Codal Exceptions General Rule Requisites: Valderrama Notes Am+Dg

CODAL
EXCEPTIONS DO NOT USE WITHOUT A CODAL!

GENERAL RULE REQUISITES
OBLIGATIONS AND CONTRACTS

CIVIL AND NATURAL OBLIGATIONS; SOURCES OF OBLIGATIONS
CIVIL OBLIGATIONS NATURAL OBLIGATIONS
Memorize: Memorize:
Art. 1156 Art. 1423
ð A JURIDICAL RELATION whereby one party, called the ð Not based on positive law but on equity and
CREDITOR, can demand from another party, called the natural law do not grant a right of action to
DEBTOR, the performance of a determinative or a enforce their performance.
specific act, which we call a PRESTATION; And in case ð Moral but not legal obligation
of failure by the debtor to perform the required ð GR: NOT COGNIZABLE BY THE COURTS. EX:
prestation, the creditor will have corresponding UNLESS THERE IS VOLUNTARY FULFILLMENT.
remedies. ð I.E. Payment by Mistake based on the principle of
ð Obligations which give a right of action in courts to Solutio Indebiti
enforce their performance. Based on sources of ð When after prescription for failure of creditor to
obligations. file an action based on a contract, debtor still pays,
ð REQUISITES: knowing that the prescription for cause of action
è Passive subject = Debtor has prescribed, he may not recover what he has
è Active subject = Creditor given (Art. 1424)
è Object/Prestation = Conduct ð When a third person pays for the prescribed debt,
è Juridical Tie = Source of the obligation and debtor reimburses him, the debtor may not
ð The creditor and the debtor must be DETERMINATE or recover what he has paid. (Art. 1425)
DETERMINABLE ð Minor enters into a contract:
ð The prestation may be: è Contract is annulled; minor is not obliged to
1. To give; make any restitution insofar as he has been
2. To do; or benefited (Art. 1426) If he Voluntarily gives it
3. Not to do back, he may not recover it.
ð The prestation must be: è When a minor pays for a debt and the creditor
è DETERMINATE or DETERMINABLE has spent it in good faith, minor may not
è PHYSICALLY and JURIDICALLY/LEGALLY recover (Art. 1427)
POSSIBLE ð When a debtor wins the case against the creditor in
è MONETARY VALUE a civil action but subsequently, voluntarily
ð PERSONAL OBLIGATIONS: TO DO, OR NOT TO DO performs his obligation, he may not recover (Art.
è Positive = TO DO 1428)
è Negative = NOT TO DO ð When an heir pays for his descendent debts, which
ð Remedies of a creditor against a defaulting party: is more than what he will inherit, it is valid (Art.
1. Resolution + Damages 1429)
2. Specific performance + Damages; and ð When an heir pays for a legacy that is from a void
3. Damages will, the payment is irrevocable and effective (Art.
ð GR: DO NOT REQUIRE ANY FORM IN OBLIGATIONS 1430)
ARISING FROM A CONTRACT FOR THEIR VALIDITY.
ð Obligation = Act or performance
ð Right = Power to demand performance
ð Wrong = Violation of the right
ð CAUSE OF ACTION:
1. Right
2. Obligation
3. Breach
è Prescription is within 10 years from the occurrence
of a breach
è INJURY: Illegal invasion of the right
è DAMAGE: Recompensating for the injury
SOURCES OF OBLIGATIONS
Memorize:
Art. 1157
ð A Juridical Tie is that element of the obligation that makes it mandatory for the debtor to perform the required
prestation.
ð Sources of Obligations:
1. Law
Private acts:
Licit acts
Valderrama Notes AM+DG Midterms is coming

CODAL EXCEPTIONS DO NOT USE WITHOUT A CODAL!
2. Contracts
3. Quasi-contracts
Illicit acts
4. Acts or omissions punished by law (Crimes)
5. Quasi-delicts
ð Enumeration is EXCLUSIVE
LAW CONTRACT QUASI-CONTRACT CRIMINAL QUASI-DELICTS
Memorize: Art. 1158 Memorize: Art. Memorize: Art. LIABILITY Memorize: Art. 2176
ð Legal 1159 2142 Memorize: Art. ð An act or
Obligations/Obligations ð A contract is a ð Contracts implied 1161 omission by a person
arising from law meeting of the in law ð Civil liability in which causes
ð Not presumed, to be minds between ð A juridical addition to damage to another in
demandable they must 2 parties relation resulting criminal his person, property,
be set forth in the law whereby one from certain liability or rights giving rise
ð Special laws refer to all binds himself lawful, voluntary, è Article to an obligation to
other laws not in the with respect to and unilateral 100 of pay for the damage
Civil Code the other in acts by virtue of the RPC done, there being
order to give, to which the parties ð Criminal fault or negligence
do, or not to do become bound to liability without but there is no pre-
something. each other to the civil liability existing contractual
ð Have the force end that nobody è When obligation
of law will be unjustly there is ð GR: If there
between the enriched or no is a pre-existing
parties. benefit at the criminal contract, then there
ð Parties must expense of liability can be no quasi-
comply with another. ð Civil liability delict
the terms ð No contract, no without ð XPN: If the
thereof. consent but the criminal breach of contract
ð Must be valid same is supplied liability amounts to a tort,
and by fiction of law è Quasi- then quasi-delict
enforceable. ð Principle of delict or applies. It must be
ð Must be absolute justice tort proved that: 1. The
complied with ð Quantum Meruit ð Civil liability breach was in bad
in good faith. – as much as he from a criminal faith, 2. Violation of
ð Basic deserves action may be Art. 21
Principles: ð Kinds of Quasi- waived ð Requisites:
1. Autonomy contracts ð Independent 1. Act or omission
2. Mutuality 1. Negotiorum civil action may by the
3. Privity gestio be filed defendant
è Voluntary separately (Ex 2. Fault or
management of delicto and ex negligence
the property or quasi delicto 3. Damage
affairs of 4. Direct
another without Relation/Cause
the knowledge and Effect
or consent of the 5. No pre-existing
latter contractual
2. Solutio relationship
indebiti ð Two causes of action:
è Juridical 1.) Culpa Criminal,
relation which is 2.) Culpa Aquiliana
created when è Option given
something is to the party
received by a è Cannot
person when recover
there is no right twice
to demand it
and it was
unduly
delivered
through mistake


OBLIGATIONS TO GIVE GENERIC VERSUS DETERMINATE THINGS; OBLIGATIONS TO DO AND NOT TO DO
GENERIC/INDETERMINATE SPECIFIC/DETERMINATE
Relevant provisions: Art. 1163, 1164, 1165 par 2, 1246 Relevant provisions: Art. 1163, 1164, 1165, 1166. 1244
ð Refers to a class to genus to which it belongs and ð Particularly designated or physically segregated
cannot be specified (Specie) from all others of the same class (Individuality)
ð Remedy (1165): ð Remedy (1165):
è Substitute Performance è Specific Performance
è Damages è Resolution, with or without damages
ð CANNOT BE THE OBJECT OF DESTRUCTION BY è Damages
A FORTUITOUS EVENT ð Accessions (1166)
è Fruits of, or addition to, or improvements
ð Accessories
è Joined to, or included with the principal
è Must go together with the principal
ð Diligence:
è That of a good father of a family
Ø Ordinary Diligence or due diligence
exercised by a person with respect to his or her
own properties or affairs.
è Provided for by law
è Stipulation
ð Creditor has a right to the fruits of the thing from
the time the obligation to deliver arises (1164)
ð Delivery arises from the time of the birth of the
contract.
ð If it is subject to a suspensive condition or period, at the
fulfillment of the condition or period.
è Natural Fruits – Without human intervention
è Industrial Fruits – With human
intervention/labor
è Civil fruits – By virtue of a juridical relation
ð Personal Right: The right or power of a person to
demand from another (Definite active subject/Definite
passive subject)
ð Real Right: The right of a person over a specific thing
(Definite Active Subject)
ð Ownership is acquired by delivery, transmitted by law,
by donation, by testate and intestate succession, and
consequences of contracts by tradition.
ð CONTRACT OF SALE v. CONTRACT TO SELL
è COS
Ø Simultaneous performance
Ø Remedy: Specific Performance & Resolution
è CTS
Ø Property is given to the buyer only after full
payment
Ø Ownership is retained by the owner until
conveyance
Ø Remedy: No obligation yet
Ø Specific performance can only be availed of in
enforcing other stipulations of the contract,
other than conveyance of the property (Ayala
Life v. Ray Burton)
OBLIGATIONS TO DO OBLIGATIONS NOT TO DO
Relevant Provisions: Art. 1167 Relevant provisions Art. 1168
ð Three situations: ð Remedy:
1. Fails to perform è Undoing the forbidden thing at the expense of
2. Performs but contrary to the terms the obligor
3. Performs but in a poor manner è Damages

ð Remedies: ð However, if undoing is impossible then the only action

è Specific Performance (If not a personal is for damages
obligation)
è Substitute Performance
è Rectification
è Damages
Ø If Situation 1 & 2, It can be ordered to be
undone at the expense of the obligor
ð Specific performance is not allowed because it amounts
to involuntary servitude
ð Purely Personal Obligations
è If personal qualifications of the obligor are a
determining motive, damages only
Irregularity of Performance
Memorize: Art. 1170
ð Damages – Applies to all, obligations to give, to do, or not to do
ð Those who are guilty of:
è Fraud
è Negligence
è Delay
è Contravene the tenor
Ø Are liable for damages

FOUR CAUSES OF BREACH:
1. NEGLIGENCE
2. FRAUD
3. DELAY or DEFAULT
4. ANY OTHER CONTRAVENTION OF THE TENOR OF THE OBLIGATION

BREACH OF CONTRACT: FRAUD (INDCIDENTAL FRAUD)
Memorize: 1171
⇨ It is the deliberate or intentional evasion of the normal fulfillment of an obligation, which results into a breach
and gives a right to the innocent party
⇨ It is a state of mind
⇨ An act or omission involving malice and deceit with deliberate intention to cause damage or prejudice
⇨ Moral damages may be recovered in addition to other damages
⇨ CAUSAL FRAUD (DOLO CAUSANTE)
è Fraud used to induce a party to enter into a contract, vitiating consent.
⇨ INCIDENTAL FRAUD (DOLO INCIDENTE)
è Committed in the performance of an obligation ALREADY EXISTING
⇨ Can be demanded in all kinds of obligations
⇨ Court cannot mitigate or reduce the damages to be awarded
⇨ Waiver of an action for future fraud is VOID
è Negates the juridical tie

BREACH OF CONTRACT: NEGLIGENCE
Memorize: Art. 1172
⇨ Negligence (culpa): It is any voluntary act, no bad faith, that prevents fulfillment of an obligation. May result in culpa
aquiliana or culpa contractual
⇨ Gross Negligence = Fraud
è where negligence shows bad faith or is so gross
è negates the juridical tie; renders the obligation illusory
⇨ Responsibility arising from negligence
è Discretion of court to fix measure of damages
Ø not as serious as fraud because there is no bad faith/ deliberate intention.
è Damages where both parties mutually negligent
Ø fault of one cancels or neutralizes the negligence of the other.
⇨ Validity of waiver of action for future negligence
è may be renounced except when it requires exercise of extraordinary diligence.

è where negligence is gross/ shows bad faith, it is considered equivalent to fraud

Ø any waiver for future negligence of this kind = void.
⇨ Kind of negligence according to source of obligation
è CONTRACTUAL NEGLIGENCE (CULPA CONTRACTUAL): is NOT a source of obligation & makes the debtor liable
for damages.
Ø The source of the obligation is the Contract
è CIVIL NEGLIGENCE (CULPA AQUILIANA): is a source of an obligation
Ø Tort or quasi-delict
è CRIMINAL NEGLIGENCE (CULPA CRIMINAL); negligence resulting in commission of a crime
o Same negligent act causing damages may produce civil liability arising from a crime
o It is prohibited to recover twice for the same negligent act
⇨ Culpa contractual v. Culpa aquiliana
è Culpa contractual; liability arises from tort and doesn’t involve breach of positive obligation. It is a complete
defense
è Culpa aquiliana; defense not available if the liability of employer is from a breach of contractual duty
⇨ Effect of contributory negligence
è Mitigation of damages to be awarded;
Ø negligence was only a contributor; the plaintiff may recover damages through the mitigation of the courts
è Contributory negligence: on the part of the injured party, his conduct contributes as a legal cause to the harm he
has suffered
è Rule in reckless imprudence case
Ø Not applied in criminal cases where the offense was committed by the accused through reckless
imprudence.
⇨ Presumption of contractual negligence
è in quasi delict/ tort; negligence must be established because it is the basis of action.
Ø The action can be pursued by proving the existence of the contract.
Ø No presumption of negligence, while in the breach of contract negligence is presumed.
è It is sufficient to prove the existence of the contract of carriage & the damages or injuries suffered by him.
Memorize; 1173
ð Negligence: is a conduct that creates undue risk to another.
o Failure to observe the protection of interests of another person.
o The want of care required by the circumstance.
⇨ Test for determining if a person is negligent
o Reasonable care & caution expected of an ordinary prudent person
o Foreseeability is the fundamental test of negligence
o Dependent upon the circumstance
⇨ Factors to be considered
è Negligence, a factual matter; it is a question of fact
Ø Nature of the obligation
Ø Circumstances of the person
Ø Circumstances of time
Ø Circumstances of the place
ð GR: PROOF/PRESUMPTION OF NEGLIGENCE; NEGLIGENCE IS NEVER PRESUMED
è XPN; WHEN THE SOURCE OF OBLIGATION IS DERIVED FROM A CONTRACT
⇨ Diligence: is the attention & care required of a person in a given situation & is the opposite of negligence.
è Diligence required;
o Stipulation
o Law
o Good father of a family/Ordinary Diligence

BREACH OF CONTRACT: DELAY
Relevant provisions: 1169
⇨ Ordinary Delay; failure to perform an obligation on time
⇨ Legal Delay/ Default or mora; constitutes a breach of the obligation.
⇨ Kinds of delay
è Mora solvendi; delay on the part of the debtor
è Mora accipiendi; delay on the part of creditor
è Compensatio morae; delay of obligors in reciprocal obligations
⇨ Requisites of delay by the debtor (3 conditions);
è Failure of debtor to act on the demand

è Demand made by the creditor upon the debtor may be judicial/extrajudicial.

è The obligation is liquidated and demandable
⇨ GR: WITH OR WITHOUT THE DATE OF PERFORMANCE, A DEMAND HAS TO BE MADE BY THE CREDITOR ON THE
DEBTOR FOR PERFORMANCE. A DEMAND IS NEEDED TO PLACE A DEBTOR IN DEFAULT.
è OBLIGATION IS:
Ø DUE
Ø DEMANDABLE
Ø DETERMINATE
⇨ XPN: DEMAND IS NOT NECESSARY WHEN:
1. EXPRESS STIPULATION;
Ø To dispense with the necessity of the demand
2. LAW; OR
3. TIME IS OF THE ESSENCE
Ø For something to be a time is of the essence kind of exception, information should flow from the creditor to
the debtor and that the debtor should agree that there should be exact performance of the prestation as
mandated by the obligation. There must be information. (Barzaga v. CA)
4. WHEN DEMAND WOULD BE USELESS (Megaworld v. Tanesco)
⇨ Judicial Demand
è By filing a collection case
⇨ Extrajudicial Demand
è In the form of a demand letter
⇨ Demand by creditor on obligor to fulfill latter’s obligation
è Obligation already due and demandable
Ø Debt is liquidated when amount is known by inspection of terms and condition
è Burden of proving previous demand is on the creditor.
⇨ Effects of delay
è Mora solvendi: debtor is guilty of breach of obligation & he is liable for interest
Ø He is liable even for a fortuitous event if he needed to deliver a determinate thing.
è Mora accipiendi:
Ø Creditor is guilty of breach & liable for damages
Ø Debtor may release himself from the obligation by the consignation of the thing
è Compensation morae
Ø The liability of the first infractor shall be equitably balanced by the courts
⇨ Delay only begins from the moment the creditor demands, judicially or extrajudicially
⇨ The obligation must expressly so declare that demand is not necessary.
⇨ RECIPROCAL OBLIGATIONS;
è Both parties are obligors and obliges of one another at the same time.
è The performance of one is conditioned upon the simultaneous fulfillment on the part of the other.
è Default by one party begins from the moment the other party performs the prestation incumbent upon that
party.
è If one party is NOT READY, WILLING, AND ABLE to perform the prestation incumbent upon that party, the
other party would not be in default.
è GR: DEMAND IS NOT NECESSARY IN RECIPROCAL OBLIGATIONS. ONE PARTY AUTOMATICALLY DEFAULTS
THE MOMENT THE OTHER PARTY IS READY, WILLING, AND ABLE TO PERFORM.
è XPN: WHEN YOU HAVE SUCCESSIVE PERFORMANCE
è 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. (Cortez v. CA)
⇨ It is not necessary, that the contract should expressly or categorically so declare (time of essence of contract)
è Nature of contract itself; time may be of essences from the nature of the contract itself, of the subject matter, or
the circumstances.
è In determining whether time is of the essence in a contract, the ultimate criterion is the actual or apparent intention
of the parties and before time maybe so regarded by a court, there must be a sufficient manifestation, either in the
contract itself or the surrounding circumstances of that intention. (Lorenzo Shipping v. BJ Marthel)
⇨ It must state that after the period lapses default will commence
è Except where it clearly appears that the time for the performance of the obligation is of the essence.
⇨ When time of delivery is not fixed, delivery must be made within a reasonable time.
⇨ GR: Any loss or damage to the thing due will be on the account of the party in default, regardless of if the cause of that
loss or damage
è XPN: Unless it is due to gross negligence or bad faith
⇨ WHEN DEMAND IS USELESS

è The demand by the creditor shall not be necessary in order that delay may exist when demand would be useless, as
when the obligor has rendered it beyond his power to perform. (Megaworld v. Tanesco)
è TEST: When the creditor makes a demand on the debtor, the debtor can immediately perform the prestation upon
the receipt of the demand from the creditor (Almocera v. Ong)
Ø Liquidated and Demandable
⇨ MUTUAL DEFAULT
è Both parties are in default and the default of one cancel out the default of the other
è If the default results in the same damage, then they would cancel each other out
è GR: IF THERE IS MUTUAL DEFAULT, THERE WILL BE OFFSETTING.
⇨ Grace Period – a period that will incur after the failure of performance by the debtor from the due date
è A grace period is not an obligation. It is a right. A demand is not necessary to make it effective.

FORTUITOUS EVENTS/FORCE MAJEURE
Memorize: 1174
GR: A PERSON IS NOT LIABLE FOR LOSS OR DAMAGE RESULTING FROM NON-PERFORMANCE OF HIS OBLIGATION
DUE TO FORTUITOUS EVENTS
XPNS:
1. EXPRESSLY SPECIFIED BY LAW;
a. WHEN GUILTY OF FRAUD, NEGLIGENCE, DELAY
b. DEBTOR HAS PROMISED TO DELIVER THE SAME THING TO TWO OR MORE PERSONS
c. DEBT OF A CERTAIN THING, PROCEEDS FROM A CRIMINAL OFFENSE
d. THING TO BE DELIVERED IS GENERIC
2. WHEN DECLARED BY STIPULATION
3. ASSUMPTION OF RISK (MONDRAGON V. CA)
ð An extraordinary event which cannot be foreseen, or which, though foreseen, is inevitable.
ð Independent of the will of the obligor
ð Makes the normal fulfillment impossible
ð Fortuitous Event - Acts of man; An event independent of the will of the obligor but not of other human wills
ð Force majeure – Acts of God; Totally independent of the will of every man
ð They are identical insofar as they exempt an obligor from liability
ð Kinds of fortuitous:
è Ordinary: Common, parties could reasonably foresee
è Extraordinary: Uncommon, parties could not reasonably foresee
ð Requisites (Nakpil v. CA):
1. Independent of human will/the obligor’s will
2. Could not be foreseen/Inevitable
3. Makes the obligation impossible to fulfill in a normal manner
4. Obligor must be free from any participation in/aggravation of the injury to the obligee
ð Must be no concurrent or previous negligence or imprudence by the obligor
ð If the loss could have been prevented by human precaution, then fortuitous event cannot be invoked
ð Burden of proving is on the party invoking fortuitous event
ð MAKES THE OBLIGATION IMPOSSIBLE TO FULFILL
è Makes the obligation impossible for the obligor to perform in a normal manner or cannot be performed at all.
ð UNFORSEEABLE OR UNAVOIDABLE
è It can be foreseen but unavoidable
ð INDEPENDENT OF THE WILL OF THE OBLIGOR
è Without participation of the Debtor
ð DEBTOR MUST BE FREE FROM PARTICIPATION
è Nakpil v. CA
ð XPN: LAW
è If there is a law, the debtor will still be liable and cannot avail the benefits of Fortuitous Event
ð XPN: STIPULATION
è Parties agree that in case of a Fortuitous Event liability would still exist
ð XPN: ASSUMPTION OF RISK
è Risk:
Ø Quite Evident: It could be said that the nature of the obligation is such that a party could rightfully be deemed
to have assumed it
Ø Mere difficulty: Different from impossibility to foresee risks
Ø A financial crisis cannot be considered as a fortuitous event, even if it’s very extreme. (Mondragon v. CA)
ð Impossibility of fulfilling must be the direct consequences of the event

ð Effect of Negligence:
è Negligence contributed – Not exempted from liability
è Negligence did not contribute – Courts may equitably mitigate the damage
ð Loss of a determinate thing, without the fault of the obligor/debtor, shall extinguish the obligation (1262)
1. Obligation is to deliver a specific thing
2. Loss occurs without fault of the obligor
3. Obligor is not guilty of delay
ð Exceptions to 1262:
1. The law expressly provides
2. Stipulation
3. Requires the assumption of risk
4. Obligation to deliver a specific thing arises from a crime
ð Loss of an indeterminate thing will not extinguish the obligation. The debtor is still liable even during a fortuitous
event. It is based on the principle that a generic thing never perishes. (1263)
è Debtor can still be compelled to deliver a thing of the same kind. He cannot deliver something of superior or
inferior quality.
ð When there is partial loss, and it renders the performance impossible or difficult to comply with, the court is given
discretion to determine whether to extinguish the obligation or not based from the circumstances (1264)
ð GR: A fortuitous event does not automatically extend a period. (Ace Agro v. CA)
è Ace Agro compared to Tanguilig; in Ace Agro extension was not allowed even if there was a fortuitous even because
it was a service contract involving multiple prestations; in Tanguilig, extension was allowed because it only had one
prestation; in Tanguilig the period was given for the completion of a single prestation; in Ace Agro, the period was
given to render service for a period of time.
è XPN: There are decisions that, if the intention of the parties were to afford the full period, regardless of
whether or not it is stated in the contract, the intent would be controlling. (Nielson v. Lepanto)
ð The presumption whenever a thing is lost in the possession of the debtor is that it was due to his fault, unless there
is proof to the contrary (1265)
è Unless the loss was due to natural calamities, presumption does not apply

USURY LAW
Art. 1175
ð Simple loan or mutuum 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.
ð USURY is contracting for or receiving interest in excess of the amount allowed by law for the loan.
ð Kinds of Interest:
1. Simple Interest – when the rate of interest is stipulated by the parties
2. Compound Interest – when the interest earned upon interest due
3. Legal Interest – when the rate of interest intended by the parties is presumed by law, as when the loan
mentions interest but does not specify the rate
4. Lawful Interest – when the rate of interest is within the maximum allowed by law
5. Unlawful Interest – Usurious rate
ð RULES Under the Usury Law:
1. Legal Rate – 6% per annum when interest is STIPULATED, but there is no express contract as to the rate thereof
2. Maximum Rate
Ø 12% per annum if the loan is secured
Ø 14% per annum if not secured
Ø Rate prescribed by the Monetary Board
ð Monetary interest – Interest fixed by the parties to contract for the use or forbearance of money
ð Compensatory interest – imposed by law or by court order as penalty or indemnity for damages
ð Requisites:
1. Interest must be expressly stipulated
2. Must be in writing
3. Interest Must be Law ful
ð There is no ceiling in stipulating rates.
ð Subject to judicial scrutiny.
è If the Court sees the interest as unconscionable, it is within their right and authority to reduce the same

Art. 1176
ð GR: THE RECEIPT OF THE PRINCIPAL BY THE CREDITOR SHALL GIVE RISE TO THE PRESUMPTION THAT SAID
INTEREST HAS BEEN PAID

ð GR: THE ISSUANCE OF A RECEIPT OF THE LATTER INSTALLMENT SHALL LIKEWISE GIVE THE PRESUMPTION
THAT PRIOR INSTALLMENTS HAVE BEEN PAID
ð XPNS:
1. WITH RESERVATION AS TO INTEREST
2. RECEIPT FOR A PART OF PRINCIPAL
3. RECEIPT WITHOUT INDICATION OF PARTICULAR INSTALLMENT PAID
4. PAYMENT OF TAXES
5. NON-PAYMENT PROVEN

Art. 1177
ð Remedies available to creditors:
1. Specific Performance
2. Pursue the leviable property of the debtor
3. Accion Subrogatoria
4. Accion Pauliana
ð Requisites of Accion Pauliana
1. Creditor, who is the plaintiff, should have credit before a rescissible contract;
2. Debtor executed all his properties in favor of creditor;
3. There is no other remedy;
4. The transaction of the debtor to a 3rd person is fraudulent; and
5. The 3rd person is not a buyer in good faith;
ð ACCION SUBROGATORIA v. ACCION PAULIANA
è Accion Pauliana – rescission, a subsidiary remedy, debtor has no more asset
è Accion Subrogatoria – an action to collect payment by exercising the right of debtor

Art. 1178
ð GR: ALL RIGHTS ACQUIRED IN VIRTUE OF AN OBLIGATION ARE TRANSMISSIBLE
ð XPN:
1. STIPULATION
2. LAWS

NOTES:
How to validate an unconscionable interest rate
ð Using Art. 1159, the contract is the law between the parties. The borrower knowingly consented to the terms
and conditions of the contract. Therefore, it must be complied with in good faith.

CONDITIONS AND CONDITIONAL OBLIGATIONS
PURE OBLIGATIONS
Memorize: 1179
ð Not subject to any conditions and no specific dates for its fulfillment, thus, demandable at once
CONDITIONAL OBLIGATIONS
Memorize: 1179, 1181, 1182
ð Obligations subject to the fulfillment of a condition
ð A condition is a FUTURE and UNCERTAIN EVENT, upon the happening of which, the acquisition, or
extinguishment of an obligation is subject to it
ð Past but unknown – It refers to the knowledge of the past event
ð Conditions attached to the perfection of the contract, failure of which results to the failure of the contract
ð Conditions attached to performance, failure of which, gives the other party the option to refuse to proceed with the
contract or to waive performance of the condition
ð Right of First Refusal v. Purely Potestative Condition
è In the former, there will be a trigger for the obligation, while the same is absent on the latter
ð When the condition depends upon the sole will of the debtor, the conditional obligation shall be void (1182)
è The Code prohibits purely potestative, suspensive, conditional obligations that depend on the whims of the debtor,
because such obligations are usually not meant to be fulfilled. Indeed, to allow the fulfillment of conditions to depend
exclusively on the debtor's will would be to sanction illusory obligations (Del Castillo v. Naguiat)

è A potestative suspensive condition dependent on the will of the debtor, and a third person and/or chance, is valid
(Catungal v. Rodriguez)
è A condition which is both potestative (or facultative) and resolutory may be valid, even though the saving clause is
left to the will of the obligor.
ð Classifications:
1. As to effect:
è Suspensive
Ø A SUSPENSIVE CONDITION is a future and uncertain event, the happening of which gives rise to an
obligation
è Resolutory
Ø A RESOLUTORY CONDITION is a future and uncertain event, the happening of which extinguishes an
obligation
2. As to form:
è Express
è Implied
3. As to Possibility:
è Possible
è Impossible
Ø Legally and/or Physically Impossible
4. As to Cause or Origin:
è Potestative – Depends upon the sole will of one of the parties
Ø A purely potestative condition, dependent upon the sole will of the debtor, is void for negating the
juridical tie; there is no compulsion on the part of the debtor to perform the obligation
Ø A potestative condition dependent on the sole will of the creditor is valid because there is still an
obligation. There is only an obligation of whether the creditor will enforce it.
è Casual – Depends upon chance or a third person
è Mixed – Depends partly on one of the debtors, and a third person and/or Chance
5. As to mode:
è Positive
è Negative
6. As to number:
è Conjunctive – Several conditions; all must be fulfilled
è Disjunctive – Several conditions; only one must be fulfilled
7. Divisibility:
è Indivisible
è Divisible
SUSPENSIVE CONDITION RESOLUTORY CONDITION
Memorize: 1183, 1186, 1189 Memorize: 1186
ð Gives rise to an obligation upon fulfillment ð Fulfillment will extinguish an obligation already
ð Demandability is suspended until the fulfillment of existing
the future and uncertain event ð Performance is immediately demandable
ð A perfected contract may exist, although the obligation ð Non-compliance with or non-fulfillment resolves the
arising therefrom is subject to a suspensive condition. contract by force of law without need for judicial
ð It must appear that the act/event was intended by the intervention
parties to be a suspensive condition ð Constructive fulfillment
ð No rescission, because the obligation is yet to exist if the è Applies to obligor who is bound to return
condition is attached to the perfection of the contract what he has received upon fulfillment of the
ð Efficacy or obligatory force is subordinated to the condition
happening of the event è Effects in obligations to give (1190)
ð A potestative condition is suspensive in nature and Ø Obligation is extinguished
depends on the sole will of one of the parties. Ø Parties are obliged to return to each
è When it depends on the will of the debtor it is other what they have received under the
void obligation
è If it’s partly upon the will of the debtor and a Ø Return to status quo
third person, it’s valid Ø Mutual Restitution
ð Impossible conditions are void: è Effects in obligations to do, or not to do (1190)
è Physically – Nature of the things, cannot exist Ø The courts shall determine the
or cannot be done retroactive effect of the fulfillment of the
è Legally – Contrary to law, morals, public resolutory condition
policy, good customs, and public order ð Tacit Resolutory Condition
ð Positive Suspensive Condition (1184)

è Happening of an event at a determinate time è Every reciprocal obligation has this implied or
è Obligation is extinguished when: tacit resolutory condition
1. As soon as the time expires without è Substantial breach by one party, which shall
the event taking place entitle the other party to resolve the contract.
2. When it is indubitable that the event è There must be a valid reciprocal obligation
will not take place
ð Negative Suspensive Condition (1185)
è An event will not happen at a determinate
time
a. The time indicated has elapsed
without the event taking place
b. The event cannot occur, although the
time indicated has not yet lapsed
è The circumstances shall be considered to
determine the intention of the parties
ð Constructive Fulfillment (1186):
è When the obligor prevents the fulfillment of
the condition
è A condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfilment and a
debtor loses the right to make use of the period
when a condition is violated, making the
obligation immediately demandable. (DBP v.
Sta. Ines)
1. Suspensive Condition
2. Obligor prevents fulfillment
3. Acts voluntarily or intentionally
ð In obligations to give, when the condition is
fulfilled, its effects shall retroact to the day when
the obligation was constituted (1187). The
Condition is only an accidental element to the contract.
The obligation can exist without being subject to a
condition. The obligation should be considered
from the time it is constituted and not from the
time condition is fulfilled.
ð Conveyance is subject to a suspensive condition in
Contracts to Sell
è No application to real contracts
è The retroactive effect of the fulfillment of
the suspensive condition shall not apply to
the fruits
ð In obligations to do or not to do, no fixed rule is
provided. (1187)
ð No retroactivity in reciprocal obligations. (1187)
è Fulfillment of the condition in an
obligation to give with a suspensive
condition shall retroact to the day of the
constitution of the obligation
ð Rights pending fulfillment
è Creditor: prevent the alienation and
concealment of the property the debtor bound
himself to deliver, annotate his right in the
property
è Debtor: May recover what he has paid by
mistake prior to the happening of the
condition
ð 1189 Requisites:
1. Real obligation
2. Specific and determinate
3. Suspensive Condition
4. Condition is fulfilled

5. Loss, deterioration, improvement prior to the

happening of the condition
è Physical loss
è Legal loss; thing goes out of
commerce/becomes illegal
è Civil loss; Existence is unknown, or cannot be
recovered
Ø Loss w/o debtor’s fault
- Obligation is extinguished
Ø Loss w/ debtor’s fault
- Liable for damages
Ø Deteriorates w/o fault of the debtor
- Borne by the Creditor
Ø Deteriorates w/ the fault of the debtor
- Rescission/Fulfillment with
damages
Ø Improved by nature, or by time
- Inure to the benefit of the creditor
Ø Improved by the debtor
- Usufructuary rights

RESOLUTION UNDER ARTICLE 1191

The power to rescind obligations is IMPLIED in reciprocal ones. The moment you have a reciprocal obligation,
resolution is available.
Kinds of Obligations:
1. Unilateral – Only one party is obliged
2. Bilateral – both parties are mutually bound; creditors and debtors of each other
a. Reciprocal – From the same cause; Debtor and creditor of each other; Performed simultaneously;
Fulfillment of the obligation of the other is a suspensive condition; Non-fulfillment is as tacit or implied
resolutory condition, giving him a right to demand
Ø Must be performed simultaneously
b. Non-reciprocal – Do not impose simultaneous and correlative performance on both parties; Performance
is not dependent upon the simultaneous performance by the other.
ð Every reciprocal obligation has this implied or tacit resolutory condition. It is the substantial breach by one part,
which shall entitle the other party to resolve the contract.
ð Rescission/Resolution under Art. 1191 speaks of the alternative right, 2 remedies:
1. Specific Performance + Damages
2. Rescission + Damages
ð Breach of Obligations by the other party that violates the reciprocity between them under their contract
ð Obligor’s failure to comply with an existing obligation, not a failure of a condition to render binding that
obligation
ð The remedy is available only when the obligor cannot or does not comply with what is incumbent upon him to
abrogate their contract
ð Non-fulfillment of the other party of his obligation is a resolutory condition
ð The guilty party is not entitled to sue
ð A party incurs delay once the other party performs and the other fails to comply with his obligation
ð It is a principal action compared to Art. 1381, which is rescission and a subsidiary action
ð The injured party is entitled to rescind even in the absence of stipulation without violation of the principle of
mutuality. The injured party must be ready, willing, and able to comply with his obligation.
è The right being implied in reciprocal obligations
è HOWEVER: JSP argues that it is best practice to always put a stipulation for extrajudicial resolution and/or
judicially resolve the contract.
ð Effects of Resolution:
è Release the parties from the obligation
è Annul the contract from its inception
è Restore the parties from their original positions
è MUTUAL RESTITUTION
Ø Purita Soliven are made to pay only the purchase price plus interest. It is definite that the value of the
subject property already escalated after almost two decades from the time the petitioner paid for it. Equity
and justice dictate that the injured party should be paid the market value of the lot, otherwise, respondents
Solid Homes, Inc. & Purita Soliven would enrich themselves at the expense of herein lot owners when they
sell the same lot at the present market value. Surely, such a situation should not be countenanced for to
do so would be contrary to reason and therefore, unconscionable. (Solid Homes v. Tan)
ð May be made judicially or extra judicially
è Jurisprudence has established that GR: JUDICIAL RESOLUTION
è XPN: IF THE THERE IS AN EXPLRESS STIPULATION WHICH ALLOWS FOR EXTRA-JUDICIAL
RESOLUTION
Ø Notice is required
è If there is no express stipulation for extra-judicial stipulation, default rule, it should be judicially
resolve (UP v. De Los Angeles)
è If there is no express stipulation in the contract authorizing extra-judicial resolution, then the
remedy must be judicially invoked (Tan v. CA)
è If it is a LEASE CONTRACT, the default rule is EXTRAJUDICIAL resolution, even if there is no agreement
for extrajudicial resolution. A lessor, in case of breach, can sue for ejectment. A pre-requisite of
ejectment is a demand by the lessor for the lessee to vacate the property, together with resolution.
Demand presumes extrajudicial resolution including a demand for the lessee to vacate the property
(Chua v. Victorino)
è CANCELLATION is not resolution. Therefore, it is not covered by the default rule that it should be done
judicially. (Uy v. CA)
è Extrajudicial resolution by express stipulation is merely provisional and is still subject to judicial
remedy (Palay v. Clave)
è If it is a lease contract, the default rule is extrajudicial resolution, even if there is no agreement for
resolution (Chua v. Victorino)

ð Resolution without judicial decree

è Automatic resolution is expressly stipulated
Ø There must be a written notice
Ø May still be challenged in court
Ø Judicial action is still necessary to recover what he may have given
Ø Has legal effect only if the other party does not oppose
è Without automatic resolution stipulated
Ø A party still has this right, implied in Art. 1191
Ø May still be impugned in court
Ø Rescinder proceeds at his own risk
ð Resolution under Art. 1191 is a PRINCIPAL ACTION. It is a RETALIATORY REMEDY based on SUBSTANTIAL
BREACH (Tan v. CA)
è Substantial breach is the non-performance of a material undertaking in the contract or the principal
consideration of the other party for entering in the contract (EDS Manufacturing v. Health check)
ð Resolution is deemed claimed unless there is just cause for granting the party in default a term for the
performance of his obligation. Applies only when the guilty party is willing, able, and ready to comply.
ð The remedies alternative and not cumulative, the injured party may only choose one
è He may also seek resolution even after he has chosen fulfillment if the latter should become impossible
è After choosing rescission of the obligation, he may not demand for compliance
ð When it is without option to demand fulfillment:
è A stipulation of resolution in case one of the parties does not comply with his obligation is produced by
the force of law
è Notice of resolution must be given to the other party when such right is exercised
ð With option to demand fulfillment
è Article 1191
è Specific performance/Rescission
ð Damages consistent with the remedy pursued
è Damages must be compatible or consistent with rescission
ð When the suspensive condition fails, and the obligation does not exist then Art. 1191 is inapplicable
ð Limitations:
è Injured party must resort to the courts to assert his right judicially
è Courts shall decree rescission unless there is a just cause to set a period
è The Court has the power to fix a period
è A party cannot demand rescission of the contract if he is not ready to comply with his obligation
è If the subject matter is with a third person who acted in good faith, rescission is not available
è It must be a substantial and not merely slight breach
è The right to rescind may be waived
è Applies only in contracts of sale and not in contracts to sell
è Does not apply to judicial compromise
è Cannot be invoked when there is an arbitration clause in the contract

è Not all economic prejudice can be considered as a ground for rescission. The law should state that it is a
ground. If the law does not state, then that will not be a basis for rescission.

ð In resolution, the obligation or contract is set aside or cancelled. There’s no more juridical tie. In
termination, the contract is ended but at the same time it is enforced because of relying to a contractual
provision mainly a TERMINATION CLAUSE (Pryce v. PAGCOR)
ð There must be grounds for termination stipulated in the contract.


MUTUAL BREACH
Memorize: 1192
ð First infractor is known
è Liability of the first infractor should be equitably reduced.
ð First infractor cannot be determined
è Contract is deemed extinguished
è Each shall bear his own damages
è No remedy for either party
è The fault of cancels the fault of the other
è Mutually negligent
ð They must be placed in equal footing when there is partial performance
ð Damages are discretionary

OBLIGATIONS WITH A PERIOD
Memorize: 1193, 1197, 1198
ð It is a FUTURE and CERTAIN EVENT
ð A term is a period of time that suspends the demandability or determines the extinction of an obligation
ð The act of leaving a blank space in the promissory note, alongside the intention and manifest act of the parties, show
that there was actually a date intended (Radiowealth v. Del Rosario)
ð Obligations with a period are those subject to the expiration of the period or term
ð Kinds of Periods:
1. Effect:
è Suspensive period
Ø Obligation begins from the arrival of the day certain
è Resolutory period
Ø Obligation is valid up to the day certain and terminates upon its arrival
2. Source:
è Legal period – provided for by law
è Conventional – Stipulation
è Juridical period – fixed by the court
3. Definiteness
è Definite period – fixed or known when it will come
è Indefinite period – not fixed and not known when it will come but a period is intended
ð In case of loss, deterioration, or improvement it is similar as art. 1189
ð In obligations to give (1195)
è Similar to 1188, allows the recovery of what has been paid by mistake before the fulfillment of the obligation
è Presumption is that debtor knows of the period when he paid even though it is not yet due
è No applications to obligations to do or not to do
ð GR: PRESUMPTION IS THAT THE PERIOD IS ESTABLISHED FOR THE BENEFIT OF BOTH THE CREDITOR AND
THE DEBTOR (1196)
è Before the expiration of the period; Debtor cannot be compelled to pay, and creditor cannot be compelled to
receive
è IF FOR THE BENEFIT OF THE DEBTOR: HE MAY PAY WHENEVER HE WANTS, BUT HE CANNOT BE
COMPELLED TO PAY BEFORE THE ARRIVAL OF THE PERIOD
è IF FOR THE BENEFIT OF THE CREDITOR: HE MAY DEMAND FULFILLMENT, BUT HE CANNOT BE
COMPELLED TO ACCEPT PAYMENT BEFORE THE ARRIVAL OF THE PERIOD
Ø If the creditor accepts partial payment, this amounts to waiver of the benefit of the period
ð ACCELERATION CLAUSE provides that in case a party defaults, the entire obligation becomes due.
ð If the obligation does not state a period but the parties intended for one, the court is authorized to fix a period
which is contemplated by the parties (1197):
1. The period was omitted, and when the nature of the circumstances of the obligation stipulate that a
period was intended by the parties; or
2. The period is dependent upon the will of the debtor, i.e. when debtor’s means enable him to fulfill the
obligation
Ø Courts cannot change the period they fixed but the parties can by entering into a new contract
ð If the suspensive period is based solely upon the will of the debtor
è It is only performance with respect to time that is left to the will of the debtor
è Obligation is valid
ð Separate action to fix a duration of period
è An action to determine the duration of the period must be first resolved before performance can be demanded
ð Periods that the court can’t change:

è Stipulations
è Fixed by the court
è Fixed by final judgement
ð Love and affection is a resolutory condition, the obligation extinguishes if the love dissipates L (Macasaet v. Macasaet)
ð The debtor loses his right to make use of the period when (1198):
1. He becomes insolvent, unless he gives a guaranty or security
Ø Insolvency means assets are less than liabilities
Ø When insolvency occurs, these creditors may likely go after all the assets of the borrower. The law accelerates
the demandability of the obligation so the lender will be on the same position as other creditors.
2. He does not furnish the guaranties or securities
3. The guaranties and securities have been impaired, unless he immediately gives new ones that are
equally satisfactory
4. He violates an undertaking
5. He attempts to abscond

ALTERNATIVE AND FACULTATIVE OBLIGATIONS
Memorize: Art. 1199
Kinds of Obligation
⇨ Simple Obligation; one when there is only 1 prestation
⇨ Compound Obligation: 2 or more prestations
⇨ Conjunctive Obligation: several prestations & all of them are due
⇨ Distributive Obligation: 2 or more of the prestation are due. It may be alternative or facultative
⇨ Alternative Obligation; various prestations are due but the performance of one of them is sufficiently
determined by the choice of the debtor.

Memorize: Art. 1200
ALTERNATIVE OBLIGATIONS
⇨ GR: THE RIGHT TO CHOOSE THE PRESTATION BELONGS TO THE DEBTOR.
è XPN: IT MAY BE EXERCISED BY THE CREDITOR BUT ONLY WHEN EXPRESSLY GRANTED OR BY A 3RD
PERSON WHEN THE RIGHT IS GIVEN BY COMMON AGREEMENT
ð Debtor is required only to perform only one prestation.
ð In alternative obligations, there should be 2 valid prestations. If it is a facultative obligation, the nullity of the
principal obligation will void the entire obligation.
ð Limitations of the right of choice
è Debtor can’t choose those prestations which are; impossible, unlawful, or which could not have been the
object of the obligation.
è The debtor has no more right of choice, when among the prestations whereby he is alternatively bound, only 1
is practicable.
è The debtor cannot choose part of 1 prestation and part of another prestation
Memorize: Art. 1201
ð Effect of notice; until the choice is made & communication to the creditor, the obligation remains alternative.
è Once the notice has been given to the creditor, the obligation ceases to be alternative & becomes simple.
⇨ Proof and form of notice; the burden of proving that such communication has been made is upon who made the choice.
Memorize: Art. 1202
⇨ Effect when only one prestation is practicable
è It is Art. 1200 that will apply.
è Under Article 1202, if ONLY one is practicable the obligation is converted into a simple one
Memorize: Art. 1203
⇨ Resolution: creates the obligation to return the things which were the object of the contract together with their fruits
& the price with interest.
⇨ The right given the debtor to rescind the contract & recover damages if, through the creditor’s fault, he cannot make
a choice according to the terms of the obligation.
è Debtor is not bound to rescind.
Memorize: Art. 1204
⇨ If some of the objects; have been lost through the fault of the debtor, the latter is not liable since he has the right of
choice & the obligation can still be performed.
⇨ If all of the object; has been lost through the debtor’s fault, the creditor shall have a right to indemnity for damages
since the obligation can no longer be complied with.
è Oligation “to do”
⇨ Indemnity shall be fixed taking as basis the value of the last thing which disappeared.
Memorize: Art. 1205

⇨ The right of choice, as a rule, belongs to the debtor.

è But the debtor may expressly give the right of choice to the creditor.
è If one of the things lost through fortuitous event, he shall deliver that which the creditor chooses from among
the remainder or which remains if on subsists
è If the loss of one of the things through the fault of the debtor, the creditor may claim any of those subsisting
or the price of the one that disappeared with a right to damages.
è If all things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any
one of them, wt indemnity for damages.
Memorize: Art. 1206
ð Facultative Obligation; one where only one prestation has been agreed upon but the obligor may render
another in substitution
ð Effect of loss
è Before substitution; the loss of the thing intended as a substitute with/without the fault of the debtor does not
render him liable.
Ø The thing intended as a substitute is not due. The effect of the loss is merely to extinguish the facultative
character of the obligation.
ð After substitution; the debtor is not liable for whatever may be the cause of the loss because it is no longer due.
è If the substitute is lost, the liability of the debtor depends on whether or not the loss is due through his fault.
è once the substitution is made, the obligation becomes a simple one
ð Ordinary Alternative obligation; a mere choice categorically & unequivocally made & then communication by the
person entitled to exercise the option concludes the parties.
è Creditor may not exercise any other option
è Difference from alternative remedies; the choice generally becomes conclusive only upon the exercise of the
remedy.

JOINT AND SOLIDARY OBLIGATIONS
Memorize: 1207, 1208
ð Kinds of Obligations:
è Individual Obligations – One obligor and one obligee
è Collective Obligations – Two/more creditors and two/more debtors, it may be joint or solidary
Ø Two relations involved: between creditors and debtors, and creditors/debtor among themselves
ð An obligation may be joint on one side and solidary on the other
ð GR: AN OBLIGATION IS PRESSUMED JOINT
ð XPN: LAW, STIPULATION, NATURE OF THE OBLIGATION REQUIRES SOLIDARITY
ð Before there is joint or solidary obligations, there should be concurrence of debtors and creditors
JOINT OBLIGATION
ð The whole obligation is to be paid or fulfilled proportionately by the different debtors or demanded
proportionately by different creditors
è The joint debtor will be liable only to his or her part of the obligation.
è A joint creditor will only be entitled to his or her part of the credit.
ð Collective obligations are presumed to be joint
ð Joint obligations are the presumption
ð Joint Indivisible Obligations (1209)
è Parties are proportionately liable
è Indivisible because the object or subject matter is not physically divisible
è Joint as to liabilities or rights but indivisible to compliance
è Middle ground between joint and solidarity
ð Art. 1210
è Indivisibility refers to the prestation, while solidarity refers to the juridical or legal tie
è Only guilty debtor is liable
è Indivisibility can exist even if there’s only one creditor and one debtor
è Not liable for insolvency of one of the debtors
ð GR: AN ACT OF A CREDITOR OR A DEBTOR WILL ONLY AFFECT (BENEFIT/PREJUDICE) THE DEBTOR AND
CREDITOR PRIVY TO SUCH ACT
è Example: If you have joint debtors, and the creditor made a demand only on one of the debtors, the
debtor who received such demand will be the only one in default.
SOLIDARY OBLIGATION
ð Each one of the debtors is liable for the entire obligation and/or each one of the creditors has a right to demand the
entire obligations
ð Characteristics:
Ø Unity of object and plurality of ties. The prestation due, or to which a right exists, is one and the same thing

Ø Each one of the solidary creditors can demand and each of the debtors must satisfy the entire prestation
Ø Legal fiction of mutual agency
ð It is not presumed, it must be:
1. The Obligation expressly so states
2. Law requires solidarity
Ø Under the NIL, an accommodation party will be solidarily liable because he signs as maker or drawer of the
check (Gonzales v. PCIB)
3. Nature of the obligation requires it
Ø Tort or Quasi-Delict (Lafarge v. Continental Cement)
ð Each one of the debtors can be compelled to pay the entire obligation
ð Words “individually and jointly”, “Joint and severally” creates solidary liability
ð Kinds:
1. Parties bound
è Passive – solidarity on the part of the debtors, any of them can be made liable for the fulfillment of the entire
obligation (unity of prestation and mutual guaranty)
Ø RULES BETWEEN DEBTORS & CREDITORS:
i. Each or all debtors shall be liable to the creditor
ii. Payment by one of the solidary debtors extinguishes the obligations, creditor is given the
right to choose whom to accept when there are two or more debtors offering payment.
(1217) (Mutual Agency)
iii. If payment is made first before remission, waiver is in no effect; If payment is made after
remission, then solutio indebiti arises (1219)
Ø RULES BETWEEN DEBTORS:
i. The debtor who makes a payment for the full amount is entitled to be reimbursed.
ii. Remission obtained by one of the debtors does not entitle him to reimbursement (1220)
iii. Payment by a solidary debtor is not entitled to reimbursement when the obligation has
prescribed, or it has become illegal (1218)
iv. Loss of the thing due without the fault or delay of the debtors extinguishes the obligation;
loss due to the fault of one of the debtors, all shall be responsible, but the innocent debtors
may recover from the guilty debtor; If the loss is without fault but after delay, all debtors
shall be liable. (1221)
v. A solidary debtor, by his own act or inaction, such as by failing to appeal, may lose the
benefit of the provisions of 1222; A defense derived from the nature of the obligation is a
complete one because it nullifies the obligation and renders it ineffective; Defenses
personal to the other debtors may be invoked.
è Active – Solidarity on the part of the creditors, any of them can demand fulfillment of the entire obligation
Ø RULES BETWEEN DEBTORS & CREDITORS:
i. Debtor can pay any creditor
ii. If there’s a demand, payment should be made to the demanding creditor
iii. Each creditor can extinguish the obligation by any possible means
Ø RULES BETWEEN CREDITORS:
i. A solidary creditor may do any act beneficial or useful to the others, but he cannot perform
any act prejudicial to them. (Based on the Theory of Mutual Agency) 1212
ii. A solidary creditor cannot assign his rights without the consent of the others (1213)
iii. Creditor who does novation, compensation, confusion, and remission is liable to the other
co-creditors considering such acts are prejudicial (1215)
iv. Creditors have a right to proceed against any solidary debtor (1216)
2. Source
è Conventional – stipulation
è Legal – imposed by law
è Real – required by the nature of the obligation
ð In passive solidarity, the debtor who pays for the entire obligation is entitled to reimbursement from the other
debtors
ð SOLIDARITY IS NOT PRESUMED
ð Art. 1210
è All the debtors are liable in case of breach by a co-debtor
è Liable for the insolvency of one of the co-debtors
ð Form (1211)
è Uniform – bound by the same stipulation
è Non-uniform – Not subject to the same stipulations or clauses

ð GR: IF ONE SOLIDARY DEBTOR DIES DURING THE PROCEEDINGS, THE CREDITOR CAN CONTINUE WITH THE
CASE NOTWITHSTANDING THAT PARTICULAR RULE OF COURTS BECAUSE IT’S A SOLIDARY OBLIGATION

DIVISIBLE AND INDIVISIBLE OBLIGATIONS
ð The purpose or the intention of the parties determines divisibility or indivisibility. Thus, despite that the object or
service may be physically divisible, an obligation is indivisible if so provided BY LAW, or INTENDED BY THE
PARTIES.
ð Limited to real obligations
ð
Art. 1224 JOINT INDIVISIBLE OBLIGATIONS
ð Obligation transformed into one for damages
è Creditor cannot ask for specific performance or resolution because there is no cause of action against the other
debtors who are willing to fulfill their obligations
è In Solidary Obligations. Breach of one debtor makes all the debtors liable for damages
è In Joint Indivisible Obligations non-compliance by a debtor shall not contribute beyond their respective shares
of the obligation. The obligation becomes divisible.
DIVISIBLE OBLIGATIONS INDIVISIBLE OBLIGATIONS
ð In its delivery or performance, it is capable of partial ð In its delivery or performance, it is NOT capable of
fulfillment partial fulfillment
ð Kinds of Division: ð Kinds of Indivisibility
1. Qualitative Division – based on the quality, not 1. Legal – Law declares its indivisibility
the number or quantity 2. Conventional – Stipulation of the parties
2. Quantitative Division – based on quantity or declare indivisibility
number 3. Natural – Nature of the object or prestation
3. Ideal or Intellectual Division – exists only in deos not admit division
the minds of the parties Art. 1225, Obligations Deemed Indivisible
Art. 1225, Obligations Deemed Divisible 1. Obligations to give definite things
1. Obligations which have for their object the 2. Obligations which are not susceptible to partial
execution of a certain number of days work performance
2. Obligations which have for their object the 3. Obligations that are declared indivisible by law
accomplishment of work by metric units even if it is capable of division
3. Obligations by which their nature are 4. Obligations intended by the party to be
susceptible to partial performance indivisible
ð ð

OBLIGATIONS WITH A PENAL CLAUSE
ð OBLIGATIONS WITH A PENAL CLAUSE – an additional undertaking by the debtor to perform an extra prestation. There
is an assumption of greater liability in case the penal clause will be triggered.
ð Principal Obligations – one that can stand by itself, does not depend on others for its validity
ð Accessory Obligations – attached to a principal obligation
ð Obligation with a penal clause
è Accessory obligation to pay a stipulated indemnity in case of breach of the principal prestation intended
primarily to induce its fulfillment
ð GR: IF THE PRINCIPAL OBLIGATION IS VOID OR UNENFORCEABLE THEN THE ACCESSORY UNDERTAKING
WILL ALSO BE VOID
ð XPN:
1. WHEN PENALTY IS TRIGGERED BY THE NULLITY OF THE OBLIGATION
2. WHEN THE PENALTY IS UNDERTAKEN BY A THIRD PERSON PRECISELY FOR AN OBLIGATION WHICH IS
UNENFORCEABLE, VOIDABLE, OR NATURAL, IN WHICH CASE IT ASSUMES THE FORM OF GUARANTEE
WHICH IS VALID UNDER ART. 2052.
ð Penal Clause – Greater liability on the part of the obligor in case of breach of the obligation
ð Purpose:
è To ensure their performance by creating an effective deterrent
è Substitute a penalty for indemnity for damages/Liquidated Damages
Ø Compensation for the breach or prejudice to the creditor
Ø Immediate valuation of the prejudice
è Punish the debtor for non-fulfillment
ð It is presumed under 1226 that as GR: Penalty serves as means of repairing damages which it presupposes.
ð Obligations with a penal clause are strictly construed

ð The Penal Clause is a conditional obligation, demandable only upon non-performance of the obligation
ð Kinds of Penal Clause:
1. Origin:
è Legal – Provide for by law
è Conventional - Stipulation
2. Purpose:
è Compensatory – Replaces damages
è Punitive – Punishment for breach
3. Demandability
è Subsidiary
Ø Only the penalty can be enforced
Ø Penalty replaces the obligation in case of non-performance
Ø Creditor has the option to either sue for performance or enforce the penalty
è Joint/Cumulative
Ø Both the principal and penal clause may be enforced
Ø GR: CREDITOR CANNOT ASK FOR ADDITIONAL DAMAGES IF THERE IS A PENALTY CLAUSE. PENALTY.
ð GR: PENALTY SUBSTITUTES FOR INDEMNITY AND INTEREST IN CASE OF NON-COMPLIANCE, PROOF OF
ACTUAL DAMAGE IS NOT NECESSARY
ð XPN:
1. STIPULATION BY THE PARTIES
2. DEBTOR DEFAULTED PAYMENT OF THE PENALTY
3. DEBTOR IS GUILTY OF FRAUD IN THE NON-FULFILLMENT OF THE OBLIGATION
ð The law allows for a separate penalty apart from the interest. The penalty does not include the interest and may be
demanded separately.
ð Penalty in stipulation, enforceable only when there is breach
ð Penalty may be reduced if its iniquitous and unconscionable/in case of partial or irregular fulfillment
ð The debtor cannot just opt to pay the penalty instead of performing the obligation (1227)
ð Penal Clause is subsidiary
è There is performance – penal clause is subsidiary and not joint; thus, it cannot be demanded if there is
performance
è No performance – creditor may ask for the penalty or require specific performance; they are alternative and
not cumulative
ð Debtor has the right to pay the penalty in lieu of the obligation only when this right is expressly reserved for him
ð The Creditor has the right to demand performance and payment of penalty jointly if this right is clearly granted
to him
ð Proof of actual damage in penalty is not necessary (1228)
è Applies only when penalty is substitute to indemnity
è Penalty and liquidated are the same legally
ð When penalty may be reduced (1229)
è When there is partial or irregular performance
Ø Courts may reduce the penalty to the extent of fulfillment
è When penalty is iniquitous or unconscionable
Ø Not void, subject only to equitable reduction
è When necessary to protect the rights of third parties
ð In case of challenge to the validity of the penalty, the court can only reduce, the court cannot remove the penalty
altogether (Filinvest v. CA)
ð Construction of penal clauses when there is partial performance
è Punitive - Strict Construction
è Compensatory – Courts will be slow in exercising their authority
ð When the penal clause is void, the principal obligation remains valid; When the principal obligation is void, the
accessory obligation of a penalty clause is also void.

EXTINGUISHMENT OF OBLIGATIONS
ð Modes of extinguishment of Obligations
1. Voluntary:
a. Performance:
i. Payment; and
ii. Consignation
b. Substitution
i. Dacion en pago; and
ii. Novation

c. By release agreement:
i. Agreement subsequent to the constitution of the obligation
A. Mutual Waiver
B. Unilateral Waiver
C. Remission
ii. Agreement simultaneous to the constitution of the obligation
A. Resolutory Condition; and
B. Resolutory Period
2. Involuntary
a. By reason of subject:
i. Confusion; and
ii. Death of the contracting parties in personal obligations
b. By reason of object:
i. Loss of the thing due or impossibility of performance
c. By failure to exercise:
i. Extinctive prescription

IDENTITY, INTEGRITY, AND INDIVISIBILITY OF PAYMENT
REQUISITES OF A VALID PAYMENT:
1. INTEGRITY OF PAYMENT (payment must be complete)
2. IDENTITY OF PAYMENT (exact performance of the obligation)
ð Obligations are extinguished by payment or performance. Article 1232 states that payment means not only the delivery
of money but also the performance, in any manner, of an obligation. Article 1233 states that "a debt shall not be
understood to have been paid unless the thing or service in which the obligation consists of, has been completely
delivered or rendered, as the case may be". (Go Cinco v. CA)
IDENTITY
Relevant Provisions: 1244, 1246, 1249, 1250
ð 1244 Par. 1 refers to a real obligation to deliver a specific thing. A thing different from that which is due cannot be
offered or demanded against the will of debtor or creditor.
ð 1244 Par. 2 refers to personal obligations. The act to be performed or the act to be prohibited cannot be substituted
against the obligee’s will.
ð In 1246, the obligation to deliver a generic thing, the purpose and circumstances shall be taken into consideration to
determine the quality or kind of thing to be delivered.
è If there is any disagreement, the law steps in to decide whether the obligation has been fulfilled
è If the creditor shall accept a thing of inferior quality, he is deemed to have waived his right
ð 1249 is not applicable when the parties agreed to a payment made in the Philippine currency. It refers to other
currencies.
ð 1249 Par. 2
è Legal Tender – That currency which a debtor can legally compel the creditor to accept the payment
Ø Currency provided for by law (All coins and notes issued or circulating)
è A creditor may not be compelled to accept commercial documents
è In right to redeem cases, it has been held that mere issuance of a check is sufficient to compel redemption
è Payment through mercantile documents does not produce the effect of payment
Ø It is only when it is encashed; or
Ø It is impaired through the fault of the creditor
- This rule applies only to first class instruments/executed by third persons and delivered by the debtor
to the creditor and does not apply to instruments executed by the debtor himself
- Acceptance of payment implies an undertaking of due diligence from the creditor.
ð 1250 Extraordinary inflation requisites (Equitable v. Ng):
1. Official declaration from the BSP that there is extraordinary inflation/deflation
2. Obligation is contractual in nature, a contractual relation between the two parties
3. Parties expressly agreed to consider the effects of extraordinary inflation/deflation
è In a contractual obligation, a stipulation is needed agreeing to take into consideration the effects of
inflation/deflation
è This article does not apply to other sources of obligations or absent any stipulation
è GR: THE VALUE OF THE CURRENCY AT THE TIME OF THE ESTABLISHMENT OF THE OBLIGATION;
Ø EX: SUBJECT TO THE STIPULATIONS OF THE PARTIES
è Extraordinary inflation/deflation is never presumed
Ø It must not be foreseen by the parties, manifestly beyond their contemplation
Ø Unimaginable increase or decrease in the PPP
è Devaluation v Depreciation

Ø Devaluation – Involves official reduction of the value of the currency from an officially fixed level
Ø Depreciation – Downward change of the value of the currency with respect to other currencies
INTEGRITY
Memorize: 1233, 1234, 1235
ð 1233 means that the prestation must be fully complied with
è GR: OBLIGATIONS ARE INDIVISIBLE
è GR: AN OBLIGATION MUST BE PERFORMED COMPLETELY
è Full compliance extinguishes the obligation
è Partial performance does not extinguish the obligation
è The very prestation due must be delivered
ð XPN: 1234 AND 1235 IS AN EXCEPTION TO 1233
è Should there be partial performance in good faith, the debtor is allowed to recover less the damage suffered by
the obligee
è Substantial Compliance Requisites:
1. Substantial Performance
2. Good faith
è There is substantial performance there is compliance with the essential requirements, whether of a contract or
statute
Ø No serious harm to the obligee, it must be slight, technical, or unimportant
Ø It should not be a material or serious breach
Ø Irregularity does not affect the very essence of the obligation
Ø Remedy: Nominal damages and specific performance
è WAIVER 1235, Requisites:
1. Obligee knows the performance is incomplete or irregular
2. Acceptance the performance without expressing any protest or objection
ð QUANTUM MERUIT – like equitable compensation to the work done. It’s a proportional compensation of the
actual work done.
ð To avoid unjust enrichment to a party from resulting out of a substantially performed contract, the principle of quantum
meruit may be used to determine his compensation in the absence of a written agreement for that purpose. The principle
of quantum meruit justifies the payment of the reasonable value of the services rendered by him (International Hotel v.
Joaquin)
INDIVISIBILITY
Memorize: 1248
Relevant Provision: 1223, 1225
ð 1248, Involves only one creditor and one debtor
è The obligation must be performed in one act, not in parts
è The creditor cannot be compelled to accept partial performance
ð Partial performance is allowed:
1. When there is express stipulation to that effect
2. When the debt is in part liquidated and in part unliquidated
3. When there are different prestations in which the obligation consists are subject to different terms and
conditions
4. When the obligation cannot be reasonably performed at one time
5. Where there is abuse of right or if good faith requires acceptance

RULES ON PAYMENT
THE PAYORS AND PAYEES
Relevant Provisions: 1236, 1237, 1238, 1239, 1240, 1241, 1242, 1246
1236
ð Persons whom the creditor must accept payment
1. The Debtor
2. Third party who has in interest
3. Third person who has no interest but is stipulated that he can pay
ð In general, a payment in order to be effective to discharge an obligation, must be made to the proper person. Thus,
payment must be made to the oblige himself or to an agent having authority, express or implied, to receive the
particular payment. Payment made to one having apparent authority to receive the money will, as a rule, be treated
as though actual authority had been given for its receipt. Likewise, if payment is made to one who by law is authorized
to act for the creditor, it will work a discharge. The receipt of money due on a judgment by an officer authorized by
law to accept it will, therefore, satisfy the debt.
ð A creditor should not be compelled to accept payment from whom he may dislike or distrust

ð Articles 1236 and 1237 are clear that, even in cases where the debtor has no knowledge of payment by a third person,
and even in cases where the third person paid against the will of the debtor, such payment would produce a debt in favor
of the paying third person (Carandang v. De Guzman)
ð Effect of payment through a third person:
è If payment is made without the knowledge/consent of the debtor – He can recover what he paid to the debtor
insofar as to what he has benefited. He is not subrogated to the rights of the creditor.
è If payment is made with the knowledge/consent of the debtor – He has the right to be reimbursed and is
subrogated to the rights of the creditor
1237
ð The third person cannot compel the creditor to subrogate him in the latter’s accessory rights of mortgage,
guaranty, or penalty
ð Subrogation can only take place with consent of the debtor
ð Legal subrogation by law is presumed
ð Subrogation:
è The person who pay for the debtor is put into the shoes of the creditor. The payor acquires not only the right to
be reimbursed, but also all other rights.
1238
ð No one should be compelled to accept the generosity of another
ð If payment is not intended to be reimbursed, then it is considered as a donation

1239
ð The thing due must not be subject to any claim, lien, or encumbrances
ð The person paying must not be incapacitated to enter into contract
ð The thing paid can be recovered
ð The creditor cannot be compelled to accept payment when the debtor is incapacitated to make the payment

1240
ð To whom payment shall be made:
1. Creditor/Obligee/Successor in interest
2. Creditor at the time of the constitution of the contract
3. Payment made to the wrong person does not extinguish the obligation even if the debtor acted in good
faith
1241
ð Payment made to an incapacitated person to accept it is not valid, unless such person has benefited from it. Proof of
benefit is incumbent upon the debtor who paid.
ð When proof of benefit is not needed:
1. Subrogation
2. Ratification by the creditor
3. Estoppel on the part of the creditor
1242
ð Possession of the credit itself and not merely of the document or instrument evidencing credit
ð Payer must act in good faith, the honest belief that he is making a valid payment and that the payee is the owner of
the credit.
1243
ð Payment made subsequently by the debtor-stranger shall not be valid if the plaintiff wins the case and cannot collect
from the debtor to whom such payment is made. Such payment is considered in bad faith.
ð GARNISHMENT
è Plaintiff seeks to subject his claim the property of the debtor in the hands of a third person or money owed by
such person to the debtor.
è Involuntary novation by substitution of one creditor for another
MISCELLANEUOS RULES
Relevant provisions: 1247, 1251
1247
ð The extrajudicial expenses of payment are borne by the debtor.
ð Unless the parties have stipulated who shall bear the expenses
ð Judicial costs are generally paid by the losing party
è Unless the court adjudged who shall pay or it be divided among the parties
1251
ð Place where payment should be made:
1. Place designated by stipulation
2. Place where the thing was, at the perfection of the contract

3. No stipulation, and it is a generic thing, then the place shall be at the domicile of the debtor
è This order is successive and exclusive as may be gleaned from the provision itself

APPLICATION OF PAYMENT
Relevant provisions: 1252, 1253,1254, 1176
1252
ð Requisites:
1. One debtor and One Creditor
2. Two or more debts
3. Debts must be of the same kind
4. Debts to which payment must be applied is due
5. Payment not sufficient to cover all debts
ð Application of payments as to debts not yet due cannot be made unless:
è Stipulation
è Period for the benefit of the creditor or debtor
ð Rules:
1. Debtor has the first choice where to apply payment
2. Right to make application once exercised is irrevocable unless the creditor consents to the change
3. Debtor’s right to choose is only directory, not mandatory; If the debtor does not choose, the creditor has
the subsidiary right to choose where to apply payment, with the consent of the debtor
4. If creditor did not also choose, payment is applied to the most onerous debt
5. If the debts due are of the same nature and burden, it is applied proportionately
6. If there is disagreement, the court will decide where to apply payment

1253
ð Mandatory rule
ð The debtor cannot choose to apply payment to the principal if the interest is not yet paid. Payment must be applied
first to the interest and whatever balance is left is applied to the principal.
ð However, this rule is subject to an agreement or waiver by the creditor.

1254
ð In case no application is made, payment shall be applied to the most onerous debt, and if the debts are of the same
nature and burden, to all of them proportionately
ð When a debt is more onerous than the other, it is more burdensome.
ð SC Decisions on which debt is more burdensome:
1. A debt with interest is more onerous than one that does not have
2. A debt as a sole debtor is more onerous than a solidary debtor
3. All things being equal, older debts are more onerous
4. Debts secured by mortgage are more onerous than unsecured debts
5. Unpaid rentals are more onerous than the balance of the purchase price of the property
6. Of two debts with interest, the one with the higher interest is more onerous
7. Obligations with a penalty clause are more burdensome than ones without
ð If it cannot be determined which debt is more onerous, it’ll be applied to all proportionately

DACION EN PAGO ART. 1245
ð Conveyance of ownership of a thing by the debtor to the creditor as an accepted equivalent of an outstanding
performance of a monetary obligation.
ð It is an obligation to give
ð Requisites:
1. Performance of the prestation in lieu of payment 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 parties that the obligation is extinguished by dacion en pago
ð Payment of the obligation in another form, or a replacement of your former obligation
ð Includes a monetary obligation, when you assign a property to another person in favor of a loan or debt
ð The rules on sale will automatically apply.
ð Dacion en pago shall extinguish the obligation to the extent of the value of the property as agreed upon by the
parties or as may be proven, unless the parties agree on total extinguishment either implied or expressly
ð TWO WAYS TO DETERMINE THE VALUE:
1. By stipulation of the parties
2. As may be proven

ð Art. 1245 of the Civil provides for the special mode of payment called dation in payment. In dacion en pago, property is
alienated to the creditor in satisfaction of a debt in money. The debtor delivers and transmits to the creditor the former’s
ownership over a thing as an accepted equivalent of the payment or performance of an outstanding debt (Desiderio v.
SSS)
ð The contractual intention determines whether the property subject of the dation will be wondered as the full equivalent
of the debt and will serve as full satisfaction for the debt. The dation extinguishes the obligation to the extent of the
value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement,
either express or implied, or by their silence, consider the thing as equivalent to the obligation in which are the
obligation is totally extinguished. A dacion en pago is governed by the law of sales. Contracts of sale come with
warranties, either express or implied. (Luzon v. Enriquez)

CESSION 1255
ð Assignment or abandonment of all the properties of the debtor for the benefit of his creditors in order that the latter
may sell the same and apply the proceeds thereof to the satisfaction of the creditors
ð Surrender of assets by the debtor to several creditors.
ð Requisites:
1. Two or more creditors;
2. Debtor must be partially insolvent;
3. Assignment must invoke all the properties of the debtor; and
4. Cession must be accepted by the creditors
ð A debtor cedes all assets to the creditors and authorizes them to liquidate the assets and convert them into cash by
selling them by public or private sale. Afterwards, the proceeds are applied as payment of' the obligation Unless there
is an agreement to the contrary, the obligation will be extinguished only to the extent of the liquidated or sold assets.
ð Effect of Payment by Cession
è Assignment does not make the creditors owners of the property of the debtor
è Debtor is released from his obligation only up to the net proceeds of all the sale of the property assigned

CONSIGNATION
Relevant provisions: 1256, 1257, 1258, 1259, 1260, 1261
Memorize: 1256
ð Tender Payment is the act of the debtor of offering to the creditor the thing or amount due. The debtor must show
that it is in his possession. He must be READY, WILLING, and ABLE to pay.
è Positive and unconditional act of offering legal currency as payment to the oblige. I.e. when you show the money
Ø GR: A MANAGER’S CHECK OR ORDINARY CHECK IS NOT LEGAL TENDER
Ø XPN: Though a check is not legal tender, and a creditor may validly refuse to accept it if tendered as payment,
one who in fact accepted a fully funded check after the debtor's manifestation that it had been given to settle
an obligation is estopped from later on denouncing the efficacy of such tender of payment. (Far East Bank v.
Diaz Realty)
è Tender of Payment becomes payment when:
1. It is accepted;
2. There is consignation if the tender is refused.
è Excuses the debtor from the interest after the offer was rejected
è Does not produce the legal effect of payment, unless it is completed by consignation
è It must be unconditional and for the whole amount
è It must actually be made through a manifestation of desire or intention to pay and proof that it was actually done.
è It must be proved by the debtor in the proper case
è Tender of payment not required when:
1. A creditor who, without legal; justification, informs his debtor that payment will not be accepted
2. At the time of the time of the consignation, the mortgage had long foreclosed the mortgage extrajudicially
and the sale of the mortgaged property has already been scheduled for non-payment of the obligation
è Tender of payment is the manifestation by the debtor to the creditor of his desire to comply with his obligation, with
the offer of immediate performance. Generally, it is an act preparatory to consignation as an attempt to make a
private settlement before proceeding to the solemnities of consignation (Legaspi v. CA)
ð Consignation is the act of depositing the thing or amount due with the proper court when the creditor refuses
to accept payment without just cause.

è A facultative remedy which the debtor may or may not avail of

è In instances, where no debt is due and owing, consignation is not proper (Heirs of Bacus v. CA)
è If the debtor has the right of withdrawal, then he has the right to refuse in the first place
è It is for the avoidance of a greater liability.
Ø It produces the effect of payment and extinguishes the obligation.
Ø To avoid the performance of the obligation becoming more onerous to the debtor by reasons not imputable
to him.
è Requisites (Dalton v. FGR Realty):
1. Existence of a valid and due debt
2. Consignation, either because:
a. Creditor unjustly refuses tender of payment
b. For some other reason, payment can’t be made (1256)
3. Previous notice of consignation
4. Consignation of the thing or amount due with the proper court
5. Subsequent notice of consignation
6. Court Decision
Ø Less any of these requisites is enough to render it ineffective
è These 5 requisites are mandatory.
è The valid debt must be due, and a creditor-debtor relationship must exist
è Both tender of payment and consignation must be validly done in order to affect the extinguishment of the obligation
è Legal Tender and Consignation must not be encumbered by conditions
è Deposit to the sheriff of the redemption money is enough to affect the payment of the redemption price;
Consignation is not needed; However, legal tender itself is not a payment to relieve the vendor or mortgagor
from his liability to pay the redemption price.
è In the 5 cases in 1256, legal tender is not needed, consignation alone is allowed
ð RULES OF CONSIGNATION (Dalton v. FGR Realty):
1. Strict Compliance as mandated by law
2. Qualified acceptance by the creditor
3. The creditor may accept payment and make a reservation
a. It will prevent the debtor from withdrawing the payment consigned
4. If there is a challenge on the validity of the consignation, and it is declared invalid, the creditor will not be
liable for the cost and there will be a right to collect whatever should be paid by the debtor
5. Creditor pays the cost of a valid consignation
6. The effect of a valid consignation is reckoned as of the date of the actual deposit or consignment
1257
ð In the absence of prior notice, consignation shall be void
ð To allow the creditor to change his mind
ð Tender of payment and notice may be done in the same act
ð Tender of payment of a judgement in court is not the same in contractual tender of payments. The former may be
paid into the court by order of a judgement.

1258
ð Consignation must be made to the proper judicial authorities or the proper court to effect payment
ð Interested parties must be notified
ð The purpose of the second notice is to allow the creditor to withdraw the thing or sum due in case he accepts the
consignation
ð Consignation has retroactive effect
ð Consignation is not necessary when what is involved is a right or privilege exists and not an obligation
ð A formal offer to redeem accompanied by a bona fide legal tender of payment is sufficient to preserve the right of
redemption for future enforcement
ð Property deposited in court is free from attachments. It cannot be withdrawn without the express order of the court
being in custodia legis
1259
ð Consignation deemed properly made when:
1. Creditor accepts the thing or sum deposited, without objection, as payment
2. Court declares the consignation proper
3. The court cancels the obligation
1260
ð The debtor may withdraw the thing or sum deposited as matter of right until:
a. Before the creditor has accepted consignation
b. Before a judicial declaration that consignation is proper

ð The depositor cannot recover the thing or sum without express order of restitution
ð Risk of loss of the thing or sum
è Where all of the requisites are valid for consignation, the creditor bears the loss before acceptance and without
fault of the debtor.
è Before acceptance and declaration of the court, the debtor is also liable for the loss should it be determined there
was no valid consignation
1261
ð The creditor may order the debtor to withdraw the thing or sum deposited, but he shall lose every preference which
he may have over the thing, and the co-debtors, guarantors, and sureties shall be released
ð Solidary debtors are only released from their solidary liability and not from their shares

LOSS OF THE THING DUE
Relevant provisions: 1262,1263, 1264, 1265, 1266, 1267, 1268, 1269
Loss of the thing due or object of the obligation refers to the impossibility of performing the obligation after the creation
of the obligation
1262
ð 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
ð 1262 Par. 1 = Impossible performance (Loss of a determinate thing)
ð Loss will extinguish the obligation when:
1. It is a determinate thing
2. Without the fault of the debtor
3. Debtor is not guilty of delay
ð Loss of the thing will not extinguish liability when:
1. The law provides
2. Stipulation of the parties
3. Nature of the obligation requires the assumption of risk
4. When the obligation to deliver a thing arises from a crime

1263
ð The debtor is still liable for the loss of a generic thing
ð A generic thing never perishes
ð Debtor may be compelled to deliver a thing of the same specie, quality, and kind. Creditor may not demand for a
thing of superior and neither can the debtor give a thing of inferior quality.

1264
ð In case of partial loss and there is a disagreement between the parties, the court is given discretion to determine
whether under the circumstances it is so important in relation to the whole as to extinguish the obligation.

1265
ð The presumption whenever a thing is lost in the possession of the debtor is that it was due to his fault, unless there
is proof to the contrary (1265)
è Unless the loss was due to natural calamities, presumption does not apply

1266
ð Without the debtor’s fault, an obligation becomes legally or physically impossible
ð The supervening impossibility of the performance results to the extinguishment of the obligation after restitution
of what he may have received.
ð Impossibility must occur after the institution of the obligation.
ð Kinds of Impossibility:
è Physical Impossibility
è Legal Impossibility
ð Natural Impossibility – the thing to be done must appear that it cannot be accomplished by any means necessary.
ð Impossibility in fact – In the absence of inherent impossibility, in the nature of the thing stipulated to be performed,
which is only improbable or out of the power of the obligor
ð Obligations to do only

1267
ð Performance has become so difficult as to be manifestly beyond the contemplation of the parties, the court is
authorized to release the obligor in whole or in part.

ð REBUS SIC STANTIBUS (Doctrine of unforeseen events) – If there is a fundamental change of circumstances, which
makes it extremely difficult to perform the obligation beyond the parties’ contemplation, the obligor may be released
from the obligation
è When you enter into a contract, there are circumstances that you enter into, if there is a change of circumstance,
which makes it extremely difficult to perform the obligation, the parties may be released by filing the proper
Court action
è Requisites:
1. The event or change could not have been foreseen at the time of the execution
2. Makes the performance extremely difficult but not impossible
3. It must not be due to any acts of the parties
4. The contract is for a future prestation
ð The difficulty must put one of the parties at a disadvantage by the unforeseen event
ð The remedy is not annulment but to be released from the obligation in whole or in part
ð It applies to obligations to give
ð Does not authorize the modification or revision of the terms of the contract
ð The Court has held that the law considers any obligation/prestation. Therefore, service is not confined to an
obligation to give. It can be any prestation.

1268
ð Another instance that does not exempt the debtor from a fortuitous event
ð The obligation subsists except when the creditor refused to accept the thing, without justification, after it had been
offered to him. The creditor is in mora accipiendi. Consignation is not necessary. The debtor, however, must still
exercise due diligence. He is liable for loss or damages.

1269
ð Creditor has a right to proceed against the third person who caused the loss, no need for an assignment by the debtor.
The right of action of the debtor is transferred to the creditor the moment the obligation was extinguished.

CONDONATION OR REMISSION OF THE DEBT
ð Gratuitous abandonment by the creditor of his right against the debtor
ð A party renouncing entitlement in favor of the debtor
ð It may be expressed or implied.
è Express condonation must follow the laws, formalities on the same obligation

BREACH OF CONTRACT: CONFUSION OR MERGER OF RIGHTS
CONFUSION
Relevant Provisions: Art. 1275
⇨ Confusion (merger): is the meeting in one person of the qualities of creditor and debtor wt respect to the same
obligation.
Reason or basis for confusion
⇨ Is a mode of extinguishing obligations because if a debtor is his own creditor, enforcement of the obligation becomes
absurd.
⇨ When there is confusion of rights, the purposes of the obligation created may be deemed realized.
Requisites of confusion
⇨ It must take place between the principal debtor & creditor
⇨ It must be complete & definite
Extinction of real rights by confusion
⇨ May be extinguished by merger when any of such rights is merged wt ownership which is the most comprehensive real
right
è Consolidation of Ownership; transmit title to an obligation (thu assignment, subrogation & sale of inheritance)
è Most important & frequent cause = hereditary succession

MERGER
Relevant Provsions: Art. 1276
⇨ Merger; in the person of the principal debtor or creditor extinguishes the obligation.
è The accessory obligation of guaranty is extinguished.
⇨ Extinguishment of the accessory obligation does not carry wt it that of the principal obligation.
è Merger takes place in the person of the guarantor, leaves principal obligation in force.

CONFUSION
⇨ Relevant Provision: Art. 1277

Confusion in a joint obligation

⇨ The confusion will be extinguished only the share corresponding to the creditor or debtor in whom the 2 characters
concur
è guaranty is extinguished.
⇨ Extinguishment of the accessory obligation does not carry wt it that of the principal obligation.
è Merger takes place in the person of the guarantor, leaves principal obligation in force.

Confusion in a solidary obligation
⇨ Merger in the person of one of the solidary debtors shall extinguish the entire obligation because it is also a merger in
the other solidary debtors.

LEGAL AND JUDICIAL COMPENSATION
Relevant Provisions: 1278, 1279, 1280, 1281, 1282, 1283, 1284, 1285, 1286, 1287, 1288, 1289, 1290
1278
ð Compensation – Extinguishment to the concurrent amount of the debts or obligations of two persons who, in their
own right, reciprocally or mutually principal debtors and creditors of each other.
ð Simultaneous balancing of two obligations
ð Prevention of unnecessary suits and payments through mutual extinction
ð Specie of abbreviated payment
è Facility of employment, avoids employment of enumeration
è Guaranty of effectiveness of credit
ð Convenient and less expensive realization of payment
ð A guaranty against fraud
ð TAKES PLACE BY OPERATION OF LAW
ð Not required that the parties have the capacity to give
ð The law permits partial extinguishment in compensation
ð Kinds of Compensation:
1. Effect
a. Total - both obligations are the same amount, the obligation is extinguished
b. Partial – when the two obligations are of different amounts and a balance remains
2. Origin
a. Legal – takes place by operation of law
b. Conventional – Takes place by agreement of the parties
c. Judicial – Takes pace by order of the court
d. Facultative – when it can be set up by only one of the parties
1280
ð Guarantor is allowed to set up compensation, extinguishment of the principal as a consequence of compensation
carries with it the accessory.

1281
ð Compensation is allowed to be total or partial

1284
ð Debts may be compensated before they are judicially rescinded or annulled

1285
ð Subsequently after compensation, the creditor assigns his rights to a third person, the debtor may raise the defense
of compensation.
ð The remedy of the assignee is against the assignor
ð GR: If there is an assignment this will be effective from the moment of notice or when the other party consents
è XPN: Consent of assignment from the nature of assignment of transaction and underlying instruments. In dealing
with financial instruments, parties ought to know that these instruments could be negotiated or traded. There was
implied consent.
ð 3 Situations:
1. Assignment with the consent of the debtor
Ø Cannot set up compensation anymore to the assignee
2. Assignment with the knowledge but not the consent of the debtor
Ø Can set up compensation prior to the assignment, but not to subsequent ones
3. Assignment without knowledge of the debtor
Ø Can set up compensation for all debts prior and subsequent to assignment


1286
ð Indemnity for expenses when compensation takes place

1287
ð Obligations that cannot be compensated:
1. Deposit
2. Commodatum
3. Alim for support by gratuitous title

1288
ð Obligations that cannot be compensated:
1. Civil liability arising from a penal offense

1289
ð When there are various debts, the rules of application of payment apply

1290
ð Compensation occurs automatically by operation of law, even in the absence of an agreement and against their will,
and extinguishes reciprocally both debts as soon as they exist simultaneously
ð Full legal capacity of the parties is not required
LEGAL JUDICIAL
1279 1283
ð Requisites for Legal Compensation: ð A party may set of his claim for damages against his
1. Parties are principal creditors and principal obligation to the other party by proving his right to said
debtors of each other damages and the amount.
a. Two separate transaction by the same parties ð Both parties must prove their respective claims.
b. Different from reciprocal obligations ð The right to offset may exist but as to how much is
2. Both debts consist in the amount of money or factual in nature
of consumable things of the same kind and
quality
3. The two debts are due and demandable
a. Demand has been made
b. A debt that has prescribed is no longer
demandable, thus, can no longer be
compensated
c. Natural obligations are not legally
demandable
4. The two debts are liquidated
a. Proof liquidation if such claim is disputed
b. If undisputed, no proof is required
5. No retention or controversy has been
commenced by a third person
ð GR: TAXES ARE NOT SUBJECT TO COMPENSATION,
BEING AN OBLIGATION OF PUBLIC INTEREST, AND
GOVERNED BY SPECIAL LAWS.
ð EX: CONTRACTUAL OBLIGATIONS OF THE
GOVERNMENT MAY BE COMPENSATED. BOTH
CLAIMS MUST INVOLVE THE SAME OFFICE.
ð Claim for refund of erroneously or illegally collected
taxes is allowed for offsetting
ð Legal compensation takes place by operation of law, but
somebody has to invoke it. If nobody invokes it, then there
is as if no legal compensation. Somebody has to invoke it
in a proper case.

NOVATION IN GENERAL
Relevant Provisions: 1291, 1292, 1296, 1297, 1298, 1299
Art. 1291
⇨ Novation; total or partial extinction of an obligation through the creation of a new one which substitutes it.
Dual Function or purpose of novation

⇨ Novation contract contains 2 stipulations:

1. To extinguish/modify an existing obligation
2. To substitute a new one in its place
è It doesn't operate as an absolute extinction, but as a relative extinction
è It is extinctive when an old obligation is terminated by the creation of a new obligation
è It is merely modificatory when the new agreement will not have the effect of extinguishing the 1st but would
merely supplement it or supplant some but not all of its provisions
Kinds of novation
1. According to Origin;
è Legal; takes place by operation of law
è Conventional; takes place by agreement of the parties
2. According to how it is constituted
è Express: it is so declared in unequivocal terms
è Implied; the old & new obligation are essentially incompatible with each other
Ø For there to be implied novation, the law requires that there is utter incompatibility (PNB v. Soriano)
3. According to extent or effect:
è Total or extinctive: the old obligation is completely extinguished
è Partial or modificatory: the old obligation is merely modified
4. According to the subject:
è Real or objective: the object/ cause or principal conditions of the obligation are changed.
è Personal or subjective: the person of the debtor is substituted & or when a 3rd person is subrogated in the rights
of the creditor. The object or principal condition of the obligation & the debtor or the creditor or both the parties
are changed. (combination of real and personal novation)

Art 1292
Requisites of novation
1. Existence of a previous valid obligation
2. Intention or agreement & capacity of the parties to extinguish or modify the obligation
3. Extinguishment or modification of the obligation
4. Creation or birth of a valid new obligation
⇨ No novation unless 2 distinct & successive binding contract take place, with the second designed to replace the
preceding convention
⇨ If both parties involved are juridical necessities, proof that the 2nd contract was executed is necessary
⇨ Final judgment of a court that had been executed but not yet fully satisfied, may be novated by compromise
è The agreement supersedes the judgment
è May be subject to a suspensive condition
⇨ Is limited in effect only to civil aspect of the liability
è Not a mode to extinguish criminal liability
⇨ Can prevent criminal liability as long as it occurs prior to the filing of the criminal information in court
⇨ Involves a question of fact
⇨ GENERAL RULE: No form of words or writing is necessary to give effect to a novation, it must be clearly and
unmistakable established by express agreement or by the acts of the parties, as novation is never presumed.
è Must express intention to novate
⇨ Effecting conventional novation:
è Express agreement
è Irreconcilable incompatibility of 2 obligations
⇨ There is no novation if the parties in the new contract are not the same from the old contract
⇨ Burden is on the party who asserts its existence.
⇨ Incompatibility is required so as to ensure that the parties have indeed intended such novation
è Juridical relation or tie
è Object or principal conditions (ex. change of the nature of the prestation)
è The subjects (ex. Substitution of debtor)
⇨ Changes that breed incompatibility must be essential in nature/ an essential change.
⇨ Test of incompatibility- to test whether they can stand together without conflict, if not then they are incompatible.
⇨ Cases; must take place in any of the essential elements (ex. Object, cause, principal condition)
⇨ Slight modification; do not abrogate the entire contract & the rights and obligations of the parties, the old contract
continues in force
è Change must involve the principal condition of the obligation
⇨ Material deviations or change; the object or principal condition cannot reasonably be recognized as that
originally contracted for the original contract should be treated as abandoned.


Art 1296
⇨ Extinguishment of the principal obligation carries with it that of the accessory obligations
⇨ Exception (EX); unless the said 3rd person gives consent to the novation
è This is because a person should not be prejudiced by the act of another without his consent

Art 1297
⇨ The new obligation must be valid.
⇨ General rule (GR): no novation if the new obligation is void & therefore the original one subsist
⇨ If the new obligation is only voidable, novation can take place

Art 1298
⇨ A void obligation cannot be novated, only if the original obligation is voidable
è Voidable obligation is valid until it is annulled in court or validated by ratification

Art. 1299
⇨ If 1st obligation = suspensive/resolutory then the 2nd obligation is deemed subject to the same condition unless
contrary is stipulated
è Reasoning: efficacy of the new obligation depends upon whether the condition which affects the old obligation is
complied wt or not

NOVATION BY SUBSTITUTION
Relevant provisions: 1293, 1294,

Art. 1293
⇨ Kinds of substitution:
1. Expromission; A 3rd person of his own initiative & without the knowledge or against the will of the original debtor
2. Delegacion; Takes place when the creditor accepts a 3rd person to take the place of the debtor at the instance of
that latter
è In either of these 2 modes, consent of the creditor is required and waivers must be express.
⇨ Right of Debtor who pays
1. In Expromission: payment by the new debtor gives him the right to beneficial reimbursement
2. If payment was made with the consent of the original debtor (delegacion) the new debtor is entitled to
reimbursement & subrogation
⇨ Acceptance by creditor of payment from a 3rd person does not imply the extinguishment of the liability of the 1st
debtor
è The mere fact that the creditor receives a guaranty/accepts payment from a 3rd person with no agreement that
the 1st debtor shall be released from responsibility, does not constitute novation.
⇨ In both modes of substitution, consent of the creditor is an indispensable requirement.
⇨ It implies on the part of the creditor a waiver of the right he had before novation
è Hence why creditor’s consent is necessary to the substitution of a new debtor.
è Substitution may be prejudicial to the creditor & such prejudice may take the form of delay, contravention of its
tenor, or non-performance.
è Creditor cannot be compelled to accept payment or performance by a 3rd person who has no interest in the
fulfillment of the obligation
⇨ Involuntary novation by substitution of debtor by means of garnishment, through the writ of garnishment
⇨ It is not enough to extend the juridical relation to another person; it is necessary to place the latter in the same position
occupied by the original debtor
è Does not work as a true novation
⇨ Old debtor be expressly released from his obligation & the new debtor take his place
⇨ There is a change that does not free the debtor nor authorize the extinguishment of the accessory obligation of the
latter.
è If the old debtor is not released, no novation occurs

Art. 1294 & 1295
⇨ In Expromission, the new debtor’s insolvency or nonfulfillment of the obligation will not revive the action of the
creditor against the old debtor
è The replacement of the old debtor is not made at his own initiative
è Even if the substitution is with the knowledge or consent of the new debtor he is no longer liable
⇨ In Delegacion; speaks only of insolvency, if the old debtor is not liable.
⇨ GENERAL RULE: The old debtor is not liable to the creditor in case of the insolvency of the new debtor
è XPNS:

1. Insolvency was already existing and of the public knowledge at the time of the delegacion
2. Insolvency was already existing and known to the debtor at the time of the delegacion

NOVATION BY SUBROGATION
Relevant provisions: 1300, 1301, 1302, 1303, 1304

Art. 1300
⇨ SUBROGATION; The substitution of a 3rd person (subrogee) in the place of a creditor (subroger) with reference to a
lawful claim or right, so that he who is substituted succeeds to the right of the other in relation to the claim or right,
including its remedies and securities.
⇨ Contemplates full substitution such that it places the party subrogated in the shoes of the creditor, may enforce
payment
⇨ A subrogee cannot succeed to a right not possessed by the subrogor
⇨ Kinds of subrogation
1. Conventional: takes place by express agreement of the original parties
2. Legal: takes place without any agreement between parties, effect by operation of law. A creditor pays a preferred
creditor, even without the consent or knowledge of the debtor.
⇨ Clearly established in order that it may take place
⇨ Legal subrogation is not presumed, except in the cases expressly provided by law

Art. 1301
⇨ Consent of all the parties is an essential requirement
1. The debtor
2. The old or original creditor
3. The new creditor
⇨ In conventional subrogation, credit is extinguished & another appears, which the new creditor claims as his own
è The consent of the debtor is required while assignment of credit is not
è Effects of conventional subrogation, it begins from the time of novation from the moment all parties have given
their consent
è The nullity or defects of the previous obligation may be cured by the novation

Art. 1302
⇨ Subrogation takes place by operation of law even without the consent of the parties.
⇨ Presumption that there is legal subrogation:
1. When a creditor pays another creditor who is preferred, even without the debtor’s knowledge
2. When 3rd person, not interested in the obligation, pays with the express or tacit approval of the debtor
3. When, even wtihout the knowledge of the debtor, a person interested in the fulfillment of the obligation
pays

Art. 1303
⇨ XPN: to effect of legal subrogation: only for the change in the person of the creditor, the obligation subsist in
all respects as before the novation.
⇨ May not be modified by agreement.
⇨ There are distinctions between right to subrogate & right to reimbursement

Art. 1304
⇨ The creditor where partial payments were made by the new creditor remains a creditor to the extent of the balance of
the debt.
è He is given preferential right under the above article to recover the remainder as against the new creditor.
⇨ Preference creates a right of one creditor to be paid 1st the proceeds of the sale as against another creditor.
⇨ Right of preference made effective only when asserted and maintained
è If not, it is lost.

CONTRACTS


1305
ð It is a meeting of the minds between two contracting parties which takes place when an offer by one party is accepted
by the other
ð One or more persons bind himself or themselves with respect to another or others, or reciprocally, to the fulfillment
of an obligation to give, to do, or not to do
ð There must be at least two parties
ð A single person may create a contract with himself when he represents distinct interests
ð Termination: there must be some consideration, in the delivery of money or something else, or in rendering some
act or forbearance, subject to the termination stipulation of the parties.
è Termination by stipulation of the parties:
Ø A stipulation allowing for unilateral termination of a contract by a party is violative of the Principle of
Mutuality of Contracts.
è Termination, by stipulation, at the option of one of the parties:
Ø Termination is at the option of one or either of the parties is allowed when such stipulation is fairly entered
into and will be enforced if not contrary to equity and good conscience
Ø Unilateral termination without legal basis will be liable for damages
Ø Exercising such option in bad faith, liable for damages based on Art. 19, 20, and 21 of the Civil Code
è Termination of one party with conformity of the other:
Ø A party terminates the contract while the other party subsequently conforms to it
Ø Effect Is the restoration of the parties to the status quo ante
è Suspension by government agency:
Ø A suspended contract temporarily ceases to be operative

ð Characteristics of Contracts:
1. Freedom or Autonomy of Contracts (1306): Parties are allowed to establish stipulations, clauses, terms, and
conditions as the deem convenient, PROVIDED, they are not contrary to law, morals, good customs, public
order, and public policy
2. Obligatoriness of Contracts (1159): Obligations arising from contracts have the force of law between the
parties, and should be complied with good faith
Ø Flows from the consent of the parties
3. Mutuality of Contracts (1308): Contracts must bind both and not one only, validity or compliance cannot be
left to the will of one of them
4. Consensuality of Contracts: GR: contracts are perfected by mere consent, and from that moment, the
parties are bound not only by fulfillment but also to all the consequences which, according to their
nature, may be in keeping with good faith
5. Relativity of Contracts (1311): Contracts take effect only between the parties, their assigns, and heirs,
except in cases where the rights and obligations arising from such are not transmissible by their nature,
by stipulation, or by law
ð Classifications:
è Name
1. Nominate
2. Innominate
è Perfection
1. Consensual – perfected by mere consent
2. Real – perfected upon delivery
è Cause
1. Onerous
2. Remuneratory or remunerative
3. Gratuitous
è Form
1. Informal
2. Formal
è Obligatory force
1. Valid

2. Rescissible
3. Voidable
4. Unenforceable
5. Void
è Persons obliged
1. Unilateral
2. Bilateral
è Dependence to another contract
1. Preparatory – when it is entered into as a means to an end
2. Accessory – when it is dependent upon another contract is secures or guarantees for its existence and validity
3. Principal – 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
è Status
1. Executory – when it has not yet been performed by both of the parties
2. Executed – when it has been fully and satisfactorily carried out by the parties
è Dependence of part of the contract to other parts
1. Indivisible – when part of the contract is dependent upon the other parts for satisfactory performance
2. Divisible – when one part of the contract may be satisfactorily performed independently of other parts
è Risk
1. Commutative – when the undertaking of one party is considered equivalent of that of the other
2. Aleatory – when it depends upon an uncertain event or contingency both as to benefit or loss
è Liability
1. Unilateral – when it creates an obligation on the part of only one of the parties
2. Bilateral – when it gives rise to reciprocal obligations
__________________________________________________________________________________________________________________________________

1306 – Principle of Autonomy of Contracts
ð Constitutionally guaranteed against the impairment of contracts (legally valid contracts)
ð Valid contracts meet all the requirements for the type of agreement involved and the limitations set forth by law
ð Legal presumption is always on the validity of contracts
è The contract has a force of law between the two parties and must be complied with in good faith
ð Contracts must not be contrary to law, morals, good customs, public policy, and public order
1. Law – provisions of positive law existing at the time of the execution of the contract are deemed embodied and
written in every contract
Ø Without need for the parties expressly referring to it, the applicable law enters and forms part of the contract
Ø Parties are charged with the knowledge of the existing laws at the time they entered the contract and at the
time it is to become operative, and a person is presumed to have that knowledge
Ø The repeal or amendment of said law will not affect the terms of the contract, nor impair the rights oof the
parties
Ø Laws in force at the time the contract was made generally govern its interpretation and application
2. Police power – When there is no law or when the law is silent, the will of the parties prevail unless their
contract contravenes the limitations of morals, good customs, public order, and public policy
Ø What is not expressly or impliedly prohibited by law is allowed
ð Contracts must not be contrary to law
Ø The law is superior to the contract
Ø Provisions of positive law governing contracts are deemed incorporated or written therein and shall limit and
govern the relations between the parties
Ø Contracts that circumvent the law are Void Ab Initio
ð Contracts must not be contrary to morals
Ø Morals deal with good norms and right conduct
Ø Must not refer to those not expressed in legal provisions
ð Contracts must not be contrary to good customs
Ø Customs are habits and practices which through long usage have been followed and enforced by society or
some part of it as binding rules of conduct.
Ø It has the force of law when recognized and enforced by law
ð Contracts must not be contrary to public order
Ø Public order refers to public safety and public weal
ð Contacts must not be contrary to public policy
Ø Public policy refers to considerations which are moved by the common good
Ø No person can lawfully do that which has a tendency to injurious to society or to the public or to the public
good in relation to the administration of the law


1307 – Types of Contracts
ð Nominate Contracts: Has a specific name or designation by law
ð Innominate Contracts: Has no specific name or designation by law
Ø Do ut des = I give that you may give
Ø Do ut facias = I give that you may do
Ø Facio ut des = I do that you may give
Ø Facio ut facias = I do that you may do
Ø Rules:
1. Agreement of the parties
2. Provisions of the Civil Code relating to OBLICON
3. Rules governing the most analogous contract
4. Customs
__________________________________________________________________________________________________________________________________

1308 – Principle of Mutuality of Contracts
ð Nullify a contract containing a condition which make sit fulfillment or pre-termination dependent upon exclusively
upon the uncontrolled will of one of the parties.
ð Contracts must bind both parties
ð Bound by mutual consent
ð Without the mutuality the contract will not have the force of law between the two parties
ð The pertinent stipulation in the contract gave GF Equity an unbridled prerogative to pre-terminate the contract
irrespective of the soundness, fairness or reasonableness, or even lack of basis of its opinion, which is violative of the
principle of mutuality of contracts (GF Equity v. Valenzona).
è To make the provision valid in this case is to include a clause on prior notice, “…terminate [with our without
cause], with prior notice…”
ð A noninvolvement clause is not necessarily void for being in restraint of trade as long as there are reasonable limitations
as to time, trade, and place. Non-compete and confidentiality undertakings are also valid (Tiu v. Platinum).
ð An escalation clause which gives the lender unbridled authority to increase the interest rate is violative of the principle
of mutuality of contracts (PNB v. Rocamora)
ð The stipulations on interest rate repricing are valid because:
1. the parties mutually agreed on said stipulations;
2. repricing takes effect only upon the creditor’s written notice to the debtor of the new interest rate; and
3. Debtor has the option to prepay its loan if Debtor and Creditor do not agree on the new interest rate (Solidbank v.
Permanent Homes)

1309
ð The determination of its performance may be left to a 3rd person, in such a case, the obligation does not depend upon
a potestative condition
ð The 3rd person’s decision binds the parties only upon notice to both

1310
ð A contracting party in 1309 is not bound if such determination is evidently inequitable or unjust or when the 3rd
persona acted in bad faith or by mistake
__________________________________________________________________________________________________________________________________

1311 – Principle of Relativity
ð GR: rights from a contract are transmissible to their successors.
ð Only the parties to the contract will be bound by it. Only they have the rights and obligations under the contract. Only
they can invoke the provisions of the contract. A stranger to the contract cannot be bound by the contract (NPC v.
Province of Quezon)
ð Only the parties, their assigns, their heirs can have the rights and obligations under a contract
Ø When there is no privity, there is no obligation or liability, and no cause of action
Ø A contract binds only the parties and cannot prejudice 3rd persons, even if he is aware of the contract and has
acted with knowledge thereof
ð Real parties in interest: The real parties in interest in action upon the contract are the parties to said contract
Ø A person not a party to the contract cannot sue or be sued in the enforcement or cancellation of the contract
Ø A 3rd person can only do so he can show that he has a real interest affected by the contract
ð XPNS when the contracts are not transmissible:
1. By Nature
2. By Stipulation

3. By Provision of law
ð Death does not terminate the contract or excuse non-performance.
ð GR: 3rd persons have no rights and obligations under a contract which he is a stranger to. He has no legal
standing to demand its enforcement, assail its validity, or admit its defects
Ø XPNS:
4. Stipulations pour atri –
- Stipulations in a contract in favor of a 3rd person who has a right to demand its fulfillment, provided
that he communicates his acceptance to the obligor before its revocation by the oblige or the original
parties
- Requisites:
(i) The stipulation in favor of the 3rd person should only be a part, not the whole of the
contract
(ii) The contracting parties must have clearly and deliberately conferred a favor to the 3rd
person, not a mere incidental benefit or interest
(iii) Favorable stipulations should not be conditioned or compensated by any kind of
obligation
(iv) The 3rd person communicated his acceptance to the obligor before revocation
(v) Neither of the contracting parties bear the legal representation or authorization of the
3rd party
5. Tortious Interference
- 1314 - Requisites:
(i) Existence of a valid contract
(ii) 3rd party has knowledge of the existing contract
(iii) Unjustified interference by the 3rd party
- Malice is not required
- Basis of liability is quasi-delict because of the inducement by the 3rd party is a tort
6. Rescissible Contracts
- A 3rd person, although not a party to a contract, has the right to impugn if it is intended to defraud him
- A creditor has a right to compel his debtor to enforce a contract which his debtor is a party to
7. Contracts creating real rights
- 1312 - A real right is binding against the whole world and attaches to the property over which it is
exercised wherever it goes
- Produced by publicity given by the Registry, such publicity prejudicing the right of 3rd persons
- Persons who acted in good faith are protected when the real right is not registered
- Contracts that do not comply with certain legal requirements will still bind 3rd parties, if the 3rd party
has knowledge of the contract creating a real right. Knowledge is sometimes considered tantamount to
registration or any specific legal requirement.
ð A third party cannot be considered a tortious intermeddler if the third party only enforces the law, performs a legal
obligation, or lawfully exercises a right, including the threat or actual filing of a legal action. In these instances, the
third party does not commit a quasi-delict or tort by acting with fault or negligence and causing damage to another
(Tayag v. Lacson)
ð There is tortious interference notwithstanding the absence of malice on the part of a 3rd party. The pursuance of one’s
financial interest is not a justification for tortious interference. Malice is not an element of tortious interference
(Gilchrist v. Cuddy)
ð Financial gain on the part of the 3rd party is now a justification for tortious interference because in the pursuance of
one’s financial gain, the interference is not malicious (So Ping Bun v. CA)
ð The exercise of due diligence is the proof/justification of the 3rd party’s lack of knowledge of the contract; he has to
prove that he exercised the necessary diligence which led him to believe that there are no contracts concerning the
prestation (Lagon v. CA)

1315 – 1316
ð Consensual contracts are perfected by mere consent
ð Real contracts are perfected by consent and delivery
ð Solemn contracts are required to comply with formalities provided by law
ð STAGES IN THE LIFE OF A CONTRACT:
1. Negotiation - when the parties discuss the terms of the contract
2. Perfection – parties have come to a definite agreement or a meeting of the minds regarding the terms, that is,
the subject matter and cause of the contract
Ø By mere consent
Ø By consent and delivery
Ø According to the formalities set by law

3. Consummation – The parties have fulfilled or perform their respective obligations

ð Effect of perfection of the contract
Ø Bound to the fulfillment of what was expressly stipulated
Ø Bound to the consequences which according to their nature may be in keeping with good faith, usage, and law

1317
ð GR: A person is not bound by a contract of another of which he has no knowledge or to which he has not
given his consent
ð Cured only by ratification, must be clear and express as not to admit any doubt or vagueness, and its effects retroacts
to the moment of the celebration of the contract
ð Requisites for Authorization:
1. Duly Authorized
2. Must act within his power

CONTRACTS: OPTION CONTRACTS AND THE RIGHT OF FIRST REFUSAL
Relevant provisions: 1318, 1319, 1320, 1321, 1322, 1323, 1324, 1325, 1326
1319
Requisites of a contract:
1. Consent
2. Object
3. Cause
ð Consent – the conformity of wills and with respect to contracts, it is the agreement of the will of one of the parties
with that of another or other, upon the object cause of the contract.
ð Offer and acceptance
è Meeting of the minds – Express their intent in entering into the contract respecting the subject matter and the
cause or consideration thereof. Mutual assent or agreement takes place where there is an offer and acceptance,
notwithstanding the parties’ signatures to it.
è Nothing left for further arrangement – Contract changes must be made with the assent or consent of the
contracting parties.
ð OFFER – Proposal made by one party to another to enter into a contract. A promise to act or refrain from
acting on condition that the term thereof is accepted.
è Must be certain and definite. It cannot be vague.
è Offer must be seriously intended. But lack of serious intent, if not known to the offeree, does not invalidate the
offer.
è An offer is complete when it has all the requisites of a contract, object and cause
ð ACCEPTANCE – Manifestation by the offeree to assent to the terms of the offer.
è Without acceptance there can be no meeting of the minds
è If you have a complete offer, the acceptance must be received by the owner. Prior to the receipt, there is no
contract.
è Mere offer produces no obligation
è Acceptance must be:
1. Absolute, unconditional, or unqualified. Identical to all respects that of the offer so as to produce the consent.
2. Accepted absolutely
3. Offeror may set up the manner of acceptance, if the offeree accepts in another manner, it is a counteroffer
è An acceptance to an offer may request certain change in the terms of the offer and yet may be binding acceptance
Ø Does not necessarily change the terms of the offer and does not amount to rejection
è Clarifications are not changing to the terms of the offer
è Acceptance of two complex offers
Ø Two or more contracts – single offer involving two or more contracts
Ø Single contract covering various things – Partial acceptance of one or some but not all the things will also
depend upon their relation to one another or the intent of the offeror.
- Partial acceptance will not give rise to the perfection of a contract where the things are inter-
related.
è Knowledge made by letter or telegram
Ø Knowledge of acceptance – Perfected NOT from the time the letter or telegram is sent BUT from the time
the offeror’s knowledge, actual or constructive, of the acceptance
Ø Revocation of offer – Before the acceptance is known, the offer can be revoked
Ø Revocation of acceptance – Similarly, the revocation must reach the offeror before the he learns of the
acceptance

è GR: IF THE OFFER IS NOT SUPPORTED BY A CONSIDERATION, IT CAN BE WITHDRAWN ANYTIME AS LONG
AS THERE IS NO ACCEPTANCE.
è GR: ACCEPTANCE SHOULD BE MADE WHILE THERE IS STILL AN OFFER OR THE OFFEROR IS STILL IN THE
POSITION TO MAKE AN OFFER
è Silence may or may not mean consent.
Ø Silence will not be considered as valid consent when there is no obligation to respond. Absence of any reply
does not translate to consent.
Ø Silence will be considered as a valid consent when the 3rd party pays a creditor with knowledge of the
debtor, the debtor should object, otherwise there will be implied consent

1320
ð Except when formal acceptance is required, acceptance may be mad by acts, conduct, or words
ð Acceptance by promise – Promise need not be by words but may be inferred from the acts of the parties
ð Acceptance by act – performance is the only thing needful to complete the agreement
ð Acceptance by silence or inaction – Silence cannot be construed as acceptance. The acceptance must be affirmatively
and clearly made and evidenced by words or some act or conduct.

1321
ð The person making the offer may prescribe for the time place, and manner of acceptance
ð An acceptance departing from the terms of the offer is a counteroffer
ð When there is no fixed period, offer must be accepted immediately

1322
ð Communication of acceptance to agent
è To offeror – Must be made known to the offeror. If duly authorized, no need.
è To agent by legal fiction – No perfection if the principal himself made the offer and acceptance is communicated
to the agent, UNLESS he is authorized to receive

1323
ð Offer becomes ineffective
è Grounds – Death, civil interdiction, insanity, or insolvency of either party before acceptance
è Grounds are not exclusive
ð Communication through electronic messages
è May be communicated through means of electronic data messages.
è Must be recognized by both parties

1324
OPTION CONTRACTS
ð Preparatory Contract giving a person for a consideration a certain period and under specified conditions within
which to accept the offer.
ð Separate from the main agreement
ð Option period – period given to the offeree to whether or not enter into the principal contract
ð Option money – Money to be paid or promised as a distinct consideration for the offer contract
ð An option contract has all the elements: object, consent, cause, and there is also a consideration
ð GR: OFFER MAY BE WITHDRAWN ANYTIME BEFORE ACCEPTANCE
ð EX: WHEN THE OPTION IS FOUNDED ON A SEPARATE CONSIDERATION, AS SOMETHING PAID OR PROMISED
è The option binds the offeror not to enter into the principal contract with another person during the fixed period,
and within the period, to enter into such contract with the offeree, if the latter should decide to use the option.
è If there is a consideration distinct from the price, the option period may not be cut short or the offer cannot be
withdrawn during the option period.
è If there is no consideration distinct from the price, and as long as there is no acceptance yet, the one who makes
an offer may withdraw the offer anytime. The moment there is acceptance, you will have a valid contract, since
all the requisites are complete
è An option supported by a consideration is a separate contract and can be enforced

RIGHT OF FIRST REFUSAL
ð A contractual grant, not of the sale of a property but of the first priority to buy the property, in the event the owner
decides to sell it.
ð The exercise of the right is dependent not only on the grantor’s eventual intention to enter into a binding contract
with another but also the terms, price, that are yet to be discussed.
ð It is only after the failure to exercise such right that the owner is allowed to sell the property to others.

ð It is a simple potestative condition dependent on the sole will of the owner. It is triggered when the intention to sell
is manifested.
ð There is no need for a consideration distinct of the price unlike an option

1325
ð GR: BUSINESS ADVERTISEMENTS ARE GENERALLY NOT DEFINITE OFFERS
ð However, if it is complete in all particulars necessary of a contract, it may amount to a definite offer
ð General offers – offer made to the public may be accepted by any one or by anyone coming from the same class

1326
ð Advertiser is not the one making the offer. The bidder is the one making the offer which the advertiser is free to accept
or reject.

CONTRACTS: ELEMENT OF CONSENT
Relevant Provisions: 1327 -1338
Memorize: 1327, 1330, 1331, 1335, 1337, 1338
1327
ð The following cannot give consent:
1. Unemancipated minors;
2. Insane or demented persons, and deaf-mutes who do not know how to write
3. Persons with impaired mental facilities or legal incapacity
4. Under a hypnotic spell
5. Those suffering from special disqualifications
ð There be a party capable of contracting and a party capable of being contracted with
ð Natural Capacity – Only natural persons have natural capacity
ð Legal Capacity – It does not refer only to natural persons, but also artificial as well
ð For a person to be able to enter into a contract, he must have BOTH LEGAL and NATURAL capacity
ð GR: CAPACITY TO GIVE CONSENT IS PRESUMED
è Mere advanced years and physical infirmities does not constitute incapacitation of a person, unless it is proven
with clear and convincing evidence that such infirmities impair mental faculties to the extent that he is unable
to properly, intelligently, and fairly understand the terms of the contract
è Burden of proof is on the party who asserts incapacity
ð A contract entered into by an incapacitated person is VOIDABLE
ð Persons who cannot give consent
1. Unemancipated minors – Persons who have not yet reached the age of majority and are still subject to parental
authority
Ø GR: IF MINORS ENTER INTO A CONTRACT, THE CONTRACT WILL HAVE A VICE OF CONSENT AND
MAKE THE CONTRACT VOIDABLE
Ø Minors are allowed to enter into contracts when buying necessities
Ø Sale of real estate by minors, who have already reached the age of puberty and near the age of majority
when they pretended to have already reached such age, when in fact not, is valid
- The other party must have good reason to believe and did in fact believe the minor is capable of
contracting
- Not applicable when the minor did not pretend to be of age
2. Insane or demented persons – The insanity must exist at the time of contracting.
Ø A person is always presumed to be of sound mind at any particular time and the condition is
presumed to continue to exist
Ø An insane person can enter into a contract through a duly empowered legal representative or during lucid
intervals
3. Deaf-Mutes – Persons who are deaf and dumb
Ø If the deaf-mute knows how to write, the contract is valid for then he is capable of giving an intelligent
consent
Ø Contracts entered into are voidable
4. Impaired mental faculties
Ø Intoxication must be measured because it does not mean that all people drinking alcohol will have a voidable
contract.
5. Under hypnotic spell
6. Those suffering special disqualification

Ø GR: IF THE PERSON IDENTIFIED ARE THOSE SUFFERING SPECIAL DISQUALIFICATIONS ENTERED
INTO A CONTRACT, THE CONTRACT IS VOID, UNLESS WITH COURT APPROVAL. IT IS NOT EVEN
CONSIDERED VOIDABLE.
ð Reason for the disqualification is that these persons can easily be victims of fraud.

1328
ð Lucid Interval – Temporary period of sanity-> Contracts entered into by an insane or dementated person during lucid
interval is valid
ð Contracts entered into under guardianship for insanity is valid, provided, it is shown that at the time of entering into
the contract, he was not insane

1329
ð EXCEPTION:
1. When necessities such as food, are sold and delivered to a minor or other person without capacity to act
2. A minor, 18 years old or above may contract for life, health, and accident insurance
3. Contracts entered into by guardianship or legal representative
4. When the minor misrepresented his age/estoppel (JSP Does not agree)
5. When a minor between 18-21, voluntarily pays his debt, and the creditor has spent it in good faith
6. Emancipation of a minor
ð Weakness of mind alone is not a ground for avoiding a contract

1330
ð Vices of consent:
1. Mistake;
2. Violence;
3. Intimidation;
4. undue influence; or
5. fraud
ð Characteristics of Consent:
1. INTELLIGENT
2. FREE AND VOLUNTARY
3. CONSCIOUS OR SPONTANEOUS
ð GR: WHOEVER ALLEGES VICE OF CONSENT HAS THE BURDEN OF PROOF
è XPN: IF THE OTHER PARTY ALLEGES FRAUD OR MISTAKE AND THAT PARTY IS ILLITERATE OR DOES NOT
UNDERSTAND THE LANGUAGE OF THE CONTRACT, THEN THERE WILL BE A SHIFT ON THE BURDEN OF
PROOF
ð Old age does not translate to inability to understand the contract.
ð If the document is notarized, there is a presumption that the parties have understood the contract, because in the notary
public, parties are asked if they have understood the contract
ð CASE OF PARAGAS: Complete absence of consent
ð Consent given reluctantly
è One acts voluntarily and independently in the eyes of the law when he acts reluctantly and with hesitation
è Reparations made by a threat of a civil or criminal action is binding and enforceable
è Payment made to secure extinction from a disadvantageous contract is not necessarily void
è Contracts signed to avoid unfavorable publicity and court action are valid
è Receipts signed to secure release of check covering reimbursement for a cancelled contract
è Contracts of adhesion are not necessarily void

1331
ð Mistake or Error is the false notion of a thing or a fact material to the contract
ð This article refers to MISTAKE OF FACT
Ø Means an error or wrong in the appreciation of an element of the contract, specifically the cause or the
object. Only material mistake, which principally moved the parties to enter into the contract, is considered.
ð Mistake contemplated by law is a substantial mistake of fact, that is, the party would not have entered into the
contract or given hid consent had he known of the mistake
ð Mistake of Fact:
1. Substance of the thing which is the object of the contract
2. Conditions have principally moved one or both parties to enter into a contract
3. Identity or qualifications of one of the parties is the principal cause of the contract
ð Mistake of Fact which does not vitiate consent:

è Error as regards to the incidents of a thing

è Mistake as to quantity or amount, subject only to correction
è Mistake as regards the identity or qualifications of a party does not vitiate consent for the reason that contracts
are entered into more in consideration of the things or services which form their subject matter rather than the
person. EX: when such is the principal cause of the contract
è Error which could have been avoided
ð Effect of Mistake of Account
1. Mistake is simple – Simple mistake of computation or account does not vitiate consent.
2. Mistake is gross – It was clearly apparent to one party and, therefore, would be impossible to escape his notice,
said party is still liable

1332
ð GR: When a person signs a document, the presumption is that he does so with full knowledge of its contents
and consequences.
ð EX: 1332, When one of the parties is unable to read or if the contract is written in a language not understood
by him, it is the party enforcing the contract who is duty bound to show that there is no mistake or fraud
ð There is still a fairly large number of Filipinos who are illiterate, and most contracts are written in English or Spanish
ð Party who is an illiterate must establish convincingly that he is at a disadvantage
ð Consent is given but vitiated by mistake or fraud
ð It is the duty of the courts to be more vigilant in the protection of a contracting party who occupies an inferior position
with respect to other contracting parties

1333
ð Effect of knowledge of risk. If the party knew beforehand the doubt, contingency, or risk, affecting the contract,
it is assumed that he was willing to take chances and cannot, therefore claim mistake

1334
ð Mistake of Law – Ignorance of some provision of law, or some erroneous interpretation of its meaning or from an
erroneous conclusion as to the legal effect of the agreement
ð GR: Mistake of Law does not invalidate consent
ð EX: A mistake on a doubtful question of law, or on the construction or application of the law, this is analogous
to mistake of fact
ð Requisites:
1. Error must be mutual
2. As to the legal effect of the agreement
3. Frustrates the real purpose of the parties

1335
ð Violence requires the employment of physical force
ð To make the consent defective, the force employed must be either serious or irresistible
ð Force employed must be the determining cause or reason for giving consent
ð Nature of Intimidation:
1. A reasonable and well-grounded fear of an evil
2. Evil must be imminent and grave
3. 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
ð Contracts signed out of reverential fear is valid, unless such fear so deprives one of a reasonable freedom of choice
ð Threat within real of law – the threat of a court of action to enforce a just or legal claim is justified and does
not vitiate consent
ð Threat beyond limits of creditor’s rights – threats within the right of a creditor does not vitiate consent
ð It has been held by the SC that threat of sending her husband to jail amounts to intimidation

1336
ð Violence or intimidation that amounts to the character required in 1335 may be employed by third persons

1337
ð The influence must be of a kind that so overpowers and subjugates the mind of the party as to destroy his free agency
and make him express the will of another, rather than his own
ð Requisites:
1. A person who can be influenced
2. Undue or improper influence

3. Submission to the overwhelming effect of such conduct

ð Proof of undue influence must be established by clear and convincing evidence, otherwise, a party’s presumed
consent prevails

1338
ð Causal Fraud or Dolo Causante is the fraud employed by one party prior to or simultaneous with the execution of
the contract to secure the consent of the other.
ð The deceit must be serious that it is the cause for a party consenting to the contract.
ð The essential cause of the contract which involves the use of deceit or deception
ð Requisites:
1. Misrepresentation or nondisclosure by a party prior to or simultaneous to the consent or creation of the
contract
2. Serious in character
3. Made in bad faith
4. Induced the consent of the other party
5. It must be alleged and proved with clear and convincing evidence
ð Presumption is in the validity and regularity

CONTRACTS: THE ELEMENTS OF OBJECT AND CONSIDERATION
OBJECT CAUSE
Relevant Provisions: 1347, 1348, 1349 Relevant Provisions: 1350, 1351, 1352, 1253, 1354, 1355
1347 1350
ð Object of a contract is its subject matter, the thing to be CAUSE IS PRESUMED
delivered or the service to be rendered ð Cause – The direct or proximate purpose or reason
ð The object of every contract is the obligation created, a which the contracting parties have in view at the time
contract cannot exist without an obligation, it may be of entering into the contract
said that the thing, service, or right is the object of è The principal or essential reason or consideration
obligation is also the object of the contract leading a party entering into a contract.
ð GR: THE OBJECT MAY OR MAY NOT EXIST AT THE ð Classification:
TIME OF THE PERFECTION OF THE CONTRACT, 1. Onerous – The promise or prestation of a service
PROVIDED THAT IT WILL COME TO EXISTENCE AT or a thing by the other party. Contracting parties
DUE DATE are reciprocally obligated.
ð XPN: WHEN THE LAW PROVIDES THAT FUTURE 2. Remuneratory – Cause is the remuneration of the
OBJECTS MAY NOT BE THE OBJECT OF A CONTRACT service or benefit
ð Second essential element of a valid contract 3. Gratuitous – Mere liberality of the benefactor or
ð Requisites of Delivery: giver, such as commadatum; Pure guaranty,
1. Within the commerce of men donation, suretyship
2. Not impossible, physically or illegally ð Liberality of the benefactor is deemed the cause only
3. In existence or capable of coming into when the contract is of pure beneficence
existence 1351
4. Determined or determinable ð GR: MOTIVE IS NOT THE CAUSE OF THE CONTRACT
ð Requisites of Service: AND IS A SUBJECTIVE CONSIDERATION
1. Must be within the commerce of men è XPN: WHEN THE MOTIVES PREDETERMINES
2. Not legally or physically impossible THE CAUSE
3. Determined or determinable ð Motive is purely personal, it is different from cause
ð All rights may be objects of the contract except ð It is the indirect or remote reason to enter into a
those that are untransmissible contract
ð Requisites for Future Inheritance: ð Motive may be unknown to the parties
1. Succession has not yet been opened at the time ð Motive is not an essential element
of the contract ð Motive does not render the contract void
2. Object of the contract forms part of the ð EX: MOTIVE MAY BE CONSIDERED THE CAUSE IN THE
inheritance CONTRACT WHEN SUCH MOTIVES PREDETERMINE
3. An expectancy of a right which is purely THE CAUSE OF THE CONTRACT (UY V. CA)
hereditary in nature è It is necessary for the other party to have
ð GR: CONTRACTS ON FUTURE INHERITANCE ARE knowledge of the motive
VOID, UNLESS EXPRESSLY AUTHORIZED BY LAW 1352
è XPN: AUTHORIZED BY LAW; ACTS INTER VIVOS ð Requisites of Cause
è Future inheritance means that succession has 1. Exists at the time of the contract
not yet opened. The period of reckoning 2. It must be lawful
whether succession has been opened is the 3. It must be true or real

death of the person from whom the heirs stand ð Absence of cause means that there is total lack of any
to inherit, regardless of whether or not there is valid consideration for the contract
actual conveyance of title è Contracts without cause produce no legal
ð Kinds of Impossibility effect. Simulated or fictitious contracts are
è Physical – the thing or the service in the very void.
nature may not exist è There is a consideration for contracts of right of
Ø Absolute – the act may not be done in any case first refusal
Ø Relative – arises from special circumstances ð Failure of the cause or inadequacy of a cause is not a
è Legal – contrary to law, morals, good customs, ground for relief and which does not render a contract
public policy, and public order void
è Absolute impossibility nullifies the contract ð Failure of the cause results to a right to demand the
è Relative impossibility, if temporary, does not fulfillment or cancellation of the obligation under an
nullify the contract existing valid contract
ð Illegality of cause, there is a cause but the same is illegal
1349 è Contracts with unlawful causes are null and void
ð The object of the contract must be determinate as to its
kind or at least determinable without necessity of a new 1353
or further agreement between the parties. It need not ð Falsity of cause means the contract states a valid
be specified with absolute certainty. The same is true of consideration, but such statement is not true. A false
the quantity of the object of the contract cause may be erroneous or simulated
è Erroneous Causes render a contract void
è Simulated Contracts may happen that the
hidden but true cause if sufficient to support
the contract. The parties must show that there
is another cause, and that said cause is true and
lawful, then the parties shall be bound by their
true agreement
1354
ð It is not necessary that the cause be expressly stated
in the contract. It is presumed that the cause exists
and is lawful unless the debtor proves contrary
.
1355
ð Lesion is any damage caused by the fact that the price
is unjust or inadequate
ð GR: LESION OR INADEQUACY OF CAUSE DOES NOT
OF ITSELF INVALIDATE A CONTRACT.
è EX: LESION WILL INVALIDATE THE CONTRACT
a. WHEN THERE IS FRAUD OR MISTAKE OR
UNDUE INFLUENCE
In cases expressly provide for by law

FORMS OF CONTACTS
Relevant provisions: 1356, 1357, 1358
1356
ð Refers to the manner in which a contract is executed or manifested
ð GR: A contract is binding and obligatory between the parties regardless of the form it may have been entered into,
provided that all the essential elements of a contract are present
è XPN:
1. when the law requires the contract to be in a certain specific form to be valid
2. when the law requires the contract to be in a certain specific form to be enforceable
3. when the law requires the contract to be in a certain specific form for the convenience of the parties
or for the purpose of affecting 3rd parties
ð Contracts may be:
è Parol or oral, in writing, or partly oral and partly in writing.
è It may be a collection of written documents
è A document may contain two or more separate contracts
è It may be written in numerous documents even if not all are signed
è Two copies bind both parties as if there is only one contract
ð To be a written contract, all its terms must be in writing. So a partly oral and partly in writing contract, is an oral
contract.

ð Two aspects of a contract:

4. Intent or will – internal and as long as a contract exists merely as a psychological fact, it produces no legal
effect, because the law cannot take cognizance of its existence
5. Expression of such intent or will – necessary in order that the will may produce effect, that it be expressed
ð Two kinds of contracts:
1. Informal or common contract = in whatever form, provided, all the essential elements for the validity of a
contract are present
2. Formal or solemn contract = Required by law for its efficacy to be in a certain specified form

1357
ð In certain cases, a certain form is required for the convenience of the parties in or der that the contract may be
registered in the proper registry to make effective, as against 3rd parties, the right acquired under such contract.
ð As between the parties, the form is not indispensable as they are allowed by law to compel the other to observe the
proper form and this right may be exercised simultaneously with an action to enforce the contract.

1358
ð 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.

REFORMATION OF CONTACTS
Relevant Provisions: 1359, 1360, 1361, 1362, 1363, 1364, 1365, 1366, 1367, 1368, 1369

1359
ð Reformation: the remedy in equity allowed by law by means of which a written contract already executed is
amended or modified to express or to conform to the true agreement or intention of the parties when by
reason of mistake or fraud, inequitable conduct, or accident, the instrument fails to express such agreement
or intentions.
ð Courts do not attempt to make a new contract. The rationale is that it would be unjust to enforce a contract which
does not conform or express the true intentions of the parties.
ð Requisites:
1. Meeting of the minds of the parties to the contract;
2. Written instrument does not express the true agreement or intention of the parties;
3. Failure to express the true intention is by reason of 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. Clear and convincing evidence of the mistake, fraud, inequitable conduct, or accident.
ð Facts to be alleged and proved in an action for reformation:
1. Failure of instrument
Ø Complainant must allege the true intention or agreement of the parties and that the instrument to be
reformed does not express or conform to such intention or agreement
Ø The instrument to be reformed must be in written form
2. Reformation of instrument
Ø What is reformed is not the contract itself but the instrument embodying the contract
3. Burden of proof
Ø Burden of proof is on the party who insists that the instrument should be reformed.
ð GR: Parol evidence is not allowed to prove the real intention of the parties. Whatever is not found in the text
of the agreement should thus be construed as excluded, waived, or abandoned.
ð Inequitable conduct:
1. Taking advantage of one party by the other party’s illiteracy;
2. Abusing confidence;
3. Concealing what of right should have been disclosed;
4. Drafting or having drafted an instrument contrary to the previous understanding of the parties and making
the other party to believe the instrument other than it actually is; or

5. In taking advantage of a mistake of the other party, known, or suspected at the time of the execution of the
contract

1360
ð In case of conflict between the provions of the civil code and the principles of general law, the former prevails.

1361
ð Mutual Mistake requisites
1. Mistake must be of fact;
2. Proven by clear and convincing evidence;
3. Mistake must be mutual; and
4. Mistake results in the failure of the instrument to express the parties’ true intention.

1362
ð A unilateral mistake in the making of an agreement, of which the other party is entirely ignorant and to which he in
no way contributes, will not affect the agreement or afford ground for its reformation
ð The remedy of reformation is accorded only to the party who was mistaken in good faith

1363
ð The remedy is available only to the party who acted in good faith
ð Concealment of the mistake constitutes fraud

1364
ð If neither party is responsible for the mistake, they may ask for reformation.

1365
ð The reformation of instrument is proper, otherwise, the true intention of the parties would be frustrated
ð The true intention must prevail because contracts must be complied with in good faith
ð When any of the circumstances enumerated in the law exists, an instrument purporting to be a sale with right of
repurchase shall be presumed to be an equitable mortgage

1366-1367
ð When reformation not allowed (1366):
1. Simple donations inter vivos when no condition is imposed
2. Wills
3. The real agreement is void
ð When the party seeking for reformation has brought an action to enforce the instrument, it is based on estoppel

1368
ð Parties entitled to reformation:
1. Either of the parties if mistake is mutual
2. The injured party
3. Heirs or successors in interest

1369
ð Rules of court govern the procedure, but the SC has not particularly made a procedure for reformation

RESCISSIBLE CONTRACTS
Relevant Provisions: 1380, 1381, 1382, 1383, 1384, 1385, 1386, 1387, 1388, 1389
1380
ð Rescissible contracts are those validly agreed upon because all of the elements are present and, thus, legally effective,
but in the cases established by law, the remedy of recission is granted in the interest of equity
ð Valid and enforceable
ð There is damage or prejudice to one of the parties or to a 3rd person
ð Reasons of some external facts or causes, its enforcement would cause injustice
ð It makes a contract validly entered into and obligatory, ineffective
ð Requisites:
1. A valid and existing contract
2. There must be lesion or pecuniary prejudice or damage to one of the parties or a 3rd person
3. Must be based upon a case especially provided for by law
4. There are no other legal remedies available

5. The party asking for recission must be able to explain what he is obliged to restore by reason of the
contract
6. The object of the contract must not be in the possession of 3rd person who did not act in bad faith
7. The action has not yet prescribed (4 years from the time the creditor has no other legal remedy left
to obtain)

1381
ð Classification:
1. Rescissible due to economic lesion or pecuniary prejudice
2. Rescissible on account of fraud or bad faith
3. As provided for by law
ð The following are rescissible contracts:
1. Contracts entered into in behalf of wards
Ø Powers of guardians with respect to property of their wards are of mere administration.
Ø Contracts involving real property must be approved by court.
Ø Otherwise, they are unenforceable.
2. Contracts agreed upon in representation of absentees –
Ø An absentee is a person who disappears from his domicile
Ø The court may assign a guardian
Ø The absentee must suffer at least ¼ of the value of the property object of the contract for it to be
rescissible
3. Contracts undertaken in fraud of creditors
Ø Requisites:
a. An existing creditor, although it is not yet due and demandable
b. Subsequent contract entered by debtor conveys a patrimonial benefit to a 3rd party
c. Fraud on the part of the debtor
d. If the contract is onerous, the 3rd party has been a party to the fraud
e. The creditor has no other legal remedy
Ø All of the circumstances must concur
4. Contracts which refer to things under litigation
ð Contracts undertaken in fraud of creditors
Ø A debtor cannot transfer his property in fraud of creditors
Ø It must be shown that both the vendor (debtor) and vendee (third party) acted maliciously and with fraud
and for the purpose of prejudicing said creditors
Ø Recission is not available against 3rd persons acting in good faith, and in lawful possession of the property
Ø Contracts entered into without mal intent are not rescissible even if the creditor suffers some damage
Ø Fraudulent intent must be proven with clear and convincing evidence

1382
ð A debtor is insolvent if he does not have sufficient assets to meet his obligations. Not necessary that the debtor is
judicially declared insolvent.
ð Under this provision, these are payments made for obligation to whose fulfillment the debtor could not be compelled
at the time they were effected. Such payments are rescissible.
ð The obligation is not yet due and demandable

1383
ð An action for rescission is:
1. Subsidiary remedy – may only be availed of if the injured party proves that he has no other legal means aside
from rescinding the contract to obtain satisfaction for his claim or redress for the damage caused
2. Independent action – it must be instituted separately.

1384
ð The rescission shall only be to extent of the creditor’s unsatisfied credit

ð Only the creditor who brought an action for recission shall benefit from the rescission of the contract

1385 – Mutual Restitution
ð Obligation of mutual restitution is the effect rescission creates
Ø The parties must return to each other the object of the contract with its fruits and the price thereof
with legal interest
Ø Places the parties as far as practicable in their original situation, that is, the parties are restored to the
status quo ante
Ø Rules of possession govern
Ø When it is no longer possible to return the object of the contract, an indemnity for damages operates
as restitution
ð When the contract is rescinded, it has the effect of abrogating the contract in all respects, or unmaking the contract,
or its undoing from the beginning, and not merely its termination.
Ø Thus, the obligation of mutual restitution
Ø The party seeking for rescission cannot ask for performance
ð The provision “he who demands rescission can return what he may be obliged to restore” applies to 3rd persons
ð Recission cannot be availed by the party who demands rescission but cannot return what he obliged to restore under
the contract
ð Rescission cannot take place if the property is legally in the possession of a 3rd person who acted in good faith
Ø Indemnity for damages from the person who caused the injury will take place
Ø No cause of action against 3rd persons who acted in good faith
Ø If the alienation is done by gratuitous and not by onerous title, the transferee cannot invoke good faith,
otherwise he would enrich himself at the expense of the creditor

1386
ð If a contract entered into in behalf of a ward or absentee has been approved by court, rescission cannot take place
because it is valid whether there is lesion or not
ð The law presumes that the court is acting in the interests of the ward or absentee when it approves the contract in
spite of lesion

1387
ð GR: FRAUD IS NOT PRESUMED
Ø XPN: 1387
Ø 1387 establishes the presumption of fraud in cases of alienation by debtor of his property. Such
presumptions are disputable
Ø Presumption applies only when there has in fact been an alienation or transfer, whether gratuitous or by
onerous title
Ø When such full and absolute conveyance of property is proven, burden shifts to the one who alienated the
property to probe that such conveyance was not fraudulent
- An alienation which is involuntary is not onerous, such as foreclosure by mortgage, and the
presumption does not apply
Ø Presumption does not apply if the judgement or attachment made is not also registered and annotated on
the title.
- Subsequent sale by the judgement debtor shall not be rescinded on the ground of fraud unless the
complicity such fraud is imputed on the buyer
Ø Only actual creditors can ask for rescission of the conveyance made by their debtor
Ø The vendor is an indispensable party in action for rescission of sale
ð Test for determining whether a conveyance is fraudulent
Ø WON the conveyance was a bona fide transaction or a trick and contrivance to defeat creditors
Ø WON it conserves to the debtor a special right
Ø It must be founded on good consideration and is made with a bona fide intent
ð Evidence to overcome presumption of fraud
Ø Probative value of a public document insufficient
Ø Satisfactory and convincing evidence required
Ø Presumption attaches only to the person who caused the alienation
ð Circumstances denominated as badges of fraud
Ø Consideration of the conveyance is fictitious or conveyance
Ø A transfer made by a debtor after suit has been begun and while it is pending against him, provided that the
debtor has no other property
Ø A sale upon credit by an insolvent debtor
Ø The transfer of all or nearly all of the properties of the debtor, especially when he is insolvent

Ø Failure of the vendee to take exclusive possession of the property sold

Ø Vendee was living with vendor, and vendee knew of the judgement against vendor
Ø It was known to the vendee that vendor had no other properties other than the one sold to him
Ø TCT of the sold property remained in the name of the vendor
Ø Whether the mortgagor-vendor and mortgagee-vendee are friends
Ø Seller and buyer are half-siblings
ð Conveyance of a property by an insolvent debtor
Ø When valid: Conveyance made in good faith and when it will not prejudice any creditors unless the proceeds
are given to such creditors.
Ø Disparity between consideration and real value: Gross disparity between the consideration and the actual
value of the property conveyed is a badge of fraud
- If the disparity is deliberate, with intent to defraud, the conveyance is void

1388
ð Buyer in bad faith must return the property if the contract is rescinded
ð Evidence to prove bad faith
1. By acts demonstrated and by circumstantial evidence
2. Party’s mere refusal to believe that a defect exists or his willful closing of his eyes to the possibility of the
existence of a defect in his vendor’s title, will not make him an innocent purchaser for value if it afterwards
develops that the title was in fact defective
ð A buyer in good faith is one who buys property without notice that some other person has a right to, or interest in,
such property and pays a full and fair price for the same, at the time of such purchase, or before he has notice of the
claim or interest of some other person in the property

1389
ð GR: ACTIONS TO RESCIND A CONTRACT MUST BE COMMENCED WITHIN 4 YEARS FROM THE DATE THE
CONTRACT WAS ENTERED INTO
Ø XPN:
a. FOR PERSONS UNDER GUARDIANSHIP, PERIOD SHALL BEGIN FROM THE TERMINATION OF
THE INCAPACITY;
b. FOR ABSENTEES FROM THE TIME THE DOMICILE IS KNOWN
ð Laches bars an action for rescission
ð Prescription is limited to cases under Art. 1380 and 1381
ð Computation of the contract
1. From the time the creditor has knowledge of the contract
2. From the time of the celebration of the contract, in cases of fraud
3. From the finality of judgement
4. From the time the cause of action accrues
ð Accion Pauliana:
Ø Accrues only from the time the creditor has no other legal remedy against the debtor
Ø After the creditor has exhausted all of the debtor’s properties
ð Persons entitled to bring the action for rescission:
1. Injured or defrauded party
2. Heirs, assigns, or successor-in-interest
3. Creditors entitled to subrogation

VOIDABLE CONTRACTS
Relevant provisions: 1390, 1391, 1392, 1393, 1394, 1395, 1396, 1397, 1398, 1399, 1400, 1401, 1402
1390
ð Voidable contracts possess all the essential requisites of a valid contract but one of the parties is legally incapable of
giving consent, or consent is vitiated by mistake, violence, intimidation, undue influence, or fraud
ð Valid until annulled in a proper action in court
ð Kinds of voidable contract:
1. Legal incapacity: to give consent, where one of the parties is incapable of giving consent to the contract; or
2. Vitiation of consent: vitiation is done by mistake, violence, intimidation, undue influence, or fraud

1391
ð Direct court action is needed to annul a voidable contract, and until annulled or set aside by the court, a party cannot
relieve himself from the obligations arising therefrom
ð A voidable contract may be attacked indirectly or collaterally by way of defense to an action under the contract
ð 4-year period for filing the action for annulment:

Ø In case of intimidation, violence, or undue influence, from the time such ceases
Ø In case of mistake, fraud, from the it is discovered
Ø In case of minors or incapacitated persons, from the time the guardianship ceases
ð Discovery of fraud must be reckoned to have taken place from the execution of the contract if there is an allegation
that it did not reflect the true intention of the parties, or from the registration of the alleged fraudulent document
with the assessor’s office for the purpose of transferring the tax declaration or from the time the document was
registered in the office of the register of deeds

1392
ð Ratification means that one under no disability voluntarily adopts and gives sanction to some defective or
unauthorized contract, act, or proceeding which, without his subsequent sanction or consent, would not be binding
or him.
ð What was therefore unauthorized and becomes the authorized act of the party so making the ratification

1393
ð Kinds of ratification:
Ø Express: manifested through words or in writing
Ø Implied: by silence or acquiescence; by acts, or by acceptance and retention of benefits
ð Requisites for implied ratification:
1. Knowledge of reason which renders the contract voidable;
2. Such reason must have ceased;
3. The injured party must have executed an act which necessarily implies an intention to waive his right.
ð Requisites for express ratification:
1. Knowledge of reason which renders the contract voidable;
2. Such reason must have ceased;
3. The injured party must have executed an act that expressly shows an intention to waive his right.

1394
ð A contract entered into by an incapacitated person may be ratified by:
a. The guardian; or
b. The injured party, provided that he is capacitated
ð In case the contract is voidable on the ground of mistake, ratification can only be made by the party whose consent
was vitiated

1395
ð Ratification is a unilateral act by which a party waives the defect in his consent
ð Consent of the guilty party is not required

1396
ð Ratification purges the contract of all its defects from the moment it was executed.
ð Extinguishes the action to annul
ð Makes the contract valid from its inception

1397
ð Party entitled to bring an action
a. Plaintiff must have an interest in the contract
b. The victim and not the guilty party or the party responsible for the defect
ð Real party in interest
ð Guilty party cannot ask for rescission
ð Successors-in-interest of a party to a voidable contract may sue for the annulment
ð Right of a stranger to bring action
1. Persons without material interest have no right to institute an action
2. Creditors of the victim or aggrieved party are without right to bring an action unless they are prejudiced
3. In a representative suit, only does principally bound have a right

1398 – Effect of annulment
ð Duty of mutual restitution
Ø GR: must restore to each other the subject matter of the contract with its fruits and the price with legal
interest
Ø Restore the parties to their original situation
Ø Right of a minor to rescind:

- Must be made within reasonable time after attaining majority; and

- All of the consideration for which the minor received must be returned
ð The contract or obligation never existed
ð Effects of an annulment operate prospectively, and as a rule, do not retroact to the time the contract was executed

1399
ð XPN to the general rule on mutual restitution under 1398
ð Incapacitated person is only obliged to return to the extent that he was benefited. If he did not benefit, he is not
obliged to return but the other contracting party is still bound to return.
ð Not necessary for the minor to be considered benefited that he invested the thing or amount received. It is sufficient
if he has kept it.
ð The party who is capacitated has the burden of proof of the extent of the benefit or profit by the incapacitated
persons
ð Enrichment of the incapacitated person is not presumed

1400
ð If the thing to be returned is lost without the fault of the person obliged to make restitution, there is no more
obligation to return such thing
ð If it is lost through his fault, the obligation is not extinguished but is covered into an indemnity for damages

1401
ð If the person has a right to institute an action for annulment will not be able to restore the thing which he may be
obliged to return in case the contract is annulled because such thing is lost through his fraud or fault, his right to
have the contract annulled is extinguished.
ð It is not necessary that the fraud or fault on the part of the incapacitated person resulting in the loss must have
occurred after having acquired the property.

1402
ð There will be no annulment if the party cannot restore what he is bound to return. This is true even if the loss is due
to a fortuitous event. However, if the party lost the thing through a fortuitous event offers to pay its value with the
fruits received if any, the other party can be required to make restitution

UNENFORCEABLE CONTRACTS
Relevant provisions: 1403, 1404, 1405, 1406, 1407, 1408
1403
ð Unenforceable contracts are those that cannot be enforced in court or sued upon by reason of defects provided by
law until and unless are ratified according to law
ð Unenforceable contracts, although valid, are unenforceable unless they are ratified
ð Mere lapse of time cannot give effect to a contract. The defect is permanent and will exist unless it is duly ratified.
ð Party may bring an action to enforce an unenforceable contract, subject to the defense of unenforceability
ð Kinds of unenforceable contracts:
1. Those entered into in the name of another without or in excess of authority
2. Those that do not comply with Statute of Frauds
3. Both parties are legally incapable of giving consent
ð Unauthorized contracts are those entered into in the name of another person by one who has been given no authority
or legal representation or who has acted beyond his powers
ð Statute of Frauds require certain classes of contracts to be in writing
è Regulates the formalities of the contract necessary to render it enforceable
è Non-compliance only means that no action can be enforced in court unless the requirement is complied with, or
there has been total or partial performance of the obligation
è The enumeration is EXCLUSIVE
è To satisfy the Staute of Frauds:
1. 3 modes:
a. Note or memorandum;
b. Acceptance and receipt of part of the goods sold; or
c. Payment at the time some part of the purchase price
2. Requirement for note or memorandum
A. It should be subscribed by the party against whom the contract is sought to be enforced; and
B. It should contain at least two elements – cause and object
Ø Complete in itself
Ø It must be in writing

Ø Must contain the names of the parties

Ø Must contain terms and conditions
Ø A description of the property sufficient for its identification
è Application of Statute of Frauds:
3. It presupposes the existence of a perfected contract.
4. The Statute of Frauds refers only to a specific kind of transaction and cannot apply to any other
transaction that is not enumerated therein.
5. Applicable only to executory contracts and not to contracts which are totally consummated or
partially consummated.
6. It is not applicable where the contract is admitted, by the failure to deny its existence, no further
evidence thereof being required.
7. It is not applicable where a writing does not express the true agreement of the parties.
8. It does not declare that contracts infringing it are void of no effect but merely enforceable.
9. It does not determine the credibility or weight of evidence but merely regulates the admissibility
thereof
10. The defense of Statute of Frauds is subject to waiver
11. The defense of Statute of Frauds is personal to the parties and cannot be interposed by the strangers
to the contract

1404 - 1405
ð Modes of ratification:
1. By failure to object to the presentation of oral evidence to prove the contract. Failure to timely object
amounts to a waiver and makes the contract as binding as if it had been reduced to writing.
2. By acceptance of benefits under the contract, the contract is no longer executory.

1406
ð Right of a party where contract is enforceable
1. Accordingly, a part to an oral sale of real property cannot compel the other to put the contract in a public
document of registration because it is unenforceable unless it is ratified
2. The right of one party to have the other execute a public document is not available in donation of realty when
it is a private instrument because the donation is void

1407
ð If the contract is entered into by both parties who are incapacitated, it is unenforceable. However, once the legal
guardian or parent of either party or if one becomes capacitated and ratifies the contract, it becomes voidable
ð If the parent or guardian, or the parties themselves after being capacitated ratify the contract, the contract becomes
valid and enforceable.

1408
ð Unenforceable contracts cannot be assailed by 3rd persons

VOID OR INEXISTENT CONTRATS
Relevant provisions: 1409, 1410, 1417, 1418, 1419, 1420, 1421, 1422
1409
ð GR: THE OBJECT OF THE CONTRACT MUST/CAN EXIST AT THE TIME OF THE TRANSACTION
ð GR: VOID CONTRACTS MAY NOT BE RATIFIED
ð Void Contracts – certain defects, generally produce no effect at all. They are void from its inception.
è Lack an essential element
è Contracts that are contrary to law
ð Lacks one or some or all of the elements of a contract, or do not comply with the formalities.
ð Characteristics:
1. No force or effect, void from the beginning
2. Cannot be cured or validated
3. Right to set up defense of nullity cannot be waived
4. Action for declaration of its illegality does not prescribe
5. Defense of nullity cannot be raised by third persons
6. Cannot give rise to a valid contract
7. Its invalidity may be questioned by anyone effected by it
ð Effects:
è Produces no effect whatsoever either against or in favor of someone

è Nothing to ratify. No independent action to annul or rescind is necessary.

è Cannot be rescinded
è Restoration of what has been given
ð Equity cannot be a ground for the validity of a void contract
ð Instances of void contracts:
1. Cause, object or purpose is contrary to law
2. Simulated or Fictitious Contracts
3. Contracts without cause or object
4. The object is outside the commerce of men
5. Contracts with impossible service
6. Contracts where the intention of the parties relative to the object cannot be ascertained
7. Contracts expressly declared void by law

1410
ð Action or defense is imprescriptible – a party to a void contract can always bring a court to declare it void or
inexistent; and a party whom a void contract is sought to be enforced, can always raise the defense of nullity
è Cannot be barred by laches
è Cannot be barred by estoppel
è 1410 does not apply7 to last wills as they are not contracts
ð It is unnecessary to bring an action to declare it void
è Within the right of the party to unilaterally cancel or treat the contract as a void contract
è In action to declare the nullity of a contract, the plaintiff may recover what he has given by virtue of the
contract
è An action to declare its nullity is necessary for restitution
ð Voidable contracts can only be annulled by a proper action in court

1417
ð Price determined by a statute; Any sale excess of the amount allowed by law may be recovered

1420
ð Effect of illegality where contract indivisible/divisible
è Consideration is entire and single; The whole contract is void and unenforceable
è Consideration is divisible; Only the part that is illegal will be void

1421
ð In voidable and unenforceable, third persons are not allowed to bring an action to annul or to assail them.
ð In void contracts, the defense of illegality or set up its illegality as long as his interest is directly affected by
the contract.

1422
ð Contracts which are a direct result of previous void contracts, is also void and inexistent.

IN PARI DELICTO
Relevant provisions: 1411, 1412, 1414, 1415
1411 CRIMINAL
ð GR: Parties to a void contract cannot expect the aid of the law
ð They are deemed in pari delicto or in equal fault
è No action arises, in equity or at law, from an illegal contract
è No affirmative relief of any kind will be given to one against the other
ð RULES:
Ø Nullity of the contract proceeds from an illegal cause or object, and the act of executing said contract
constitutes a criminal offense
1. Both Parties are in pari delicto
a. No action against each other
b. Both shall be prosecuted
c. The thing or price of the contract is confiscated in favor of the government
2. One party is guilty – the rule only applies to the guilty party or the more guilty one. The innocent
one or less guilty one may claim what he has given and shall not be bound to comply.
ð EX: When application of the rule would violate well established public policy


1412 NON-CRIMINAL
ð Both parties in pari delicto
è Neither party may recover
è Neither party may demand performance
ð Only one party is guilty or less guilty
è Guilty party loses what he has given
è Guilty party cannot ask for fulfillment
è Innocent party may demand what he has given
è Innocent party may not be compelled to comply with his promise
ð Both parties are not guilty
è Restoration of what they have given
ð The in pari delicto rule is not applicable to:
1. Breach of warranty
2. Simulated contracts
3. Parties not equally guilty
4. Against the government
5. Prohibited conveyances under the law
6. Constitutional prohibition against alien land holding
7. When it contravenes public policy

1414
ð Requisites:
1. Contract is for an illegal purpose
2. 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 sub served by allowing recovery

1415
ð Exception to the in pari delicto rule
ð Recovery may be allowed if one of the parties is incapacitated and the interest of justice demands it
ð Not necessary that the illegal purpose is accomplished, or damage has been caused to third persons

1416
ð Another exception to in pari delicto
ð Requisites:
1. The agreement is not illegal per se but is merely prohibited
2. Prohibition is designed for the protection of the plaintiff
3. Public policy would be enhanced by allowing the plaintiff to recover what he has paid or delivered
ð Examples:
è A land sold to aliens may be recovered
è Not applicable which has been illegally sold within the prohibited period of 5 years in violation of the homestead
law

1420
ð Effect of illegality where contract indivisible/divisible
è Consideration is entire and single; The whole contract is void and unenforceable
è Consideration is divisible; Only the part that is illegal will be void

1421
ð In voidable and unenforceable, third persons are not allowed to bring an action to annul or to assail them.
ð In void contracts, the defense of illegality or set up its illegality if his interest is directly affected by the contract.

PRESCRIPTION
Relevant provisions: 1410, 1389, 1191
1389
ð GR: The action to rescind contracts must be commenced within 4 years from the time the contract was entered
into.
è For persons under guardianship, from the termination of incapacity
è For absentees, from the time domicile is known
è Laches may also bar an action for rescission or annulment of contract
ð 1389 is only applicable to the specific cases enumerated and defined in 1380

ð Computation of the 4-year Period

è Knowledge of the contract
è Action for rescission is based on fraud, the period must be from the time of the celebration of the contract
è From the time of the finality of a judgment
è From the time the cause of action accrues
ð Accion Pauliana
è Legal possibility of bringing the action which determines the starting point for the computation of the
prescriptive period for the action
è Rescission may only be availed of when:
1. It is an action of last resort
2. Exhaustion of the debtor’s property
3. Priority in time of credit

1410
ð Action or defense is imprescriptible – a party to a void contract can always bring a court to declare it void or
inexistent; and a party whom a void contract is sought to be enforced, can always raise the defense of nullity
è Cannot be barred by laches
è Cannot be barred by estoppel
è 1410 does not apply7 to last wills as they are not contracts
ð It is unnecessary to bring an action to declare it void
è Within the right of the party to unilaterally cancel or treat the contract as a void contract
è In action to declare the nullity of a contract, the plaintiff may recover what he has given by virtue of the contract
è An action to declare its nullity is necessary for restitution
ð Voidable contracts can only be annulled by a proper action in court

1191
ð In actions for resolution under 1191, the prescriptive period is 10 years because it is based on the reciprocity of the
obligations and a breach of faith therein.

RESOLUTION RESCISSIBLE VOID VOIDABLE UNEFORCEABLE
(1191) CONTRACTS CONTRACTS CONTRACTS CONTRACTS
CAUSE Substantial Lesion or Lack of essential Vitiated Contrary to the
Breach in economic elements; consent/incapacity statute of frauds;
reciprocal prejudice
obligations Contrary to law Unathorized agent;
or

Both parties
incapacitated
PRESCRIPTIVE 10 years 4 years None 4 years None
PERIOD
CURE Performance of Waiver Execution of a Ratification Ratification by
the obligation new valid accepting
contract agreement,
express intent, and
failure to object
WHO CAN Any person Any person Any person Any person Only the
OBJECT parties/no 3rd
parties
STATUS Valid Valid Void Valid Unenforceable in
courts


Codal Exceptions General Rule Requisites: Valderrama Notes Am+Dg

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Codal Exceptions General Rule Requisites: Valderrama Notes Am+Dg

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CODAL

EXCEPTIONS DO NOT USE WITHOUT A CODAL!

OBLIGATIONS AND CONTRACTS

Valderrama Notes AM+DG Midterms is coming

Valderrama Notes AM+DG Midterms is coming

Valderrama Notes AM+DG Midterms is coming

ð Remedies: ð However, if undoing is impossible then the only action

Valderrama Notes AM+DG Midterms is coming

è where negligence is gross/ shows bad faith, it is considered equivalent to fraud

Valderrama Notes AM+DG Midterms is coming

è Demand made by the creditor upon the debtor may be judicial/extrajudicial.

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Valderrama Notes AM+DG Midterms is coming

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5. Loss, deterioration, improvement prior to the

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ð Resolution without judicial decree

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⇨ The right of choice, as a rule, belongs to the debtor.

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Valderrama Notes AM+DG Midterms is coming

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è A facultative remedy which the debtor may or may not avail of

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Confusion in a joint obligation

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⇨ Novation contract contains 2 stipulations:

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3. Consummation – The parties have fulfilled or perform their respective obligations

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è Error as regards to the incidents of a thing

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3. Submission to the overwhelming effect of such conduct

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ð Two aspects of a contract:

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