Simplified Notes in Law on

OBLIGATIONS AND CONTRACTS

-ATTY. RONEL V. MARCELO

LAW- in widest sense means any rule of action or any system of authority (all kinds of law/rules and
regulations being followed in the society be it a moral law, natural law, spiritual law, divine law or legal/state
law).

Division: a. Strict Legal sense (state law)

b. Non-legal sense (divine, natural, moral and physical law)

 Law in its specific or strict legal sense is a “rule of conduct, just and obligatory, promulgated by
legitimate authority, and of common observance and benefit. [Sanchez Roman].

It is in this sense that the doctrine “Ignorantia legis non exusat” or “Ignorance of the law excuses no one
from compliance therewith” applies.

Sources of Law: 1. Constitution (1987)

2. Legislation
3. Administrative or executive orders/regulations/rulings
4. Judicial Decisions and Jurisprudence
5. Custom
6. Other sources (foreign cases, principles of justice and equity, textwriters,
etc.) being used supplementary in nature

Note: Law on obligations and contracts is a state law (or sometimes called as positive law, municipal
law, civil law or imperative law). Meaning, “Oblicon” is a kind of law promulgated by the state through
the Civil Code of the Philippines (RA No. 386) specifically Articles 1156-1422 as its main source.

Hey!, when we use the word “provision” or “provision of law”,

We’re talking also here the “Articles” plus its contents!

_______________________________________Subject Proper__________________________________
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P A R T 1 (OBLIGATION)
OBLIGATION –juridical necessity to give, to do or not to do. (art.1156)
 Derived from the Latin term “obligatio” meaning tying or binding.

4 ELEMENTS OF OBLIGATION
1. ACTIVE SUBJECT (creditor/obligee) – whose obligation is constituted
2. PASSIVE SUBJECT (debtor/obligor) – has duty to give, to do or not to do
3. OBJECT/PRESTATION – subject matter
4. JURIDICAL/LEGAL TIE (vinculum/efficient cause) – reason

Juridical necessity- in case of non-compliance, the courts of justice may be called.

Reminders:
 Obligation in Art.1156 refers to a civil obligation, as compared to a natural one.
  Actually, Articles 1156-1422 are applicable to civil obligations only.

Distinction of these two key concepts:

CIVIL OBLIGATION NATURAL OBLIGATION

derived from positive law derived from equity & justice
enforceable by court action not enforceable by court
action

5 SOURCES OF OBLIGATION (Art. 1157)

1. LAW- example: obligation to pay tax, etc.
2. CONTRACTS- example: obligation of buyer to pay the price upon delivery (sale contract)
3. QUASI-CONTRACTS – arise from lawful, voluntary acts; no one shall be unjustly enriched...
     2Kinds
     a. Solutio indebiti – something received (delivered on a mistake), no right to demand it
     b. Negotiorum gestio – voluntary right of property/affairs of another w/o his knowledge/consent
4. QUASI-DELICT/TORTS/CULPA AQUILIANA – arise from damage; fault/negligence (obligation of
the dog owner who have bitten someone)
5. CRIMES/ACTS/OMISSIONS punished by law – arise from civil liability that is a consequence of a
criminal offense (obligation of the thief to return the car stolen)

Remember: Obligations arising from law are not presumed, it must be expressed (clear & conclusive) (Art.1158)
Obligations arising from contract must be complied in good faith (Art.1159)

DILIGENCE OF A GOOD FATHER OF A FAMILY (Art.1163)

- care need to be exercised by a debtor to deliver/give determinate thing, as compared to a generic
thing.

Exception: When law/stipulation of parties requires a different standard of care (slight/extraordinary diligence).

When creditor is entitled to the fruits (Art.1164)

Rule: The creditor has personal right (right to ask for delivery) from the time the obligation to deliver
arises.
But NO real right (right enforceable against the whole world) until it is delivered.

3 KINDS OF FRUITS
1. NATURAL – w/o human intervention (fruit of a tree on the backyard)
2. INDUSTRIAL – w/ human intervention (bananas from plantation)
3. CIVIL – derived by virtue of juridical relation (rent of a building)

Note the difference: Creditor’s rights if debtor fails to comply w/ the obligation (Art.1165)
1. Determinate
a. Performance
b. Damages
2. Generic
a. Performance
b. Damages
c. Obligation be complied at debtor’s expense

Obligation to deliver a determinate thing includes accessions and accessories (Art.1166)

Ex: If you buy your friend’s laptop, it necessarily includes charger, the mouse, bag, etc.,
though not mentioned.

Creditor’s rights if debtor does in contravention of the tenor of obligation (Art. 1167)
 1. Damages
2. Ask it be UNDONE at debtor’s expense

3 MISCELLANEOUS RULES ON PERFORMANCE OF OBLIGATION (summary of Art.1165-1168)

1. When to deliver determinate, accessions (additions/ improvements)
and accessories (joined/included with the principal) are INCLUDED even not mentioned.
2. If debtor fails to do, it shall be DONE AT HIS EXPENSE, same with doing the contravention; poorly
done be undone.
3. For obligations not to do, and obligor does what is forbidden, shall be UNDONE AT HIS EXPENSE.

Note: “There is no delay if there is no demand” as enunciated in Article 1169.

DEFAULT/MORA – delay (The provision speaks of legal delay, as against ordinary delay)
    
 3 kinds:
     a. Mora solvendi – debtor’s delay to give (real ob.), to do (personal ob.)
     b. Mora accipiende – creditor’s delay to accept
     c. Compensatio Morae – delay of both in reciprocal obligation

CONCEPT OF DELAY
General Rule: No demand, No delay!!!

Exceptions:
1. Law states (NIRC on paying taxes)
2. Obligation states (such as “without need of delay” expressed in the agreement)
3. Time is the essence (purchases in consideration of a celebration)
4. Demand be useless if delay (lost security in a loan contract)
5. Performance in cases of reciprocal obligation/contract (in sales, except sales on credit)

EFFECTS OF DELAY
 Damages
 When to deliver determinate thing, STILL LIABLE in fortuitous event.

GROUNDS FOR DAMAGES (Art.1170)

 Fraud
 Negligence
 Delay (discussed above)
 Violation of the contract

FRAUD/DOLO is demandable in all obligations. Waiver of future fraud is void. (Art.1171)

EX: (“I will not sue you in the event you left me hanging, with bad faith and intentionally, said
the girl to his partner”. Valid? This article fits.)

FRAUD/DOLO – conscious, deliberate, intentional evasion of fulfillment (Art.1171)

Remember: There is no unintentional fraud! (So, this is wrong: “Sorry, di ko sinasadyang manloko”) :-)

     2 Kinds:
a. Dolo causante/Causal fraud – fraud in obtaining consent; consent is defective, contract is
voidable.
Remedy: annulment

b. Dolo incidente/Incidental fraud – fraud w/c vitiates consent.

 Remedy: damages

NEGLIGENCE/CULPA – voluntary act/omission; no bad faith intended (Art. 1172-73)

    
 3 Kinds:
     a. Culpa aquiliana/Civil negligence – quasi-delict/torts
     b. Culpa contractual/Contractual negligence – breach
c. Culpa criminal/Criminal negligence – crime/delict

Note: When negligence is coupled with bad faith, it is equivalent to fraud.

FORTUITOUS EVENT  – generally, any event that cannot be foreseen, if foreseen, is inevitable
(including force majeure/acts of nature like earthquakes, etc.) (Art. 1174)

It’s either be: a. Acts of man

b. Acts of God

EFFECTS OF FORTUITOUS EVENT to thing to be delivered

- extinguish the obligation if determinate; generic does not extinguish the obligation

General Rule: No person liable to fortuitous event.

Exceptions: VERY IMPORTANT!
1. Law states
2. Stipulation/contract states
3. Assumption of risk
4. Delay
5. Debtor promises deliver to 2/more persons who do not have same interest (bad faith)

FYI: Usurious transactions shall be govern by special laws (Art.1175). (currently, UL is

suspended)

2 RULES OFPRINCIPAL & INSTALLMENT (1176)

1. Receipt of principal w/o mention of interest, presumed interest is paid also.
2. Receipt of latter installment w/o mention of prior installment, presumed prior installment is paid
also.

4 SUCCESSIVE RIGHTS OF CREDITOR to satisfy claim against DEBTOR (1177)

1. Exact payment
2. Attach debtor’s properties
3. Accion subrogatoria – exercise rights & actions except inherent in person
4. Accion pauliana – cancel acts/contracts by debtor to defraud creditor

TRANSMISSIBILITY OF RIGHTS (1178)

General Rule: ALL RIGHTS are transmissible.
Exceptions:
1. Law states
2. Contract states
3. Obligation is purely personal

Kinds of Obligation
1. Pure
2. Conditional
3. Alternative
4. Facultative
5. Joint
6. Solidary
7. Divisible
8. Indivisible
9. Obligation w/ a period
10. Obligation w/ a penal clause
11. Civil
12. Natural
13. Unilateral
14. Bilateral
15. Real
16. Personal
17. Determinate
18.Generic Obligation

1. PURE OBLIGATION (1179)

- w/o condition, demandable at once (pure has resolutory condition/period)

2. CONDITIONAL OBLIGATION
- there is condition in performance; future & uncertain
     2Kinds
     a. Suspensive condition – happening of condition gives RISE to obligation
     b. Resolutory condition – happening of condition EXTINGUISHES obligation

Note! Condition- future and uncertain event, or sometime past events unknown to parties

 If the debtor binds himself to pay when his means permits him to do so, it is one with a period.
(1180)

Period- future but certain event, as compared to a condition.

 When the fulfillment of the condition depends upon the sole will of the debtor, it is void. (1182)
This is a potestative condition.

“Ex: I’ll pay you if I want.”

 Casual- condition depends upon chance or will of a third person. (totally Valid!)

“Ex: I’ll pay you if my lotto ticket wins tomorrow.” Or “I will pay you if my cousin marries her boyfriend
this year.”

 Mixed- if partly both.

Remember! Impossible conditions, illegal conditions, etc. annuls the obligation dependent upon them,
otherwise, the latter continue to be valid. (1183)

(1184). Condition that some event happen at a determinate time shall extinguish the obligation as
soon as the time expires or if it has become indubitable that the event will not take place.

(1185). This is negative, compared to the preceeding article.

(1186). Condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
This is a constructive fulfillment.

 Rights pending fulfillment of suspensive condition, like payment by mistake, etc. (1188).
6 MISCELLANEOUS RULES ON CONDITIONAL OBLIGATION
1. Impossible conditions, contrary to law, shall ANNUL obligation.
2. The condition not to do an impossible thing is considered not agreed upon.
3. The condition that happens in determinate time, EXTINGUISHES obligation.
4. The condition that happens in INDETERMINATE time, obligation only effective at arrival.
5. The condition is fulfilled if DEBTOR prevents fulfillment.
6. The effect of conditional obligation, once fulfilled:
- to give: retroact to the day of constitution of obligation
- has reciprocal prestations: fruits & interests be mutually compensated
- has unilateral obligation: debtor shall give fruits & interests

 RULES in case of Loss, Improvement, or Deterioration of thing during the pendency of

condition (Art.1189)
1. LOST
a. w/ debtor’s fault – damages
b. w/o debtor’s fault – extinguishes obligation

2. DETERIORATION
a. w/ debtor’s fault  - (1) cancel obligation & damages; or (2) fulfill obligation w/ damages
b. w/o debtor’s fault – creditor suffer impairment

3. IMPROVEMENT
a. By nature/time – benefit to creditor
b. at expense of debtor – debtor no right than that granted to usufructuary (debtor no right to
compensate amount for improvement)

EFFECTS OF FULFILLMENT OF SUSPENSIVE CONDITION

General Rule: The obligation becomes effective retroactively to the day obligation was constituted.
Exceptions:
1. In reciprocal obligation, fruits & interests during pendency of condition shall compensate each
other.
2. In unilateral obligation, debtor gets fruits & interests unless there is a contrary intent.

3 EFFECTS OF FULFILLMENT OF RESOLUTORY CONDITION (1190)

1. Extinguish obligation.
2. Both parties restore what they received plus fruits & interests.
3. The rule on L, D, or I will apply to person who has to return the thing.

When one of debtors in reciprocal obligation does not comply w/ his obligation (1191)
1. The right of injured party is (1) cancel contract & damages; or (2) fulfill obligation & damages

Determine the first infractor in case where both parties are guilty of breach. (1192)

3 Kinds of Obligation (Accdng to PERSON OBLIGED)

1. UNILATERAL – only 1 party obliged to comply
2. BILATERAL – both parties; performance not same time
3. RECIPROCAL – both parties; performance same time

OBLIGATION W/ A PERIOD (1193)

- demandability/extinguishment subject to the expiration of period

PERIOD –it is future and certain event. It has a fixed date or date.

- interval of time; either suspends demandability or produces extinguishment
DAY CERTAIN or TERM – must come, not known when.

7 CASES CONSIDERED TO BE “OBLIGATION W/ A PERIOD”

1. Little by little
2. In partial payment
3. Payable ASAP
4. When I can afford it
5. When I have the money
6. When I am able to
7. When my means permit me to do so
Note Note Note !!!!!!!!!!!!!
PERIOD CONDITION
certain uncertain
future only future/past but unknown
(*influence upon (*) on the very existence of
obligation) only upon its obligation itself
demandability

Hey! Remember this:

If the uncertainty consists in whether the day will come or not, it shall be govern by
provisions on conditional obligation, not with a period.

“Ex: I’ll pay you if Sonny died this year.” This obligation is uncertain. It is different from: “I’ll
pay you if Sonny
died”.

FOR WHOSE BENEFIT IS THE PERIOD? (1196)

General Rule: Both the debtor & creditor.
Therefore, NEITHER of them can demand performance of obligation.
Exception: If the term of obligation has to favor one of them.

 Generally, court has no authority to fix a period. (1197)

Remember this very well!!!

5 INSTANCES WHEN DEBTOR LOSES RIGHT TO USE “PERIOD” (1198)
1. Debtor is insolvent.
2. Debtor attempts to abscond.
3. Impairment of guarantees/securities.
4. Failure to furnish guarantees/securities promised.
5. Violation of undertaking.

ALTERNATIVE OBLIGATION (1199)

- w/ 2 or more prestations, only 1 is due.

“Ex: As payment for my loan, I promise to give you 20k, or a bicycle, or a laptop.”

Pls. note of the right of choice, effect if only one prestation is practicable, when debtor may rescind
the contract and loss of the object of the obligation.

FACULTATIVE OBLIGATION (1206)

- w/ ONLY 1 prestation but can be substituted.

“Ex: As payment for my loan, I promise to give you 20k, if not -a bicycle, and if I cannot deliver those
two successively, a laptop instead.”
ALTERNATIVE prestations LOST w/ debtor’s fault
Creditor entitled to damages but needs ff requisites:
1. Debtor can choose.
2. All prestations lost/become impossible due to debtor’s fault.

ALTERNATIVE
OBLIGATION
several prestations due,
giving one is sufficient
right to choose (debtor)
unless granted to creditor
If 1 of the prestation is
illegal, others may be
valid, obligation remains
loss/impossibility of ALL
prestations due, w/o
debtor’s fault, extinguishes
obligation
FACULTATIVE
OBLIGATION
one prestation due, but
can be subtituted
right to choose DEBTOR
ONLY
nullity of principal carries
w/ it nullity of accessory/
substitute
loss/impossibility of
presta-tion due, w/o
debtor’s fault, extinguishes
obligation

(3) SUMMARY OF RULES, OBLIGATIONS, & RIGHTS OF DEBTOR IN ALTERNATIVE

OBLIGATION
1. If 1 of prestations lost through fortuitous event, shall still be perform by choosing (creditor) from the
remainder.
2. If 1 of prestations lost through debtor’s fault, creditor may claim any of remainders w/ damages.
3. If ALL prestations lost through debtor’s fault, creditor choose price w/ damages.

RULES on LOSS/DETERIORATION of the thing intended as SUBSTITUTE in FACULTATIVE

OBLIGATION
1. If there is a loss/deterioration of thing intended as substitute, debtor is NOT liable if NOT HIS
FAULT.
But if substitution is already made, debtor is liable for loss of substitute when in DELAY,
NEGLIGENCE, or FRAUD.

JOINT OBLIGATION (1207)

- obligation is to be paid proportionately by debtors or to be demanded proportionately by creditors
-presumptions favors joint, as against solidary

SOLIDARY OBLIGATION, not presumed!

- each one of debtors has right to render or each one of creditors has right to demand the entire
compliance w/ prestation

MAXIMS & SYNONYMS 

MAXIMS SYNONYMS
JOINT “To each his proportionate
Obligation own”
SOLIDARY “One for all, all individually &
Obligation for one” collectively

(3) SOLIDARY OBLIGATION EXIST ONLY IF: *RULES

1. Law states
2. Stipulation states
3. Nature of obligation requires

2 PRESUMPTIONS THAT OBLIGATION IS JOINT:

1. The debts be divided as many shares as there are debtors/creditors.
2. The debtors/creditors are distinct from one another.

DIVISIBLE OBLIGATION (1223)

- prestation is capable of partial performance

INDIVISIBLE OBLIGATION
- prestation incapable of partial performance

OBLIGATION W/ A PENAL CLAUSE (1226)

- one w/ accessory undertaking attached to obligation to assume greater liablity in case of
breach/non-fulfillment of obligation

3 PURPOSES OF PENAL CLAUSE

1. Ensure performance of obligation
2. Substitute for damages & interest in case of noncompli-ance
3. Penalize debtor in case of breach

In case obligation has a PENAL CLAUSE

General Rule: Penalty takes the place of damages & interest in case of non-compliance.
Exceptions:
1. Stipulation states.
2. Debtor refuse to pay penalty.
3. Debtor guilty of fraud in performance of obligation.

NULLITY OF PRINCIPAL OBLIGATION OR THE PENAL CLAUSE (1230)

Nullity of principal obligation = nullity of penal clause
Nullity of penal clause = NOT nullity of principal obligation

10 MODES OF EXTINGUISHING OBLIGATION!!!!!!!!!! (art.1231)

1. Payment or performance
2. Prescription
3. Compensation
4. Confusion/merger
5. Condonation/remission
6. Fulfillment of resolutory condition
7. Annulment
8. Rescission
9. Novation
10. Loss of thing due

PAYMENT/PERFORMANCE (1232)
- Payment means delivery of money & performance of obligation

2 PLACE OF PAYMENT
1. At place agreed upon
2. If w/o agreement
a. Object is indeterminate – paid at domicile of DEBTOR
b. Object is determinate – place of thing at the time of constitution of obligation

4 SPECIAL MODES OF PAYMENT

a. Application of payment
b. Cession
c. Tender of payment & consignation
d. Dacion in payment

a. APPLICATION OF PAYMENT
- designation of debt to w/c payment must be applied when debtor has several obligations of same
kind in favor of same creditor.

4 REQUISITES OF APPLICATION OF PAYMENT

1. Only 1 debtor & 1 creditor
2. 2 or more debts, same kind
3. All debts are due
4. Insufficient payment to exinguish ALL debts

3 RIGHTS TO MAKE APPLICATION OF PAYMENT

1. Right belongs to CREDITOR.
2. If debtor does not avail, creditor can give him receipt designating the debt from which payment will
be applied.
3. If debtor accepts the receipt, he cannot complain unless THERE IS just cause to invalidate the
contract.

b. CESSION
- debtor abandons ALL his property for creditor’s benefit to obtain payment from proceeds of his
property

5 REQUISITES OF VALID CESSION

1. 1 debtor & 2 or more creditors
2. Debtor is in partial/total insolvency.
3. Debtor to deliver ALL his property to creditors
4. Debt is due & demandable.
5. Creditors must sell the properties & apply the proceeds to their respective credits proportionately.

c. DACION IN PAYMENT (dacion en pago)

- alienation of property to the creditor in satisfaction of debt

3 REQUISITES OF DACION IN PAYMENT

1. Consent of creditor
2. NOT prejudicial to another creditor
3. Debtor not insolvent declared by a judicial decree

CESSION DACION IN PAYMENT

all properties
require more than 1
creditor
NOT act of novation
NOT transfer ownership
requires partial/total insol-
vency
NOT all properties
NOT require all creditors
act of novation
transfer ownership
may happen
during solvency of debtor

d. TENDER OF PAYMENT & CONSIGNATION

TENDER OF PAYMENT – act of offering the creditor what is due to him w/ a demand that the creditor
accept it

CONSIGNATION – act of depositing thing due w/ the court when creditor cannot/refuses acceptance
of payment

5 REQUISITES OF CONSIGNATION
1. Debt due.
2. Creditor refused the tender of payment w/o just cause
3. Notice of consignation  already given to persons interested in fulfillment of obligation
4. Consignation of thing/amount due
5. Subsequent notice of consignation to interested persons

5 VALID CONSIGNATION W/O PREVIOUS TENDER OF PAYMENT

1. Creditor is absent/unknown.
2. Creditor is incapacitate to receive at time it is due.
3. Creditor refused give a receipt, w/o just cause.
4. 2 or more persons claim the right to collect.
5. Title of obligation lost.

LOSS OF THING DUE

- perishes, disappears, or goes out of commerce; existence is unknown; cannot be recovered

3 REQUISITES TO EXTINGUISH OBLIGATION DUE TO LOSS

1. Determinate thing.
2. W/o debtor’s fault.
3. No delay.

CONDONATION/REMISSION
- gratuitous abandonment of right by the creditor

3 REQUISITES OF A VALID CONDONATION/REMISSION

1. It must be gratuitous.
2. Accepted by obligor.
3. Obligation is demandable.

CONFUSION/MERGER
- meeting in 1 person of qualities of debtor & creditor w/ same obligation

3 REQUISITES OF VALID CONFUSION/MERGER

1. The merger of characters of debtor & creditor must be in same person.
2. Take place between principal debtor & creditor.
3. Clear & definite.

COMPENSATION
- 2 persons are debtors & creditors of each other

6 ESSENTIAL REQUISITES OF COMPENSATION

1. Parties both principal debtors & creditors of each other.
2. Compensation is not prohibited by law.
3. No retention/controversy by 3rd person.
4. 2 debts are due & demandable.
5. 2 debts are liquidated.
6. 2 debts both in money/consumable things.
(2) CLASSES OF COMPENSATION
1. As to effect
a. TOTAL – obligations completely extinguished.
b. PARTIAL – a balance remains

2. As to origin or cause
a. LEGAL – by law
b. VOLUNTARY/CONVENTIONAL – agreement of parties
c. JUDICIAL – order from the court
d. FACULTATIVE – 1 of parties can choose/oppose claiming compensation

NOVATION
- substitution/change of obligation
- substitution of debtor
- subrogation of creditor

(3) OBLIGATIONS MAY BE MODIFIED BY:

1. Changing object/principal conditions. (REAL NOVATION)
2. Changing the person of debtor/creditor. (PERSONAL NOVATION)
a. Substitution – change of debtor
b. Subrogation – change of creditor
3. Changing person of the parties & the objects of principal condition. (MIXED NOVATION)

4 REQUISITES OF NOVATION
1. Old valid obligation.
2. Agreement of parties to new obligation.
3. Extinguishment of old obligation.
4. Validity of new obligation.

2 FORMS OF NOVATION BY SUBSTITUTION OF DEBTOR

1. EXPROMISION – w/ consent of creditor, NO consent of old debtor
     2REQUISITES
     a. Initiative of 3rd person.
     b. Consent of creditor.
2. DELEGACION – all must agree (creditor, old debtor, new debtor)
     3REQUISITES
     a. Initiative from old debtor.
     b. Consent of debtor.
     c. Acceptance by creditor.

7. SUBROGATION
- change of creditor

2 KINDS OF SUBROGATION
1. CONVENTIONAL – consent of original parties & 3rd person
2. LEGAL – by law
     a. creditor pays another preferred creditor even w/o debtor’s knowledge
     b. 3rd person pays the express approval of debtor
d. 3rd person pays even w/o knowledge of debtor

P A R T 2 - (CONTRACT)
CONTRACT – meeting of minds between 2 or more persons whereby one binds himself to
give something or to render service. (art.1305)

3 ELEMENTS OF CONTRACT
1. ESSENTIAL – w/o them, contract cannot exist
     a. CONSENT of contracting parties
     b. OBJECT CERTAIN – subject matter
     c. CAUSE/CONSIDERATION

In some contracts, ff are also essential:

     d. FORM
     e. DELIVERY

2. NATURAL – found in certain contract, presumed to exist unless stipulated

3. ACCIDENTAL – various particular stipulations that may be agreed upon by contracting parties

(7) CLASSIFICATION OF CONTRACTS

According to:
1. PERFECTION/FORMATION
     a. CONSENSUAL – perfected by mere consent
     b. REAL – perfected by delivery
     c. FORMAL/SOLEMN – special formalities are essential before perfection of contract

2. PARTIES OBLIGATED
     a. UNILATERAL – only 1 has obligation
     b. BILATERAL – both parties require to render reciprocal prestations

3. CAUSE
     a. ONEROUS – exchange of considerations
     b. GRATUITOUS – no consideration received in exchange of what is given
     c. REMUNERATORY – something is given for benefit/service that had been rendered previously

4. RISK OF FULFILLMENT
     a. COMMUTATIVE – equivalent values are given by both parties
     b. ALEATORY – fulfillment of contract depends on chance (eg. insurance)

5. IMPORTANCE
     a. PRINCIPAL – contract may stand alone (eg. sale, partnership)
     b. ACCESSORY – existence depends on another contract (pledge, guarantee)
     c. PREPARATORY – contract not an end by itself but a means thru w/c other contracts may be
made (eg. agency)

6. NAME
     a. NOMINATE – contract given a particular/special name (eg. partnership)
     b. INNOMINATE – not given special name (eg. I give that you may give)

7. SUBJECT MATTER
     a. Contracts involving things
     b. Contracts involving rights/credits
     c. Contracts involving services

3 STAGES OF CONTRACT
1. PREPARATION/CONCEPTION – preparatory steps to perfect contract
2. PERFECTION/BIRTH – meeting of minds between 2 contracting parties
3. CONSUMMATION/TERMINATION – terms of contract are performed, & contract is fully executed

Note: 5 BASIC PRINCIPLES/CHARACTERISTICS OF A CONTRACT

1. PRINCIPLE OF AUTONOMY (liberty to contract) (art.1306)

Provided they are not contrary to:
     a. Law
     b. Morals
     c. Good customs
     d. Public order
     e. Public policy

2. MUTUALITY OF CONTRACTS (art.1308)

- the contract must bind both parties; its validity/compliance cannot be left to the will of one of them

3. RELATIVITY OF CONTRACTS (art.1311)

- Contracts take effect only between the parties, their assigns & heirs except when there are rights &
obligations not transmissible:
     a. by their nature
     b. by stipulation (stipulation por autri)
     c. by provision of law

4. CONSENSUALITY OF CONTRACTS (art.1315)

- Contracts are perfected by mere consent
Exceptions:
     a. REAL CONTRACTS – perfected by delivery
     b. FORMAL/SOLEMN CONTRACTS – special form required for its perfection

5. OBLIGATORINESS OF CONTRACTS (art.1308)

- The contract, once perfected, has the force of law between parties which bound to comply in good
faith

4 KINDS OF INNOMINATE CONTRACTS (art.1307)

1. I give that you may give
2. I do that you may do
3. I give that you may do
4. I do that you may give

4 RULES FOR INNOMINATE CONTRACTS

1. Agreement of parties
2. Law on Obligations & Contracts
3. Rules on most analogous nominate contract
4. Customs of place

STIPULATION POR AUTRI

- stipulation in favor of 3rd person

5 REQUISITES OF STIPULATION POR AUTRI

1. Stipulation in favor of 3rd person
2. Stipulation is only PART, not the whole of the contract.
3. Both parties must conferred upon a favor of 3rd person
4. 3rd person must accept & say it to debtor before its revocation/cancellation
5. Neither of both parties be the legal representation/autho-rization of 3rd person
Note: 1. Liability of 3rd persons who induces to violate contract (1314).
2. Mortgage Law effects on contracts creating real rights (1312).
3. Authority to enter into contract in one’s behalf as cited in (1317).

CONSENT
- meeting of offer (certain) & acceptance (absolute) upon a thing (art.1319)

5 REQUISITES OF CONSENT
1. Must be given by 2 or more parties
2. Parties are capacitate to enter in contract
3. No vitiation of consent
4. No conflict between declared & intended
5. Legal formalities must be complied

7 RULES ON OFFER/ACEPTANCE
1. An offer must be certain.
2. Business advertisements for sale are NOT offers but ONLY invitations to make an offer.
3. Advertisements for bidders are ONLY invitations.
4. An acceptance made by letter/telegram does NOT bind offeror EXCEPT from the TIME it came to
his knowledge.
5. An offer made through an agent is accepted from the TIME the acceptance is done through
an agent.
6. An offer is ineffective upon death, insanity, insolvency, of EITHER party BEFORE acceptance is
made.
7. When offeror allowed offeree a certain period to accept, offer MAY be withdrawn AT ANYTIME
unless there is something PAID/PROMISED.

3 persons who CANNOT GIVE CONSENT to a contract (if entered into, contract is voidable)
(Art.1327)
1. UNEMANCIPATED MINORS
2. INSANE/DEMENTED PERSONS (unless they acted DURING LUCID INTERVAL)
3. DEAF-MUTES who DO NOT know how to write

DEMENTED PERSON – NOT exactly insane; difficult to distin-guish right from wrong

LUCID INTERVAL – period when an INSANE has acquired SANITY temporarily, therefore,

capacitated to enter into a valid contract (pls.take note however of art.1328).

2 RULES on persons WHO CANNOT GIVE CONSENT to a contract

1. Age of majority is 18 yrs old
2. A contract entered into by UNEMANCIPATED MINOR w/o parents/guardian’s consent is voidable,
except:
     a. Minor MISREPRESENTS his age (estoppel)
     b. Contract involves sale & delivery of necessities to minor

5 VICES OF CONSENT(1330)
- NOTE: When there is a DEFECTIVE CONSENT of EITHER of parties, contract is voidable;
Remedy: annulment of contract.
1. MISTAKE/ERROR
2. FRAUD/DECEIT
3. VIOLENECE
4. INTIMIDATION
5. UNDUE INFLUENCE

1. MISTAKE/ERROR (1331)
- wrong conception & lack of knowledge upon a thing

(2) MISTAKES W/C VITIATES CONSENT

It should refer to:
1. substance of thing that is the OBJECT of contract
2. conditions w/c MOVED either/both parties to enter into contract

4 RULES ON MISTAKE
1. Mistake to identity/qualifications of either of parties will vitiate consent ONLY when IT is
the principal cause of contract.
2. Simple mistake of account must be corrected.
3. No mistake if parties knew the risk/doubt affecting OBJECT of contract.
4. When one of parties is unable to read or the contract is in language not understood by him, &
mistake/fraud is alleged, the person enforcing the contract must FULLY explained the terms to him.

2. FRAUD/DOLO (1338)
- when through insidious words/machinations of one of the parties, INDUCED the other to enter into a
contract, & w/o them, he will not agree.

DOLO CAUSANTE DOLO INCIDENTE

Serious Not serious
cause induces party to NOT the cause to enter
ENTER into contract into contract
make contract voidable contract is valid; liable
for damages

7 RULES OF FRAUD
1. Failure to disclose facts when these needs to be revealed, is a fraud.
2. Fraud should be SERIOUS (dolo causante) & SHOULD NOT be done by BOTH parties to make
contract voidable.
3. Incidental fraud (dolo incidente) ONLY obliges person to PAY DAMAGES.
4. Usual exaggerations in trade, when other party know the “real” facts, is NOT FRAUD.
5. A mere expression of opinion is NOT FRAUD UNLESS made by an expert & the other party relies
on his special knowledge.
6. Misrepresentation made in good faith is NOT FRAUD but may constitute an error.
7. Misrepresentation by 3rd person DOES NOT vitiate consent UNLESS it created substantial
mistake.

3. VIOLENCE (1335)
- serious/irresistible force is employed.

2 RULES ON VIOLENCE
1. Serious/irresistible force is employed w/c constitutes the reason why one entered into a contract.
2. Violence ANNULS obligation although it is DONE by 3rd person not part of contract.

4. INTIMIDATION
- 1 of the parties is compelled by a reasonable & well-grounded fear of an imminent & grave evil upon
his person/property to give his consent.

3 RULES ON INTIMIDATION
1. Age, sex, & condition of person must used to determine the degree of intimidation.
2. Intimidation ANNULS obligation although it is DONE by 3rd person not part of contract.
3. A threat to enforce one’s claim (claim must be just & legal), DOES NOT vitiate consent.
 VIOLENCE INTIMIDATION
External Internal
Physical contact/coercion NO physical coercion;
ONLY MENTAL/MORAL
coercion

5. UNDUE INFLUENCE (1337)

- a person takes improper advantage of his power over other’s will, depriving the other to
his reasonable freedom of choice.

Remember: Mere expression of opinion does not signify fraud (1341)

Misrepresentation in good faith not fraudulent (1343)

3 RULES ON UNDUE INFLUENCE

1. There is a person who takes improper advantage of his power over other’s will, depriving the other
to his reasonable freedom of choice.
2. Undue influence ANNULS obligation although it is DONE by 3rd person not part of contract.
3. To constitute undue influence, ff circumstances must be considered: (1) confidential, family,
spiritual, & other relations of parties; or (2) the aggrieved party is suffering from mental weakness; or
(3) ignorant; or (4) in financial distress.

SIMULATION OF CONTRACT (1345)

- process of INTENTIONALLY deceiving others by producing a contract not really exist (absolute
simulation), or w/c is different from true agreement (relative simulation).

2 KINDS OF SIMULATED CONTRACT

1. ABSOLUTE SIMULATION (the parties DO NOT intend to be bound at all)
- completely fictitious/make-believe; VOID
2. RELATIVE SIMULATION (parties conceal their true/real agreement)
- parties are bound to real/true agreement, EXCEPT:
     a. contract prejudice 3rd person
     b. purpose is contrary to law, morals, good customs, public order, public policy

7 REQUISITES OF OBJECT OF CONTRACT

1. Specific & certain
2. Services not contrary to law, morals, good customs, public order, public policy
3. Services/things must NOT be legally/physically impossible
4. Services/things are w/in commerce of man including future things
5. Rights are NOT TRANSMISSIBLE.
6. Determinate (kind) or determinable (w/o the need of new contract/agreement)
7. NO contract be entered for future inheritance UNLESS law states

4 REQUISITES OF CAUSE
1. It is just & equitable.
2. It exists.
3. It is lawful.
4. It is true.

LESION
- inadequacy of cause (eg. insufficient price for thing sold)

RULES ON LESION
- Lesion DOES NOT invalidate contract, except there is:
     a. Fraud
     b. Mistake
     c. Undue influence

2 FORM OF CONTRACTS
1. Contracts in writing
2. Contracts in a public instrument

1. Contracts w/c must be IN WRITING to be valid:

     a. Donation of personal property exceeds P5000.
     b. Agent’s authority in sale of land/any interest.
     c. Contract of antichresis.
     d Stipulation to pay interest on loans.
     e. Stipulation to reduce common carrier’s extraordinary diligence & to limit its liability.

2. Contracts w/c must be IN A PUBLIC INSTRUMENT to be valid:

     a. Donation of real property (both the donation & accep-tance).
     b. Sale of real property.
     c. Partnership where real property/rights is contributed; or when capital contribution exceeds
P3000.

REFORMATION OF INSTRUMENTS
- REMEDY in equity in w/c a written instrument is made/construed to the REAL intention of parties
when there is an error/mistake.

(5) CASES REFORMATION OF INSTRUMENT IS AVAILABLE

1. Mutual mistake of parties.
2. One party was mistaken & the other acted fraud.
3. One party was mistaken & the other knew/believed that the instrument did not state their REAL
agreement.
4. Ignorance, lack of skill, negligence, or bad faith of person drafting the instrument DOES NOT state
the TRUE INTENTION of parties
5. Two parties agree on mortgage/pledge of personal/real property BUT the instrument states the
property is sold ABSOLUTELY, or w/ the right to repurchase.

(3) NO REFORMATION OF INSTRUMENT WHEN:

1. Simple donation inter vivos where NO CONDITION is imposed.
2. Will.
3. Real agreement is VOID.

4 KINDS OF DEFECTIVE CONTRACTS

1. RESCISSIBLE – valid until rescinded; has ALL essential requisites but because of injury/damage to
one of the parties, the contract may be rescinded.
2. VOIDABLE – valid until annulled; has ALL essential requisites but because of defect in consent,
contract may be annulled.
 3. UNENFORCEABLE – cannot be sued/enforced unless ratified; no effect NOW but may take effect
upon ratification.
4. VOID – NO effect at all; cannot be ratified/validated.

5 RESCISSIBLE CONTRACTS
1. Those entered by guardians & suffered LESION by more than ¼ of value of the value that is the
OBJECT.
2. Those agreed upon in representation of absentees, if the absentees suffered LESION.
3. Those undertaken in FRAUD of creditors when the creditors cannot further claim.
4. If entered into contract w/o knowledge/approval of litigants under litigation.
5. Contracts subjected to rescission declared by law.

3 VOIDABLE CONTRACTS
1. One of the parties INCAPABLE of giving consent to a contract.
2. Those where consent vitiates by vices of consent. (MFVIU)
3. Those agreed in the state of drunkenness/hypnotic spell.

3 UNENFORCEABLE CONTRACTS
1. Those entered in name of other person, or who acted BEYOND his powers.
2. Those who do not comply w/ the Statute of Frauds.
3. Both parties are incapable of giving consent to a contract.

7 VOID/INEXISTENT CONTRACTS
1. Those w/c are ABSOLUTELY simulated/fictitious.
2. Those w/c contemplate an impossible service.
3. Those whose OBJECT is outside the commerce of man.
4. Those whose CAUSE/OBJECT did not exist at time of transaction.
5. Those whose CAUSE/OBJECT/PURPOSE is contrary to law, morals, good customs, public order,
or public policy.
6. Those where INTENTION of parties to principal object CANNOT be ascertained.
7. Those expressly prohibited/declared VOID by law.

Note: Void contracts cannot be ratified!