither of the contracting parties bears the
legal representation or authorization of the
third party for otherwise the rules on agency
will apply
XPN TO RELATIVITYY OF CONTRACT
Article 1312. In contracts creating real rights, third
persons who come into possession of the object of
the contract are bound thereby, subject to the
provisions of the Mortgage Law and the Land
Registration Laws.
➢ This article is an XPN to the GR that a
contract binds only the parties.
Third persons bound by contracts creating real
rights
Third persons who come into possession of the object
of a contract over which there is a real right, such as a
real estate mortgage, are bound thereby even if they
were not parties to the contract.
A real right is binding against the whole world and
attaches to the property over which it is exercised
wherever it goes
CONTRACTS INTENDED TO DEFRAUD CREDITORS
Article 1313. Creditors are protected in cases of
contracts intended to defraud them.
Rights of the creditor
1. Right to impugn/ rescind contracts intended
to defraud them
2. Right to enforce contracts of debtor with a
third person
LIABILITY OF THIRD PERSON
FOR BREACH OF CONTRACT
Article 1314. Any third person who induces another
to violate his contract shall be liable for damages to
the other contracting party.
Elements of tort interference
1. Existence of a valid contract
2. Knowledge on the part of the third person of
the existence of contract
3. Interference of the third person is without
legal justification or excuse
PERFECTION OF CONTRACTS
Article 1315. Perfection of consensual contracts
Contracts are perfected by mere consent, and from
that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but
also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and
law.
Article 1316. Perfection of real contracts
Real contracts, such as deposit, pledge and
commodatum, are not perfected until the delivery of
the object of the obligation.
Classification of contracts according to perfection
1. Consensual contract or that which is
perfected by mere consent (e.g., sale, lease,
agency) (Art. 1315.)
DIAMOND NOTES | Valdez, Iana Jill F. | 38
 2. Real contract or that which is perfected, in
addition to the above, by the delivery of the
thing subject matter of the contract (e.g.,
depositum, pledge, commodatum)
1316; see Arts. 1934, 1963, 2093.)
3. Solemn contract or that which requires
compliance with certain formalities
prescribed by law such prescribed form
being thereby an essential element thereof
(e.g., donation of real property).
Stages in the life of a contract
1. Preparation or negotiation
2. Perfection or birth
3. Consummation or termination
Effect of perfection of the contract
Until the contract is perfected, it cannot, as an
independent source of obligation, serve as a binding
juridical relation.
Unaccepted offers and proposals remain as such and
cannot be considered as binding commitments;
hence, not demandable.
UNAUTHORIZED CONTRACTS
Article 1317. No one may contract in the name of
another without being authorized by the latter, or
unless he has by law a right to represent him.
Unauthorized contracts are unenforceable
A contract entered into in the name of another by one
who has no authority or legal representation, or who
has acted beyond his powers, shall be unenforceable,
Exception
Unless it is ratified, expressly or impliedly, by the
person on whose behalf it has been executed, before
it is revoked by the other contracting party.
CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS
GENERAL PROVISIONS
(Art.
REQUISITES OF CONTRACT
Article 1318. There is no contract unless the following
requisites concur:
1. Consent of the contracting parties
2. Object certain which is the subject matter of
the contract
3. Cause of the obligation which is established
SECTION 1
CONSENT
Consent is the agreement of the will of one
contracting party with that of another or others, upon
the object and terms of the contract.
Characteristics of consent
1. Intelligent
2. Free and voluntary
3. Conscious or spontaneous
How consent is manifested
Article 1319. Consent is manifested by the meeting
of the offer and the acceptance upon the thing and
the cause which are to constitute the contract.
The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a
counter-offer.
Acceptance made by letter or telegram
Acceptance made by letter or telegram does not bind
the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed
to have been entered into in the place where the offer
was made.
DIAMOND NOTES | Valdez, Iana Jill F. | 39
 ACCEPTANCE OFFER

It is the manifestation by the offeree of his assent to
the terms of the offer.
Without acceptance, there can be no meeting of the
minds between the parties. (Art. 1305.) Mere offer
produces no obligation.
It is a proposal made by one party (offerer) to another
to enter into a contract. It is more than an expression
of desire or hope. It is really a promise to act or to
refrain from acting on condition that the terms
thereof are accepted by the person (offeree) to whom
it is made.

Acceptance must be absolute. Offer must be certain

If the acceptance is qualified, as when it is subject to a Matters that may be fixed by the offeror
condition (e.g., sale price shall be made by
installment), or modifies or varies the terms of the Article 1321. The person making the offer may fix the
offer, it merely constitutes a counter-offer which, in a. Time
law, is considered a rejection of the original offer and b. Place, and
an attempt by the parties to enter into a contract on a c. Manner of acceptance
different basis.
All of which must be complied with
Forms of acceptance of offer
Offer made through an agent
Article 1320. An acceptance may be express or
implied. Article 1322. An offer made through an agent is
accepted from the time acceptance is communicated
1. Express acceptance to him.
May be oral or written
When offer becomes ineffective
2. Implied acceptance
One that is inferred from act or conduct Article 1323. An offer becomes ineffective upon the
a. Death
Ways of acceptance b. Civil interdiction
a. Acceptance by promise c. Insanity, or
b. Acceptance by act d. Insolvency of either party before acceptance
c. Acceptance by silence or inaction is conveyed

GR: Silence cannot be construed as Withdrawal of offer

acceptance
Article 1324. When the offerer has allowed the
XPN: offeree a certain period to accept, the offer may be
1. Where the parties agree expressly or withdrawn at any time before acceptance by
impliedly, that it shall amount to communicating such withdrawal, except when the
acceptance option is founded upon a consideration, as something
2. Where specific provisions of law so paid or promised.
declare (e.g., Arts. 1670, 1870-1873.);
3. Where under the circumstances such GR: Offer may be withdrawn as a matter of right
silence constitutes estoppel. (Art. 1431) at any time before acceptance

DIAMOND NOTES | Valdez, Iana Jill F. | 40

 contract:
XPN: In case of option contract, the offer may not 1. Unemancipated minors
be withdrawn before the lapse of the option 2. Insane or demented persons, and deaf-
period mutes who do not know how to write

OPTION CONTRACT ➢ Contracts entered into by these persons are

It is a preparatory contract giving a person for a
consideration a certain period and under specified
conditions within which to accept the offer of the
offerer.
It is separate and distinct from the projected main
agreement or principal contract itself (subject matter
of the option) which the parties may enter into upon
the consummation of the option or which will be
perfected upon the acceptance of the offer.
Option period
It is the period given within which the offeree must
decide whether or not to enter into the principal
contract.
Option money
It is the money paid or promised to be paid as a
distinct consideration for an option contract. It is not
to be confused with earnest money which is actually a
partial payment of the purchase price and is
considered as proof of the perfection of the contract.
voidable.
Unemancipated minors
Those persons who have not yet reached the age of
majority (18 years) and are still subject to parental
authority
Deaf-mutes
They are persons who are deaf and dumb.
If the deaf-mute knows how to write, the contract is
valid for he is capable of giving intelligent consent.
Reason for disqualification
Those persons mentioned can easily be the victims of
fraud as they are not capable of understanding or
knowing the nature or import of their actions. They
can enter into a contract only through a parent or
guardian.
CONTRACTS ENTERED DURING LUCID INTERVAL
Article 1328.

Advertisements a. Contracts entered into during a lucid interval

are valid.
Article 1325. Unless it appears otherwise, business
advertisements of things for sale are not definite b. Contracts agreed to in a state of
offers, but mere invitations to make an offer. drunkenness or during a hypnotic spell are
voidable.
Article 1326. Advertisements for bidders are simply
invitations to make proposals, and the advertiser is
not bound to accept the highest or lowest bidder, INCAPACITY IN RE: ART. 1327
unless the contrary appears.
Article 1329. The incapacity declared in article 1327 is
CAPACITY TO GIVE CONSENT subject to the modifications determined by law, and is
understood to be without prejudice to special
Who are incapacitated to give consent? disqualifications established in the laws.

Article 1327. The following cannot give consent to a Subject to modifications

DIAMOND NOTES | Valdez, Iana Jill F. | 41

In certain cases, their incapacity may be modified by thereby an easy prey for deceit and
law, that is, they can also give valid consent. exploitation

1. When necessaries such as food, are sold and
delivered to a minor or other person without
capacity to act, he must pay a reasonable
price therefor.
2. A minor, 18 years old or above may contract
for life, health and accident insurance,
provided, the insurance is taken on his life
and the beneficiary appointed is the minor’s
estate or the minor’s father, mother, spouse,
brother, or sister.
3. A contract is valid if entered into through a
guardian or legal representative.
4. A contract is valid where the minor who was
near majority age misrepresented his actual
age and convincingly led the other party to
believe in his legal capacity.
5. A contract is valid where a minor between 18
and 21 years of age voluntarily pays a sum of
money or delivers a fungible thing in
fulfillment of his obligation thereunder and
the obligee has spent or consumed it in
good faith.
6. Emancipation of a minor for any cause such
as by marriage or by recorded agreement,
shall terminate parental authority over his
person and property and he shall then be
qualified and responsible for all acts of civil
life. The parents may entrust
management or administration of any of
their properties to an unemancipated child
Special disqualifications under the Rules of Court
1. Persons suffering the accessory penalty of
civil interdiction
2. Hospitalized lepers
3. Prodigals (spendthrifts)
4. Deaf and dumb who are unable to read and
write
5. Those who are of unsound mind even
though they have lucid intervals
6. Those who, by reason of age, disease, weak
mind and other similar causes, cannot
without outside aid, take care of themselves
and manage their property, becoming
A contract entered into by any of the above is valid
except where it is voidable by reason of:
a. Incapacity under Articles 1327 and 1328
b. Causes which vitiate consent (Art. 1330)
c. Where the incompetent has been placed
under guardianship
VICES OF CONSENT
Article 1330.Where consent is vitiated → voidable
A contract where consent is given through:
a. Mistake
b. Violence
c. Intimidation
d. Undue influence, or
e. Fraud is voidable
(1) MISTAKE
Article 1331. In order that mistake may invalidate
consent, it should refer to the substance of the thing
which is the object of the contract, or to those
conditions which have principally moved one or both
parties to enter into the contract.
the Mistake as to indentity of parties
Mistake as to the identity or qualifications of one of
the parties will vitiate consent only when such identity
or qualifications have been the principal cause of the
contract.
Simple mistake
A simple mistake of account shall give rise to its
correction.
Article 1332. When one of the parties is unable to
read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged,
the person enforcing the contract must show that the
terms thereof have been fully explained to the former.

DIAMOND NOTES | Valdez, Iana Jill F. | 42

Article 1333. When is there no mistake
There is no mistake if the party alleging it knew the
doubt, contingency or risk affecting the object of the
contract.
Article 1334. Mutual error
Mutual error as to the legal effect of an agreement
when the real purpose of the parties is frustrated, may
vitiate consent.
(2) VIOLENCE
(3) INTIMIDATION
Article 1335. Violence
There is violence when in order to wrest consent,
serious or irresistible force is employed.
Intimidation
There is intimidation when one of the contracting
parties is compelled by a reasonable and well-
grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of
his spouse, descendants or ascendants, to give his
consent.
To determine the degree of intimidation, the age, sex
and condition of the person shall be borne in mind.
Threat to enforce one’s claim
A threat to enforce one's claim through competent
authority, if the claim is just or legal, does not vitiate
consent.
Article 1336. Violence or intimidation shall annul the
obligation, although it may have been employed by a
third person who did not take part in the contract.
Requisites of intimidation or threat
1. It must produce a reasonable and well-
grounded fear of an evil
2. The evil must be imminent and grave
3. The evil must be upon his person or
property, or that of his spouse, descendants,
or ascendants
4. It is the reason why he enters into the
contract
Intimidation is internal while violence is external. Bare
allegations of threat or force do not constitute
substantial evidence to support the annulment of
consent.
(4) UNDUE INFLUENCE
Article 1337. There is undue influence when a person
takes improper advantage of his power over the will
of another, depriving the latter of a reasonable
freedom of choice.
Considerations
The following circumstances shall be considered:
a. The confidential, family, spiritual and other
relations between the parties, or
b. The fact that the person alleged to have
been unduly influenced was suffering from
mental weakness, or was ignorant or in
financial distress
Elements of undue influence
1. A person who can be influenced
2. The fact that improper influence was exerted;
3. Submission to the overwhelming effect of
such unlawful conduct
If gained by kindness and affection or argument and
persuasion, the influence will not vitiate consent.
(5) FRAUD
Causal fraud or dolo causante
It is the fraud employed by one party prior to or
simultaneous with the creation of the contract to
secure the consent of the other.
It is the fraud used by a party to induce the other to
enter into a contract without which the latter would
not have agreed to, taking into account the
circumstances of the case.
How causal fraud committed
DIAMOND NOTES | Valdez, Iana Jill F. | 43
Article 1338. Fraud through insidious words or not signify fraud, unless made by an expert and the
machinations other party has relied on the former's special
There is fraud when, through insidious words or knowledge.
machinations of one of the contracting parties, the
other is induced to enter into a contract which, TO CONSTITUTE AS FRAUD:
without them, he would not have agreed to. 1. It must be made by an expert
2. The other contracting party has relied on the
Article 1339. Fraud by concealment expert’s opinion
Failure to disclose facts, when there is a duty to reveal 3. The opinion turned out to be false or
them, as when the parties are bound by confidential erroneous
relations, constitutes fraud.
Fraud by third person
Requisites of causal fraud
1. There must be misrepresentation or Article 1342. Misrepresentation by a third person
concealment (Arts. 1338, 1339.) by a party does not vitiate consent, unless such
prior to or simultaneous to the consent or misrepresentation has created substantial mistake and
creation of the contract the same is mutual.
2. It must be serious (Art. 1344)
3. It must have been employed by only one of Misrepresentation made in good faith
the contracting parties. Fraud committed by
a third person does not vitiate consent Article 1343. Misrepresentation made in good faith is
unless it was practiced in connivance with or not fraudulent but may constitute error.
at least with the knowledge of the favored
contracting party (see Art. 1342.); Requisites of fraud
4. It must be made in bad faith or with intent to
deceive (see Art. 1343.) the other contracting Article 1344. In order that fraud may make a contract
party who had no knowledge of the fraud voidable, it should be serious and should not have
5. It must have induced the consent of the been employed by both contracting parties.
other contracting party (Art. 1338.); and
6. It must be alleged and proved by clear and Effect of incidental fraud
convincing evidence, and not merely by a Incidental fraud only obliges the person employing it
preponderance thereof to pay damages.

Usual exaggerations in trade 1. Serious

2. Should not have been employed by both
Article 1340. The usual exaggerations in trade, when contracting parties
the other party had an opportunity to know the facts, 3. Should not have been known by the other
are not in themselves fraudulent. contracting party
4. Should be invoked by the proper party – the
Dealer’s talk or trader’s talk are representations which victim or the one who was tricked in giving
do not appear on the face of the contract and these his consent thereto
do not bind either party.
(6) SIMULATION OF CONTRACT
Expression of opinion
It is the act of deliberately deceiving others, by
Article 1341. A mere expression of an opinion does feigning or pretending by agreement, the appearance

DIAMOND NOTES | Valdez, Iana Jill F. | 44

of a contract which is either non-existent or concealed
or is different from that which was really executed
Requisites for simulation
1. An outward declaration of will different from
the will of the parties
2. The false appearance must have been
intended by mutual agreement
3. The purpose is to deceive third persons
Article 1345. Simulation of a contract may be
absolute or relative. The former takes place when the
parties do not intend to be bound at all; the latter,
when the parties conceal their true agreement.
Article 1346. An absolutely simulated or fictitious
contract is void.
A relative simulation, when it does not prejudice a
third person and is not intended for any purpose
contrary to law, morals, good customs, public order or
public policy binds the parties to their real agreement.
Kinds of simulation
1. Absolute simulation – when the contract
does not really exist and the parties do not
intend to be bound at all; e inexistent, void
and are not susceptible of ratification
2. Relative simulation – when the contract
entered into by the parties is different from
their true agreement or the parties state a
false cause in the contract to conceal their
real agreement.
The parties are bound by their real
agreement, provided, it does not prejudice a
third person and is not intended for a
purpose contrary to law, morals, good
customs, public order, or public policy.
SECTION 2
OBJECTS OF CONTRACT
The object of a contract is its subject matter.
Article 1347. All things which are not outside the
commerce of men, including future things, may be the
object of a contract. All rights which are not
intransmissible may also be the object of contracts.
No contract may be entered into upon future
inheritance except in cases expressly authorized by
law.
All services which are not contrary to law, morals,
good customs, public order or public policy may
likewise be the object of a contract.
Article 1348. Impossible things or services cannot be
the object of contracts.
Article 1349. The object of every contract must be
determinate as to its kind. The fact that the quantity is
not determinate shall not be an obstacle to the
existence of the contract, provided it is possible to
determine the same, without the need of a new
contract between the parties.
Kinds of object
1. Thing (ex: sale of property)
2. Rights (ex: assignment of credit)
3. Services (ex: agency)
Requisites of things as object
1. Within the commerce of men (Art. 1347)
2. Not be impossible, legally or physically
3. In existence or capable of coming into
existence
4. Determinate or determinable
Requisites of services as object
1. Within the commerce of men (Art. 1347)
2. Not be impossible, legally or physically
3. Determinate or determinable
DIAMOND NOTES | Valdez, Iana Jill F. | 45
Rights as object of contract Motive
It is the purely personal or private reason which a
GR: All rights may be the object of a contract party has in entering into a contract.

XPN: When they are intransmissible (a) by their Article 1351. The particular motives of the parties in
nature, or (b) by stipulation, or (c) by entering into a contract are different from the cause
provision of law thereof.

Future inheritance Cause Motive

It is any property or right, not in existence or capable Cause is the immediate The remote or indirect
of determination at the time of the contract, that a or direct reason reason;
person may inherit in the future always known to the May be unknown
other contracting party
An essential element of a Not an essential element
SECTION 3 contract
The illegality of the cause The illegality of one’s
CAUSE OF CONTRACTS affects the validity of a motive does not render
contract the contract void
It is the “why of the contract, the essential reason
which moves the contracting parties to enter into the ABSENCE OF CAUSE OR UNLAWFUL CAUSE
contract.’’

Article 1352. Contracts without cause, or with

Requisites of cause
unlawful cause, produce no effect whatever.
1. Existing at the time the contract is entered
into The cause is unlawful if it is contrary to law, morals,
2. Lawful good customs, public order or public policy.
3. True or real

Absence of cause should be distinguished from

Classification of contracts according to cause
inadequacy of cause which, as a general rule, is not a
1. Onerous contracts
ground for relief (Art. 1355.)
2. Remuneratory contracts
3. Gratuitous contracts (ex: commodatum)
Falsity of cause
The contract states a valid consideration but such
Article 1350. Cause in onerous contracts statement is not true
In onerous contracts the cause is understood to be,
for each contracting party, the prestation or promise
Article 1353. Effect of falsity of cause
of a thing or service by the other
The statement of a false cause in contracts shall
render them void, if it should not be proved that they
Cause in remuneratory contracts
were founded upon another cause which is true and
In remuneratory ones, the service or benefit which is
lawful.
remunerated; and

Presumption of existing and lawful cause

Cause in gratuitous contracts
In contracts of pure beneficence, the mere liberality of
Article 1354. Although the cause is not stated in the
the benefactor.
contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary.

DIAMOND NOTES | Valdez, Iana Jill F. | 46


LESION OR INADEQUACY OF CAUSE
Article 1355. Except in cases specified by law, lesion
or inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue
influence.
Lesion
It is any damage caused by the fact that the price is
unjust or inadequate
CHAPTER 3
FORMS OF CONTRACT
The form of a contract refers to the manner in which a
contract is executed or manifested.
1. Oral
2. In writing – may be public or private
3. Partly oral and partly in writing
Classification of contracts according to form
1. Informal or common contract – that which
may be entered into in whatever form,
provided, all the essential requisites for their
validity are present. This refers only to
consensual contracts (ex: contract of sale)
2. Formal or solemn contract – that which is
required by law for its efficacy to be in a
certain specified form
Article 1356. General rule
Contracts shall be obligatory, in whatever form they
may have been entered into, provided all the essential
requisites for their validity are present.
Exception
However, when the law requires that a contract be in
some form in order that it may be valid or
enforceable, or that a contract be proved in a certain
way, that requirement is absolute and indispensable.
In such cases, the right of the parties stated in the
following article cannot be exercised.
1. When the law requires that a contract be in
some form to be valid
2. To be enforceable or proved in a certain way;
3. For the convenience of the parties or for the
purpose of affecting third persons
Form for validity of contract
1. Donation of real property. — It must be in a
public instrument. (Art. 749.)
2. Donation of personal property the value of
which exceeds P5,000.00. — The donation
and acceptance must be in writing
3. Sale of land through an agent. — The
authority of the agent must be in writing;
otherwise, the sale is void. (Art. 1874.)
4. Contract of antichresis. — The amount of the
principal and of the interest must be
specified in writing. (Art. 2134.)
5. Stipulation to pay interest. — It must be in
writing; otherwise, no interest is due
6. Contract of partnership. — If immovables are
contributed, it must be in a public instrument
to which shall be attached a signed inventory
of the immovable property contributed
7. Transfer or sale of large cattle. — It must be
registered (so it must be in a public
instrument) and a certifi cate of transfer
secured. (Act No. 1147, Sec. 22.)
8. Negotiable instruments. — They must be in
writing. (Act No. 2031, Sec. 1.)
Form for enforceability of contract
In the cases of contracts covered by the Statute of
Frauds, the law requires that they be in writing
subscribed by the party charged or by his agent. (Art.
1403[2].)
If the contract is not in writing, the contract is valid
(assuming all the essential elements are present) but,
upon the objection of a party, it cannot be proved
and, therefore, it cannot be enforced unless it is
ratified. (Art. 1405.)
Form for convenience of the parties
DIAMOND NOTES | Valdez, Iana Jill F. | 47
In certain cases, a certain form (e.g., public instrument)
is required for the convenience of the parties in order
that the contract may be registered in the proper
registry to make effective, as against third persons,
the right acquired under such contract.
Non-compliance with the required form would not
adversely affect the validity nor enforceability of the
contract between the parties themselves.
Remedy of the contracting parties
Article 1357. If the law requires a document or other
special form, as in the acts and contracts enumerated
in the following article, the contracting parties may
compel each other to observe that form, once the
contract has been perfected. This right may be
exercised simultaneously with the action upon the
contract.
CONTRACTS WHICH MUST APPEAR IN A
PUBLIC DOCUMENT
Public document or instrument
It is one which is acknowledged before a notary public
or any official authorized to administer oath, by the
person who executed the same.
The party making the acknowledgment formally
declares that the instrument is his free act and deed
while the officer taking the same attests and certifies
that such party is known to him and that he is the
same person who executed the instrument and
acknowledged that the instrument is his free act and
deed.
Private instrument
Any other instrument is private. A private document,
however, acquires the character of a public document
when it becomes part of an official record and is
certified by a public officer duly authorized by law.
Article 1358. The following must appear in a public
document:
1. Acts and contracts which have for their
object the creation, transmission,
modification or extinguishment of real rights
over immovable property; sales of real
property or of an interest therein are
governed by articles 1403, No. 2, and 1405
2. The cession, repudiation or renunciation of
hereditary rights or of those of the conjugal
partnership of gains
3. The power to administer property, or any
other power which has for its object an act
appearing or which should appear in a public
document, or should prejudice a third person
4. The cession of actions or rights proceeding
from an act appearing in a public document.
All other contracts where the amount involved
exceeds five hundred pesos must appear in writing,
even a private one.
But sales of goods, chattels or things in action are
governed by articles, 1403, No. 2 and 1405.
The contracts covered by this article are valid and
enforceable though not embodied in a public
document or instrument or in writing. The public
document is required only for the convenience and
greater protection of the parties and registration is
needed only to make the contract effective as against
third persons.
Probative value of public documents
1. Notarization of a private document converts
the said document into a public one and
render it admissible in evidence in court
without further proof of its authenticity.
2. Public documents are entitled to full faith
and credit on their face in the absence of any
clear and convincing evidence, more than
merely preponderant, that their execution
was tainted by defects or irregularities that
would warrant a declaration of nullity
3. They enjoy the presumption of validity and
regularity
DIAMOND NOTES | Valdez, Iana Jill F. | 48
 CHAPTER 4
REFORMATION OF INSTRUMENTS
It is the remedy by means of which a written
instrument is amended or rectifi ed so as to express or
conform to the real agreement or intention of the
parties when by reason of mistake, fraud, inequitable
conduct, or accident, the instrument fails to express
such agreement or intention.
Article 1359. Reformation
When, there having been a meeting of the minds of
the parties to a contract, their true intention is not
expressed in the instrument purporting to embody
the agreement, by reason of mistake, fraud,
inequitable conduct or accident, one of the parties
may ask for the reformation of the instrument to the
end that such true intention may be expressed.
Annulment of the contract
If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument
but annulment of the contract.
Requisites of reformation
1. There is a meeting of the minds of the
parties to the contract
2. The written instrument does not express the
true agreement or intention of the parties;
3. The failure to express the true intention is
due to mistake, fraud, inequitable conduct,
or accident
4. The facts upon which relief by way of
reformation of the instrument is sought are
put in issue by the pleadings; and
5. There is clear and convincing evidence of the
mistake, fraud, inequitable conduct, or
accident
Article 1360. The principles of the general law on the
reformation of instruments are hereby adopted
insofar as they are not in conflict with the provisions
of this Code.
BASIS FOR REFORMATION
Mutual mistake
Article 1361. When a mutual mistake of the parties
causes the failure of the instrument to disclose their
real agreement, said instrument may be reformed.
1. The mistake must be of fact for if it is one of
law, the remedy is annulment
2. Such mistake must be proved by clear and
convincing evidence
3. The mistake must be mutual, that is,
common to both parties to the instrument;
4. The mistake must cause the failure of the
instrument to express their true intention
Unilateral mistake
Article 1362. If one party was mistaken and the other
acted fraudulently or inequitably in such a way that
the instrument does not show their true intention, the
former may ask for the reformation of the instrument.
Concealment of mistake by other party
Article 1363. When one party was mistaken and the
other knew or believed that the instrument did not
state their real agreement, but concealed that fact
from the former, the instrument may be reformed.
Ignorance, lack of skill, negligence or bad faith
Article 1364. 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 does not express the true intention of the
parties, the courts may order that the instrument be
reformed.
Mortgage or pledge stated as a sale
Article 1365. If two parties agree upon the mortgage
or pledge of real or personal property, but the
instrument states that the property is sold absolutely
or with a right of repurchase, reformation of the
DIAMOND NOTES | Valdez, Iana Jill F. | 49
instrument is proper. contracting parties, their contemporaneous and
subsequent acts shall be principally considered.
CASE WHEN REFORMATION NOT ALLOWED
Article 1372. However general the terms of a contract
Article 1366. There shall be no reformation in the may be, they shall not be understood to comprehend
following cases: things that are distinct and cases that are different
1. Simple donations inter vivos wherein no from those upon which the parties intended to agree.
condition is imposed
2. Wills Article 1373. If some stipulation of any contract
3. When the real agreement is void should admit of several meanings, it shall be
understood as bearing that import which is most
Article 1367. When one of the parties has brought an adequate to render it effectual.
action to enforce the instrument, he cannot
subsequently ask for its reformation. Article 1374. The various stipulations of a contract
shall be interpreted together, attributing to the
Party entitled to reformation doubtful ones that sense which may result from all of
them taken jointly.
Article 1368. Reformation may be ordered at the
instance of: Article 1375. Words which may have different
a. Either party or his successors in interest, if significations shall be understood in that which is
the mistake was mutual; most in keeping with the nature and object of the
b. Otherwise, upon petition of the injured party, contract.
or his heirs and assigns
Article 1376. The usage or custom of the place shall
Procedure for reformation be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission of
Article 1369. The procedure for the reformation of stipulations which are ordinarily established.
instrument shall be governed by rules of court to be
promulgated by the Supreme Court. Article 1377. The interpretation of obscure words or
stipulations in a contract shall not favor the party who
caused the obscurity.

CHAPTER 5 Article 1378. When it is absolutely impossible to

INTERPRETATION OF CONTRACTS
Article 1370. If the terms of a contract are clear and
leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall
control.
If the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the
former.
settle doubts by the rules established in the preceding
articles, and the doubts refer to incidental
circumstances of a gratuitous contract, the least
transmission of rights and interests shall prevail. If the
contract is onerous, the doubt shall be settled in favor
of the greatest reciprocity of interests.
If the doubts are cast upon the principal object of the
contract in such a way that it cannot be known what
may have been the intention or will of the parties, the
contract shall be null and void.

Article 1371. In order to judge the intention of the Article 1379. The principles of interpretation stated in

DIAMOND NOTES | Valdez, Iana Jill F. | 50

Rule 123 of the Rules of Court shall likewise be fulfillment the debtor could not be
observed in the construction of contracts. compelled at the time they were effected, are
also rescissible.

They are those validly agreed upon because all the

CHAPTER 6 essential elements exist and, therefore, legally
effective, but in the cases established by law, the
RESCISSIBLE CONTRACTS remedy of rescission is granted in the interest of
equity.
Article 1380. Contracts validly agreed upon may be
rescinded in the cases established by law. They are valid and enforceable although subject to
rescission by the court when there is damage or
Article 1381. The following contracts are rescissible: prejudice to one of the parties or to a third person.

1. Contracts entered into in behalf of wards RESCISSION

Those which are entered into by guardians
whenever the wards whom they represent It is an equitable remedy granted by law to the
suffer lesion by more than 1/4 of the value of contracting parties and sometimes even to third
the things which are the object thereof persons in order to secure reparation of damages
caused them by a valid contract, by means of the
2. Contracts agreed upon in representation restoration of things to their condition prior to the
of absentees celebration of said contract.
Those agreed upon in representation of
absentees, if the latter suffer the lesion Requisites of rescission
stated in the preceding number 1. The contract must be validly agreed upon
2. There must be lesion or pecuniary prejudice
3. Contracts undertaken in fraud of creditors or damage to one of the parties or to a third
Those undertaken in fraud of creditors when person (Art. 1381.)
the latter cannot in any other manner collect 3. The rescission must be based upon a case
the claims due them especially provided by law (Arts. 1380, 1381,
1382.)
4. Contracts which refer to things under 4. There must be no other legal remedy to
litigation obtain reparation for the damage (Art. 1383.);
Those which refer to things under litigation if 5. The party asking for rescission must be able
they have been entered into by the to return what he is obliged to restore by
defendant without the knowledge and reason of the contract (Art. 1385, par. 1.)
approval of the litigants or of competent 6. The object of the contract must not legally
judicial authority be in the possession of third persons who
did not act in bad faith (Ibid., par. 2.);
5. As specified by law to be rescissible 7. The period for fi ling the action for rescission
All other contracts specially declared by law must not have prescribed
to be subject to rescission
Subsidiary nature of action for rescission
6. Payments made in state of insolvency
Article 1382. Payments made in a state of Article 1383. The action for rescission is subsidiary; it
insolvency for obligations to whose cannot be instituted except when the party suffering

DIAMOND NOTES | Valdez, Iana Jill F. | 51

damage has no other legal means to obtain
reparation for the same.
Extent of rescission
Article 1384. Rescission shall be only to the extent
necessary to cover the damages caused.
Effects of rescission
1. Obligation of mutual restitution
2. Abrogation of contract
3. Obligation of third person to restore
Article 1385. Rescission creates the obligation to
return the things which were the object of the
contract, together with their fruits, and the price with
its interest; consequently, it can be carried out only
when he who demands rescission can return whatever
he may be obliged to restore.
Neither shall rescission take place when the things
which are the object of the contract are legally in the
possession of third persons who did not act in bad
faith.
In this case, indemnity for damages may be
demanded from the person causing the loss.
When rescission not allowed
1. If the party who demands rescission cannot
return what he is obliged to restore under
the contract
2. If the property is legally in the possession of
a third person who acted in good faith
Contracts approved by courts
Article 1386. Rescission referred to in Nos. 1 and 2 of
article 1381 shall not take place with respect to
contracts approved by the courts.
Period for filing action for rescission
Article 1389. The action to claim rescission must be
commenced within 4 years.
For persons under guardianship and for absentees,
the period of four years shall not begin until the
termination of the former's incapacity, or until the
domicile of the latter is known.
ALIENATION IN FRAUD OF CREDITORS
Article 1387. Fraudulent alienation by gratuitous
title
All contracts by virtue of which the debtor alienates
property by gratuitous title are presumed to have
been entered into in fraud of creditors, when the
donor did not reserve sufficient property to pay all
debts contracted before the donation.
Fraudulent alienation by onerous title
Alienations by onerous title are also presumed
fraudulent when made by persons against whom
some judgment has been rendered in any instance or
some writ of attachment has been issued. The
decision or attachment need not refer to the property
alienated, and need not have been obtained by the
party seeking the rescission.
In addition to these presumptions, the design to
defraud creditors may be proved in any other manner
recognized by the law of evidence.
Circumstances of badges of fraud
1. The fact that the consideration of the
conveyance is fictitious or inadequate
2. A transfer made by a debtor after suit has
been begun and while it is pending against
him.
3. A sale upon credit by an insolvent debtor
4. The transfer of all or nearly all of his property
by a debtor, especially when he is insolvent
or greatly embarrassed financially
5. Evidence of large indebtedness or complete
insolvency
6. The fact that the transfer is made between
father and son, when there are present some
or any of the above circumstances
7. The failure of the vendee to take exclusive
possession of the property sold, unless such
failure is with legal basis or practical reason,
DIAMOND NOTES | Valdez, Iana Jill F. | 52
 as where there exists what appears to be a
genuine lessor-lessee relationship between 1. Those where one of the parties is incapable
the vendor and the vendee of giving consent to a contract
8. At the time of the conveyance, the vendee
was living with the vendor and the former 2. Those where the consent is vitiated by
knew that there was a judgment against the mistake, violence, intimidation, undue
latter influence or fraud.
9. It was known to the vendee that the vendor
had no properties other than that sold to These contracts are binding, unless they are annulled
him by a proper action in court. They are susceptible of
10. The certificate of title covering the lands sold ratification.
remained in the name of the vendor who
declared them for taxation purposes and ANNULMENT
paid the taxes, a duty assumed by his heirs
after his death It is a remedy for the declaration of the inefficacy of a
contract based on a defect or vice in the consent of
List is not exclusive. one of the contracting parties in order to restore them
to their original position in which they were before the
Liability of purchaser in bad faith contract was executed.

Article 1388. Whoever acquires in bad faith the Annulment Rescission

things alienated in fraud of creditors, shall indemnify Based on vitiation of Based on lesion to one of
the latter for damages suffered by them on account of consent (Art. 1390) the parties or to a third
the alienation, whenever, due to any cause, it should person (Art. 1381)
be impossible for him to return them. May be brought only by a May also by a third
party to the contract person who suffered
If there are two or more alienations, the first acquirer damage by reason of the
shall be liable first, and so on successively. contract
Principal action Subsidiary action
Presupposes that the Presupposes that the
CHAPTER 7 contract is legally contract was validly
defective entered into
VOIDABLE CONTRACTS Seeks the imposition of A remedy allowed by law
sanction by law on the on ground of equity
Voidable contracts are those which possess all the guilty party for reason of
essential requisites of a valid contract but one of the public interest
parties is legally incapable of giving consent, or Allowed even if the Barred by such
consent is vitiated by mistake, violence, intimidation, plaintiff has been indemnification
undue influence, or fraud. indemnified

They are valid unless annulled or set aside by a proper Period for filing action for annulment
court action.

Article 1391. The action for annulment shall be

Article 1390. The following contracts are voidable or brought within 4 years.
annullable, even though there may have been no
damage to the contracting parties: This period shall begin:

DIAMOND NOTES | Valdez, Iana Jill F. | 53

 a. In cases of intimidation, violence or undue Requisites for ratification
influence, from the time the defect of the
consent ceases. 1. There must be knowledge of the reason
b. In case of mistake or fraud, from the time of which renders the contract voidable
the discovery of the same. 2. Such reason must have ceased
c. And when the action refers to contracts 3. The injured party expressly waive his right
entered into by minors or other (express ratification) or executed an act
incapacitated persons, from the time the which necessarily implies an intention to
guardianship ceases. waive his right (implied ratification)

Party entitled to bring an action to annul Party who may ratify

Article 1397. The action for the annulment of
contracts may be instituted by all who are thereby
obliged principally or subsidiarily.
However, persons who are capable cannot allege the
incapacity of those with whom they contracted; nor
can those who exerted intimidation, violence, or
undue influence, or employed fraud, or caused
mistake base their action upon these flaws of the
contract.
Article 1394. Ratification may be effected by the
guardian of the incapacitated person.
Conformity of guilty party not required
Article 1395. Ratification does not require the
conformity of the contracting party who has no right
to bring the action for annulment.
Effect of ratification

RATIFICATION Article 1396. Ratification cleanses the contract from

Ratification cleanses the contract from all its defects
from the moment it was constituted. The contract thus
becomes valid.
Article 1392. Ratification extinguishes the action to
annul a voidable contract.
Kinds of ratification
Article 1393. Ratification may be effected:
a. Expressly or
b. Tacitly
Tacit ratification
It is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract
voidable and such reason having ceased, the person
who has a right to invoke it should execute an act
which necessarily implies an intention to waive his
right.
all its defects from the moment it was constituted.
RESTITUTION
Duty of mutual restitution upon annulment
Article 1398. An obligation having been annulled, the
contracting parties shall restore to each other the
things which have been the subject matter of the
contract, with their fruits, and the price with its
interest, except in cases provided by law.
In obligations to render service, the value thereof shall
be the basis for damages.
Restitution by incapacitated person
Article 1399. When the defect of the contract consists
in the incapacity of one of the parties, the
incapacitated person is not obliged to make any
restitution except insofar as he has been benefited by
the thing or price received by him.

DIAMOND NOTES | Valdez, Iana Jill F. | 54

 CHAPTER 8
The incapacitated person is obliged to make
restitution only to the extent that he was benefited by UNENFORCEABLE CONTRACTS
the thing or price received by him.
They are those that cannot be enforced in court or
If he was not benefited, he is not obliged to restore sued upon by reason of defects provided by law until
what he had received but the other contracting party and unless they are ratified according to law.
is still bound to return what he had received, whether
he was benefited or not. Although valid, they are unenforceable unless ratified.

Effect of loss of thing to be returned Kinds of unenforceable contracts

1. Those entered into in the name of another
Article 1400. Whenever the person obliged by the by one without or acting in excess of
decree of annulment to return the thing cannot do so authority
because it has been lost through his fault, he shall 2. Those that do not comply with the Statute of
return: Frauds
a. The fruits received and 3. Those where both parties are incapable of
b. The value of the thing at the time of the loss giving consent
c. With interest from the same date

Article 1401. The action for annulment of contracts Article 1403. The following contracts are
shall be extinguished when the thing which is the unenforceable, unless they are ratified:
object thereof is lost through the fraud or fault of the
person who has a right to institute the proceedings. 1. Those entered into in the name of another
person by one who has been given no
If the right of action is based upon the incapacity of authority or legal representation, or who has
any one of the contracting parties, the loss of the acted beyond his powers
thing shall not be an obstacle to the success of the
action, unless said loss took place through the fraud 2. Those that do not comply with the Statute of
or fault of the plaintiff. Frauds as set forth in this number. In the
following cases an agreement hereafter
Where a party cannot restore what he is bound to made shall be unenforceable by action,
return unless the same, or some note or
memorandum, thereof, be in writing, and
Article 1402. As long as one of the contracting subscribed by the party charged, or by his
parties does not restore what in virtue of the decree agent; evidence, therefore, of the agreement
of annulment he is bound to return, the other cannot cannot be received without the writing, or a
be compelled to comply with what is incumbent upon secondary evidence of its contents:
him.
a. An agreement that by its terms
is not to be performed within a
year from the making thereof
b. A special promise to answer for
the debt, default, or
miscarriage of another;
c. An agreement made in

DIAMOND NOTES | Valdez, Iana Jill F. | 55

 consideration of
other than a mutual promise to
marry
d. An agreement for the sale of
goods, chattels or things in
action, at a price not less than
five hundred pesos, unless the
buyer accept and receive part
of such goods and chattels, or
the evidences, or some of
them, of such things in action
or pay at the time some part of
the purchase money; but when
a sale is made by auction and
entry is made by the auctioneer
in his sales book, at the time of
the sale, of the amount and
kind of property sold, terms of
sale, price, names
purchasers and person
whose account the sale is
made, it is a sufficient
memorandum
e. An agreement for the leasing
for a longer period than one
year, or for the sale of real
property or of an
therein
f. A representation as to the
credit of a third person
3. Those where both parties are incapable of
giving consent to a contract
STATUTE OF FRAUDS
Statute of fraud requires certain classes of contracts to
be in writing. It regulates the formalities of the
contract necessary to render it enforceable.
The effect of non-compliance is simply that no action
can proved unless the requirement is complied with.
See Art. 1403(2)
Unauthorized contracts
marriage,
Article 1404. Unauthorized contracts are governed by
Article 1317 and the principles of agency in Title X of
this Book.
Ratification under the Statute
Article 1405. Contracts infringing the Statute of
Frauds, referred to in No. 2 of article 1403, are ratified:
a. By the failure to object to the presentation of
oral evidence to prove the same, or
b. By the acceptance of benefit under them
Right of a party where contract enforceable
Article 1406. When a contract is enforceable under
of the the Statute of Frauds, and a public document is
on necessary for its registration in the Registry of Deeds,
the parties may avail themselves of the right under
Article 1357.
If the law requires a document or other special form,
as in the acts and contracts enumerated in the
following article, the contracting parties may compel
interest each other to observe that form, once the contract has
been perfected. This right may be exercised
simultaneously with the action upon the contract.
(Article 1357, NCC)
When both parties are incapable of giving consent
Article 1407. In a contract where both parties are
incapable of giving consent, express or implied
ratification by the parent, or guardian, as the case may
be, of one of the contracting parties shall give the
contract the same effect as if only one of them were
incapacitated.
If ratification is made by the parents or guardians, as
the case may be, of both contracting parties, the
contract shall be validated from the inception.
Assailing unenforceable contracts
DIAMOND NOTES | Valdez, Iana Jill F. | 56
Article 1408. Unenforceable contracts cannot be These contracts cannot be ratified. Neither can the
assailed by third persons. right to set up the defense of illegality be waived.

CHAPTER 9 Characteristics of a void or inexistent contract

1. Generally, it produces no effect whatsoever,
VOID AND INEXISTENT CONTRACTS being void or inexistent from the beginning;
2. It cannot be cured or validated either by time
Void contracts or ratification1
Void contracts are those which, because of certain 3. The right to set up the defense of illegality,
defects, generally produce no effect at all. They are inexistence, or absolute nullity cannot be
considered as inexistent from its inception or from the waived
very beginning. 4. The action or defense for the declaration of
its illegality, inexistence, or absolute nullity
Inexistent contracts does not prescribe
Refer to agreements which lack one or some or all of 5. The defense of illegality, inexistence, or
the elements (i.e., consent, object, and cause) or do absolute nullity is not available to third
not comply with the formalities which are essential for persons whose interests are not directly
the existence of a contract affected
6. It cannot give rise to a valid contract
Article 1409. The following contracts are inexistent 7. Its invalidity can be questioned by anyone
and void from the beginning: affected by it

1. Those whose cause, object or purpose is Imprescriptibility of action or defense

contrary to law, morals, good customs, public
order or public policy Article 1410. The action or defense for the
declaration of the inexistence of a contract does not
2. Those which are absolutely simulated or prescribe.
fictitious
Pari delicto
3. Those whose cause or object did not exist at
the time of the transaction Article 1411. When the nullity proceeds from the
illegality of the cause or object of the contract, and
4. Those whose object is outside the commerce the act constitutes a criminal offense, both parties
of men being in pari delicto, they shall have no action against
each other, and both shall be prosecuted. Moreover,
5. Those which contemplate an impossible the provisions of the Penal Code relative to the
service disposal of effects or instruments of a crime shall be
applicable to the things or the price of the contract.
6. Those where the intention of the parties
relative to the principal object of the contract This rule shall be applicable when only one of the
cannot be ascertained parties is guilty; but the innocent one may claim what
he has given, and shall not be bound to comply with
7. Those expressly prohibited or declared void his promise.
by law

DIAMOND NOTES | Valdez, Iana Jill F. | 57

Rules where contract is unlawful or forbidden but
act not a criminal offense
Article 1412. If the act in which the unlawful or
forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:
1. When the fault is on the part of both
contracting parties, neither may recover what
he has given by virtue of the contract, or
demand the performance of the other's
undertaking
2. When only one of the contracting parties is
at fault, he cannot recover what he has given
by reason of the contract, or ask for the
fulfillment of what has been promised him.
The other, who is not at fault, may demand
the return of what he has given without any
obligation to comply his promise.
Recovery of usurious interest
Article 1413. Interest paid in excess of the interest
allowed by the usury laws may be recovered by the
debtor, with interest thereon from the date of the
payment.
Recovery where contract for an illegal purpose
Article 1414. When money is paid or property
delivered for an illegal purpose, the contract may be
repudiated by one of the parties before the purpose
has been accomplished, or before any damage has
been caused to a third person.
In such case, the courts may, if the public interest will
thus be subserved, allow the party repudiating the
contract to recover the money or property.
Requisites for application of Art. 1414
1. The contract is for an illegal purpose
2. The contract is repudiated before the
purpose has been accomplished or before
any damage has been caused to a third
person
3. The court considers that public interest will
be subserved by allowing recovery
Recovery by an incapacitated person
Article 1415. Where one of the parties to an illegal
contract is incapable of giving consent, the courts
may, if the interest of justice so demands allow
recovery of money or property delivered by the
incapacitated person.
Recovery where contract is prohibited but not
illegal per se
Article 1416. When the agreement is not illegal per
se but is merely prohibited, and the prohibition by the
law is designed for the protection of the plaintiff, he
may, if public policy is thereby enhanced, recover
what he has paid or delivered.
Recovery of amount paid in excess of ceiling price
Article 1417. When the price of any article or
commodity is determined by statute, or by authority
of law, any person paying any amount in excess of the
maximum price allowed may recover such excess.
Recovery of additional compensation for service
rendered beyond time limit
Article 1418. When the law fixes, or authorizes the
fixing of the maximum number of hours of labor, and
a contract is entered into whereby a laborer
undertakes to work longer than the maximum thus
fixed, he may demand additional compensation for
service rendered beyond the time limit.
Recovery of deficiency in case of wage less than
the minimum wage
Article 1419. When the law sets, or authorizes the
setting of a minimum wage for laborers, and a
contract is agreed upon by which a laborer accepts a
lower wage, he shall be entitled to recover the
deficiency.
DIAMOND NOTES | Valdez, Iana Jill F. | 58
Illegality where contract indivisible/divisible
NATURAL OBLIGATIONS
Article 1420. In case of a divisible contract, if the
KINDS OF OBLIGATIONS
illegal terms can be separated from the legal ones, the
latter may be enforced.
Article 1423. Obligations are:
a. Civil or
Persons entitled to raise defense of illegality
b. Natural

Article 1421. The defense of illegality of contract is

Civil obligations
not available to third persons whose interests are not
Civil obligations give a right of action to compel their
directly affected.
performance.

Contract which is a direct result of previous illegal

Natural obligations
contract
Natural obligations, not being based on positive law
but on equity and natural law, do not grant a right of
Article 1422. A contract which is the direct result of a
action to enforce their performance, but after
previous illegal contract, is also void and inexistent.
voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by
reason thereof. Some natural obligations are set forth
in the following articles.

CIVIL OBLIGIATION NATURAL OBLIGATION

Arise from law, contracts, Based not on positive law
quasi-contracts, delicts, but on equity and natural
and quasi-delicts law
Give a right of action in Do not grant such right
courts of justice to of action to enforce their
compel their fulfillment performance.
or performance

Enforceability of natural obligations

Natural obligations are not cognizable by the courts
unless there is voluntary fulfillment in which case, the
court may order the retention of what has been
delivered or rendered by reason thereof.

Fulfillment or performance is voluntary when the

obligor knew that the obligation cannot legally be
enforced. Payment by mistake, the obligor believing
the obligation to be a civil one, may be recovered on
the principle of solutio indebiti. (see Art. 2154.)

DIAMOND NOTES | Valdez, Iana Jill F. | 59

 SOME NATURAL OBLIGATIONS
Performance after civil obligation has prescribed
Article 1424. When a 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.
Reimbursement of third person for debt that has
prescribed
Article 1425. When without the knowledge or against
the will of the debtor, a third person pays a debt
which the obligor is not legally bound to pay because
the action thereon has prescribed, but the debtor later
voluntarily reimburses the third person, the obligor
cannot recover what he has paid.
Restitution by minor after annulment of contract
Article 1426. When a minor between 18 and 21 years
of age who has entered into a contract without the
consent of the parent or guardian, after the
annulment of the contract voluntarily returns the
whole thing or price received, notwithstanding the
fact that he has not been benefited thereby, there is
no right to demand the thing or price thus returned.
Delivery by minor of money or fungible thing in
fulfillment of obligation
Article 1427. When a minor between 18 and 21 years
of age, who has entered into 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.
Performance after action to enforce civil
obligation has failed
Article 1428. When, after an action to enforce a civil
obligation has failed the defendant voluntarily
performs the obligation, he cannot demand the return
of what he has delivered or the payment of the value
of the service he has rendered.
Payment by heir of debt exceeding value of
property inherited
Article 1429. When a testate or intestate heir
voluntarily pays a debt of the decedent exceeding the
value of the property which he received by will or by
the law of intestacy from the estate of the deceased,
the payment is valid and cannot be rescinded by the
payer.
Payment of legacy after will has been declared
void
Article 1430. When a will is declared void because it
has not been executed in accordance with the
formalities required by law, but one of the intestate
heirs, after the settlement of the debts of the
deceased, pays a legacy in compliance with a clause in
the defective will, the payment is effective and
irrevocable.
DIAMOND NOTES | Valdez, Iana Jill F. | 60
 3. Lack of knowledge or notice on the part of
ESTOPPEL
the defendant that the complainant would
assert the right on which he bases his suit;
Generally speaking, estoppel is a bar which precludes
4. Injury or prejudice to the defendant in the
a person from denying or asserting anything to the
event relief is accorded to the complainant,
contrary of that which has been established as the
or the suit is not held to be barred
truth, either by the acts of judicial or legislative
officers, or by his acts, representations, or admissions.
Estoppel against vendor who subsequently
acquires title
Article 1431. Through estoppel an admission or
representation is rendered conclusive upon the
Article 1434. When a person who is not the owner of
person making it, and cannot be denied or disproved
a thing sells or alienates and delivers it, and later the
as against the person relying thereon.
seller or grantor acquires title thereto, such title
passes by operation of law to the buyer or grantee.
Article 1432. The principles of estoppel are hereby
adopted insofar as they are not in conflict with the
Estoppel against agent who sells for another
provisions of this Code, the Code of Commerce, the
Rules of Court and special laws.
Article 1435. If a person in representation of another
sells or alienates a thing, the former cannot
Kinds of estoppel
subsequently set up his own title as against the buyer
or grantee.
Article 1433. Estoppel may in pais or by deed.

Estoppel against tenant or bailee

Laches
It is the failure or neglect, for an unreasonable and
Article 1436. A lessee or a bailee is estopped from
unexplained length of time, to do that which, by
asserting title to the thing leased or received, as
exercising due diligence, one could or should have
against the lessor or bailor.
done earlier; it is negligence or omission to assert a
right within a reasonable time, warranting a
Estoppel against owner of immovable
presumption that the party entitled to assert it either
has abandoned it or declined to assert it.
Article 1437. When in a contract between third
persons concerning immovable property, one of them
The essence of laches is the doctrine of estoppel.
is misled by a person with respect to the ownership or
real right over the real estate, the latter is precluded
Elements
from asserting his legal title or interest therein,
1. Conduct on the part of the defendant, or of
provided all these requisites are present:
one under whom he claims, giving rise to the
1. There must be fraudulent representation or
situation of which complaint is made
wrongful concealment of facts known to the
2. Delay in asserting the complainant’s right,
party estopped
the complainant having had knowledge or
2. The party precluded must intend that the
notice of the defendant’s conduct and
other should act upon the facts as
having been afforded an opportunity to sue;
misrepresented
actual knowledge of the commission of the
3. The party misled must have been unaware of
adverse act is not necessary, it being enough
the true facts; and
that such knowledge may be imputed to the
4. The party defrauded must have acted in
complainant because of circumstances of
accordance with the misrepresentation
which he was cognizant

DIAMOND NOTES | Valdez, Iana Jill F. | 61

Estoppel by acceptance of benefits

Article 1438. One who has allowed another to

assume apparent ownership of personal property for
the purpose of making any transfer of it, cannot, if he
received the sum for which a pledge has been
constituted, set up his own title to defeat the pledge
of the property, made by the other to a pledgee who
received the same in good faith and for value.

Persons affected by estoppel

Article 1439. Estoppel is effective only as between

the parties thereto or their successors in interest.

DIAMOND NOTES | Valdez, Iana Jill F. | 62