The Philippine law on Obligations & Contracts 1.

Real obligation – (To give)

Reference: Hector S. Deleon Laws on Obligation & Contracts A. Specific Thing – Particularly designated
B. Generic Thing – refers only to a class or genus
Necessities and functions 2. Personal Obligation – (To do, not to do)
- Body of rules which deals with the nature and sources of A. Positive – Obligation to do
obligations and the rights and duties arising from agreements B. Negative – Obligation not to do
and the particular contracts.
- Defines the Duties and Responsibilities of each party and Sources of obligation (art. 1157)
provides for the remedy/ies in case of breach thereof. 1. Law
- Educate and guide every person of any transactions entered 2. Contracts
into. 3. Quasi-contracts
- Regulates the civil/commercial relation of every citizen. 4. Acts or Omissions punishable by law
5. Quasi-delict
Title 1 General provisions: obligations
Chapter 1 AIM Sources of obligations: Law
To provide answers on the following: - The birth and performance of the obligation is premised
 What is an Obligation? upon the existence of a valid law.
 How will an obligation arise, what are its sources?
 What are the different kinds of obligation? Requirements:
1. There must be an existing law
 Who are parties to an obligation?
2. It must be a valid law
Obligation defined
Illustration:
IN GENERAL
Something a person must do because of a certain law, rule,
The obligation of the parents to financially support their
promise or agreement, which includes civil and natural obligations.
children arises because there is an existing law, the Family Code of
the Philippines, that impose upon each parent to support their
LEGAL
children.
A juridical necessity to give, to do, or not to do. (Art. 1156)
Sources of obligations: contract
Civil vs. natural obligations - The birth and performance of the obligation is premised
 Civil Obligation upon the agreement (contract) of the parties.
 Gives the creditor or oblige a right under the law to enforce
their performance in Courts of Justice. Requirements:
 Based on Positive Law (Civil Code). 1. Agreement of the parties
 Non fulfillment gives rise to an action for damages. 2. Must not be contrary to law, morals, public policy, and good
 Natural Obligation customs.
 Do not grant a right of action to enforce their performance.
 Based on equity and natural law. Illustration:
 Cannot compel performance hence the unavailability for the
recovery of damages. Juan and Pedro mutually agreed that Pedro will buy the
motorcycle of Juan for P30,000. The obligation of Pedro to pay the
Parties to an obligation purchase price and the obligation of Juan to deliver the motorcycle
CREDITOR/OBLIGEE - Person in whose favor the performance or arises because of their agreement.
non-performance of an action is made.

DEBTOR/OBLIGOR – Person required to perform an obligation

Sources of obligations: Quasi-contract
- The birth and performance of the obligation is premised
upon the principle that no person shall unjustly enriched himself at
the expense of the other.

Kinds of Quasi-contracts:
1. Negotiorum gestion – voluntary management of the property of
Essential requisites of an obligation another without the latter’s consent.
Passive Subject – debtor or obligor. The person who has a duty. 2. Solution Indebiti – juridical relation created when something is
Active Subject – Creditor or oblige. He who has a right. received when there is no right to demand it but only through
Object or prestation – Subject matter of the obligation. It may consist mistake.
of giving, doing, or not doing,
Juridical or legal ties – efficient cause. The tie that binds the parties. Illustration:
1. Juan left his car in the parking lot and went shopping.
Illustration While Juan was inside the mall, a tree was about to fall in
Obligation to support the direction of juan’s car, however, Pedro was able to save
Passive subject – parent the Juan’s car by hiring a tow truck.
Active subject – children 2. Juan is indebted to Pedro in the amount of P10. When Juan
Object or Prestation – to support paid his debt, he gave Pedro P20, thinking the bill was only
Juridical or Legal tie – law P10.

Kinds of obligations as to subject matter Sources of obligations: delicts/crime

 - The birth and performance of the obligation is premised
upon the existence of a law defining and penalizing a certain act as a
crime.

Requirements:
1. Valid law defining and penalizing certain act or omission as a
crime.
2. Acts or Omissions defined and penalized as a crime.

Illustration:

Killing a person. The killer, by reason of his criminal act is

obligated to pay the victim or his heirs compensatory damages.

Sources of obligations: quasi-delicts

- The birth and performance of the obligation is premised
upon the act of one person causing damage to another by reason of
his negligence.

Requirements:
1. There must be an act or omission causing damage.
2. There must be fault or negligence.

Illustration:
Juan unintentionally broke the phone of Pedro while he was
trying surprise him.

Nature and effect of obligations
Chapter 2 AIM
To provide answers on the following:
1. What are the Duties & Rights of DEBTOR and CREDITOR in
an obligation?
2. What remedies does a party have in cases of failure to fulfill an
obligation?
Duties, rights, and remedies - duties
1. Real obligation – (To give)
Specific Thing – Particularly designated
A. Duties (Debtor)
1. Preservation of the Thing which results in
requiring the debtor to exercise diligence of a good father of a family
in taking care of the thing. (Art. 1163).
2. Delivery of the thing including all accessions
and accessories (Art. 1166).
3. Not to incur in default (1169)
4. Not to commit fraud, negligence, or delay (Art.
1170)
Duties (Debtor): 1. Preservation of the thing
Obligation to give specific thing:
 Diligence of a good father of a family is required in taking care
of the thing prior to delivery.
Good Father of a Family = ordinary diligence
Reason for the rule:
A specific thing cannot anymore be substituted hence loss
of the thing will render the debtor to impossibly fulfill his obligation.
Duties (Debtor): 2. Delivery of the thing including all accession
and accessories
Accessions - Fruits of the thing, or additions to or improvements
upon a thing.
Accessories – Things joined or include with the principal for the
latter’s embellishment, better use, or completion
ILLUSTRATIONS: (DELAY & DEFAULT)
Juan borrowed the book of Pedro and obliged himself to
return and deliver the same on November 30. If Juan does not deliver
the book on November 30 in the absence of any demand coming from
Pedro for the delivery of the book, Juan merely incurred an ordinary
delay.
However, if Pedro made a demand against Juan to deliver
the book on December 5 and still Juan failed to deliver, Juan is
considered in default on from the date.
Effect:
Failure to give demand will result in the presumption of
law that creditor is giving an extension of time within which debtor
may comply his obligation.
DEMAND IS NOT NECESSARY TO RENDER DEBTOR IN
DEFAULT:
1. When the Obligation so provides
2. When the law so provides
3. When time is of the essence
4. When demand would be useless
5. When there is performance by a party in reciprocal
obligations
Duties (Debtor): 4. Not to commit fraud or negligence, delay, or
contravene the tenor.
Fraud (deceit or dolo) – Deliberate or intentional evasion of normal
fulfillment of an obligation. Implies some king of malice or
dishonesty.
Negligence – Voluntary act or omission without malice or bad faith
which prevents the normal fulfillment of the obligations.
Delay – (art. 1169)
Contravention of the terms – Violation of the terms and conditions
stipulated in the obligation.
EFFECT:
 Entitles the creditor for damages

Illustrations:
1. Delivery of a purchased car should also include its air-
conditioners even if not included in the contract of sale.
2. When a watch is purchased, it is deemed to include the
bracelet/strap, and the seller should also deliver this item
despite the non-agreement of the parties.

Duties (Debtor): 3. Not to incur in default

Default – Failure of the debtor to fulfill his obligation on the date

agreed upon and there was a demand made by the creditor for the
fulfillment except when demand shall not be necessary.
Delay – Mere failure to perform an obligation on time
Default – Mere failure to perform an obligation on time and
after demand made by the creditor
Kinds of Delay:
1. Mora Solvendi – delay on the part of the debtor to fulfill his
obligation.
2. Mora Accipiendi – delay on the part of the creditor to
accept the performance of the obligations.
3. Compensation morae – delay of the obligors in reciprocal
obligations.
Duties, rights, and remedies
1. Real obligation – (To give)
Specific Thing – Particularly designated
A. Duties (Debtor)
1. Preservation of the Thing which results in requiring the
debtor to exercise diligence of a good father of a family in taking care
of the thing. (Art. 1163).
2. Delivery of the thing including all accessions and
accessories (Art. 1166).
3. Not to incur in default (1169)
4. Not to commit fraud, negligence, or delay (Art. 1170)
B. Rights (Creditor)
1. Right to the fruits of the thing from the time the
obligation to deliver arises. (Art. 1164)
 2. Right to ask damages for fraud, negligence, delay or in
contravention of the stipulation.
3. Right to avail all remedies available against the debtor.
Rights (creditor):1.rights to the fruits accrued
 Right only arises when there is obligation to deliver.
Types of Fruits:
2. Natural Fruits – Spontaneous products of the soil including
animals and the young.
3. Industrial Fruits – Produced by lands of any kind through
cultivation or labor.
4. Civil Fruits – Those derived by virtue of Juridical relation.
Duties, rights, and remedies
1. Real obligation – (To give)
I. Specific Thing – Particularly designated
A. Duties (Debtor)
1. Preservation of the Thing which results in requiring the
debtor to exercise diligence of a good father of a family in taking care
of the thing. (Art. 1163).
2. Delivery of the thing including all accessions and
accessories (Art. 1166).
3. Not to incur in default (1169)
4. Not to commit fraud, negligence, or delay (Art. 1170)
B. Rights (Creditor)
1. Right to the fruits of the thing from the time the
obligation to deliver arises. (Art. 1164)
2. Right to ask damages for fraud, negligence, delay or in
contravention of the stipulation.
3. Right to avail all remedies available against the debtor.
C. Remedies (Creditor)
1. Specific performance
2. Damages
3. Recession
Duties, rights, and remedies - duties
1. Real obligation – (To give)
II. Generic Thing – Designated by class
A. Duties (Debtor)
1. Not to incur in default (1169)
2. Not to commit fraud, negligence, or delay (Art. 1170)
B. Rights (Creditor)
1. Right to ask damages for fraud, negligence, delay or in
contravention of the stipulation.
2. Right to avail all remedies available against the debtor.
C. Remedies (Creditor)
1. Demand performance even against third persons at the
expense of the debtor.
2. Damages
3. Recession
2. Personal Obligation –
I. Positive – “To Do”
A. Duties (Debtor)
1. Perform the obligation in accordance with the tenor of
the obligation.
2. Refrain from poorly performing an obligation
3. Not to incur in default (1169)
4. Not to commit fraud, negligence, or delay (Art. 1170)
B. Rights (Creditor)
1. Right to have the obligation performed in accordance
with the tenor.
2. Right to ask damages for fraud, negligence, delay or in
contravention of the stipulation.
3. Right to avail all remedies available against the debtor.
C. Remedies (Creditor)
1. to have the obligation performed by himself or third
persons unless personal considerations are
involved.
2. Damages
3. Recession or undoing of the act when done in
contravention of the tenor or poorly made.
II. Negative – “Not To Do”
A. Duties (Debtor)
1. Refrain from performing actions
2. Not to commit fraud, negligence, or delay (Art. 1170)
B. Rights (Creditor)
1. Right to have the obligation performed in accordance
with the tenor.
2. Right to ask damages for fraud, negligence, delay or in
contravention of the stipulation.
3. Right to avail all remedies available against the debtor.
C. Remedies (Creditor)
1. Damages
3. Recession or undoing of the act when done.
Rules for damages
Those who in the performance of their obligations are
guilty of FRAUD, NEGLIGENCE, OR DELAY, or those WHO
CONTRAVENES THE TENOR. (Art. 1170)
Fraud (deceit or dolo) – Deliberate or intentional evasion of normal
fulfillment of an obligation. Implies some kind of malice or
dishonesty.
Negligence – Voluntary act or omission without malice or bad faith
which prevents the normal fulfillment of the obligations.
Delay – (art. 1169)
Contravention of the terms – Violation of the terms and conditions
stipulated in the obligation.
ILLUSTRATION: FRAUD
Contract of Sale:
Juan sold his bag to Pedro misrepresenting that it was a
genuine Louis Vuitton brand. By reason of such assurance, Pedro
bought and paid the purchase price. It was found later on that the
subject item was a Class “A” imitation. Juan very well knew this fact.
On damages: Juan can be held liable for damages by reason of his
deliberate intention to defraud Pedro.
ILLUSTRATION: delay
Ally borrowed the book of Zabee and promised to return the book on
December 25. Came the said date, Ally failed to return the said book
prompting Zabee to send her a demand letter to return the book on or
before December 30. Came the date and Ally still failed to return the
book.
On damages: Ally can be held liable for damages after failing to
comply the demands made by Zabee, she being “in default”.
ILLUSTRATION: contravention performer, called up the organizer and informed them that he
will not be performing in the event without stating any reason.
Ally and Zabee agreed that the former will construct a particular Can the performer be compelled through Specific performance
house of the latter. Part of the construction agreement was that Ally to render his obligation in the concert? Explain
should only use Narra woods in all window and door jambs. Ally
however used Gemilina woods as materials for the door and window
jambs in order to maximize his profits.

On Damages: Ally can be held for damages by reason of performing

his personal positive obligation in contravention of the tenor agreed
upon.

ILLUSTRATION: NEGLIGENCE
Ally borrowed the book of Zabee and promised to return the book on
December 25. Came the said date, Ally failed to return the said book
prompting Zabee to send her a demand letter to return the book on or
before December 30. Came the date and Ally still failed to return the
book. It was found out that Ally had in fact lost the book when she
intentionally left the same outside of her classroom.

On damages: Ally can be held liable for damages by reason of her

negligence in losing the book and her failure to exercise diligence of
a good father in the preservation of the book

Special Rules
FORTUITOUS EVENT
- Any event which cannot be foreseen or which, though
foreseen, is inevitable.
Rule:
- Loss caused by fortuitous event shall exempt the debtor
from liability except when:
A. Expressly specified by the law
B. When it is otherwise declared by stipulations
C. Nature of the obligation requires assumption of risk
D. Debtor is in delay

Assessment exam I
1. What is an obligation? What are the requisites of an obligation?
2. What are the different sources of obligations? Who are parties
to an obligation?
3. What is Negotiorum Gestio?
4. What are the requirements in order for an Act or omission to
result an obligation?
5. When is a thing considered as specific? When is it considered
generic?
6. What are the remedies of a obligee in obligations to give a
generic thing, if the obligor fails to perform his or her
obligations?
7. When can a debtor be considered in default of his obligation?
8. What are the three (3) kinds of delay?
9. What are the three (3) basic rights of a creditor in obligations to
give a specific thing?
10. What are the remedies of an obligee in personal negative
obligations?
11. Susan received from Marie the amount of P10 and in return,
obliged herself to deliver a mongol pencil no. 2 on November
5. While on her way to Marie for the delivery, A lightning
struck the motorela she was riding causing the vehicle to burst
in fire on November 6. Luckily, she escaped without any harm.
The pencil however was included in the fire wreckage. Marie
thereafter, demanded the delivery of the pencil which Susan
refused arguing that the object was already lost by reason of the
fire. Can Susan be compelled to deliver the pencil? Can she be
held liable for Damages? Explain.
12. Justin Bieber (performer) and Viva Records (Organizer)
entered into an agreement that the performer will render five
songs in a concert organized by Viva for a fee of P700,000.00.
The organizer after signing the contract immediately paid the
performer the amount. Two days prior to the event, the
Chapter 3 different kinds of obligation - “when means permits”
Chapter 3 AIM - “Death”
To provide answers on the following: - the arrival of the period
1. What are the two classifications of obligation?
2. What are the different kinds of obligations and its definition Rules:
according to its classification? 1. Potestative Condition – the fulfillment of the condition depends
3. Illustration on every kinds of obligation upon the will of one of the parties. (refers only to suspensive
conditions)
Classifications of obligations Debtor – Obligation & Condition are Void except when It
A. Primary Classification of obligations under the Civil Code involves pre-existing obligations. (A borrowed money from B
i. Pure and Conditional Obligations payable in 2 mos. Later B promised to pay when he has money which
ii. Obligations with a period B agreed.)
iii. Alternative and Facultative Obligations Creditor – Condition is Valid (I will pay you on demand)
iv. Joint and Solidary Obligations Third Person – Condition is Valid (I will pay you when A
v. Divisible and Indivisible obligations wins)
vi. Obligations with a penal clause
2. Impossible conditions, contrary to public customs or public policy
B. Secondary Classification of obligations under the Civil Code and those prohibited by law shall annul the obligations which
i. Unilateral and bilateral obligations depends upon them.
ii. Real and personal obligations Effect: Voids the Obligation not only the conditions
iii. Determinate and generic obligations Exception: Divisible obligations
iv. Civil and natural obligations Conditions not to do an impossible thing
v. Legal, conventional , and penal obligations (Deemed not to have agreed upon)

I. Pure and conditional obligations
Pure – Obligation whose performance does not depend
upon a future or unknown certain event, or upon a past event
unknown to the parties. (immediately demandable)
- One without condition or a term.
illustration:
I promise to pay you P1,000.00 (The obligation is
demandable at once)
Conditional – is one whose consequence are subject in one
way or another to the fulfillment of a condition.
Illustration:
I’ll buy you a land for P1,000.00 if you will pass your law
1 subject. (Suspensive condition)
I’ll give you my land now , but should you fail in your law
1 subject, your ownership will cease and it will be mine again.
Condition – future and uncertain event, upon the
happening of which, the effectivity or extinguishment of an
obligation depends.
3. Positive Suspensive Condition – some event happen at a
determinate time
Effect: Extinguish the obligation as soon as the time expires
or if it has become indubitable that the event will not take place.
“I will give you 1 million if you will marry before reaching
30 yrs. Old”
4. Negative Conditions – An event will not happen at a determinate
time.
Effect: The obligation effective from the moment the time
indicated has elapsed or if it has become evident that the event cannot
occur.
I will pay you 1 million if you will not marry A until
December 30.
5. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
Req:
A. The conditions is suspensive
B. The obligor actually prevents the fulfillment of the
condition
C. He acts voluntarily

Character:
1. Future and uncertain events – must be future and
uncertain event, otherwise it cannot be considered as a condition. 6. Loss, Deterioration, or improvement of thing during pendency of
2. Past but unknown event – Past event unknown to parties. suspensive condition (Applies only to real obligation)
a) Loss of the thing without debtor’s fault = obligation is
Kinds of Conditions extinguished
1. Suspensive Condition – the happening of the condition i.e. Juan promises Pedro to give his jewelry if
gives rise to the obligation Pedro can sell his land.
2. Resolutory Condition – the happening of the condition b) Loss of the thing with debtor’s fault = obliged to pay
extinguishes the obligation. damages
i.e. If the loss in the above example is through
Condition vs. Period negligence of Juan
c) Deterioration of thing without debtor’s fault – Impairment
Condition: is to be born by creditor.
- Future & Uncertain event d) Deterioration through debtor’s fault – recession or
- Past & Uncertain event fulfillment with damages.
- The happening of the condition gives rise or extinguishes an e) Improvement of the thing by nature or time – Inure to the
Obligation (1181) benefit of the creditor.
f) Improvement at the expense of debtor – right as a
Period: usufructuary by the debtor.
-Future & certain event
- N/A II. Obligations with a period
 One whose effects or consequences are subjected in one way or c) Deterioration of thing without debtor’s fault – Impairment
another to the expiration or arrival of said period or term. is to be born by creditor.
d) Deterioration through debtor’s fault – recession or
Period – is future and certain event upon the arrival of which the fulfillment with damages.
obligation subject to it either arises or is terminated. e) Improvement of the thing by nature or time – Inure to the
benefit of the creditor.
Kinds of period or term f) Improvement at the expense of debtor – right as a
1. Suspensive period – the obligation begins only from a day usufructuary by the debtor.
certain upon the arrival of period
2. Resolutory period – the obligation is valid up to a daycertain and 2. Payment before arrival of the period (applies only in obligations
terminates upon arrival of the period. to give) – Maybe recovered by the obligor including the fruits
thereon provided the following requisites concur:
Kinds Of Period A. The obligation is a real obligation (obligation to give)
1. Suspensive Period (ex Die) – The obligation begins only B. The obligor is unaware of the period or believing that
from a day certain upon the arrival of the period. the obligation has become due
and demandable.
Illustrations: C. The period has not yet arrived.
A. I will pay you 30 days from today. Basis = Unjust Enrichment/solution indebeti
obligation = to pay
period = 30 days from today Illustration:
B. I will support you the moment your father dies. Juan is indebted to Pedro for 1,000 payable on January 2018.
obligation = to support Unaware of the period Given, Juan paid Pedro on January
period = death of father 2016
C. I will pay you if I will have money.
obligation = to pay Effect:
period = when capable of paying
2. Resolutory Period (in Diem) – The obligation is valid up to 1. Prior to January 2018, Juan may still recover the payments
a day certain and terminates upon arrival of the period. mistakenly made including fruits/interest.
2. After January 2018, Juan can only recover the fruits but not
Illustration: anymore the payments.
A. I will pay your tuition for four years.
Obligation = pay tuition
Period = Four years 3. Judicial Period – Periods fixed by the court when no period is
B. I will give you P1,000 a day as long as my means fixed but a period was intended by the parties, or when the
allows. period depends upon the will of the debtor.
Obligation = to give
Period = means permit Requisites:
C. I will Support you until death. A. No period is fixed in the obligation
Obligation = to support B. The parties intended the obligation to be with a period.
Period = Death Once a period is fixed by the Court, it cannot be changed
by the parties.
Exercises: 4. Right to make use of the period – The debtor may enjoy the
benefits brought about by the fixation of the period, except:
B. I will pay your tuition fees until you graduate.
C. I will give you this car and you may go to the moon. A. When Debtor becomes insolvent unless he gives a guaranty
D. I will buy you a phone on February 30, 2017. or security of the debt.
E. I will bring you to Disneyland when my means permits to do so. B. Failure to furnish guaranties or securities as promised
F. Marry me and I will buy you a house. C. When Guaranties or securities have been impaired or have
G. I will give you allowance until the next full moon. disappeared.
H. I will bring you to the beach when it will be low tide. D. When debtor violates any undertaking of which the creditor
I. Juan promised to give Pedro a car upon reaching the age of 18 agreed to the period.
yrs Old. E. When debtor attempt to abscond.
J. I will pay you after I have harvested corn.
K. Juan binds himself to sell his land to B if he wins a case which is 5. Presumption as to benefit of period – the period is presumed to
pending before the Court. have been established for the benefit of both the creditor and
debtor, unless from the tenor of the same or other circumstance
it should appear that the period has been established in favor of
RULES: one or of the other.
1. Loss, Deterioration, or increased of the thing before the arrival
of the period, = same rules in conditional obligations. Illustrations:
a) Loss of the thing without debtor’s fault = obligation is 1. On January 1 Juan borrowed money from the bank payable on
extinguished December 31, 2016 at 12 % interest.
i.e. Juan promises Pedro to give his jewelry if 12 mos. Benefit of debtor = to use the money for 1 yr.
thereafter. Benefit of creditor = interest
b) Loss of the thing with debtor’s fault = obliged to pay
damages Effect: Juan cannot compel the bank to accept payments prior to
i.e. If the loss in the above example is through due date except when full interest is paid. Neither the bank
negligence of Juan may compel Juan to pay before due date.

KINDS OF OBLIGATIONS ACCORDING TO OBJECT
1. Simple Obligation – one where there is only one prestation.
2. Compound Obligation – where there are two or more
prestations.
a. conjunctive – one where there are several
prestations and all of them are due.
b. Distributive – one where two or more of the
prestations is due.
i. Alternative obligation – one where
several prestation are due
but the
performance of one is sufficient.
ii. Facultative Obligation – one where
only one prestation is due
but the debto may
substitute another
III. ALTERNATIVE OBLIGATION
- One wherein various prestations are due but the performance of
one of them is sufficient as determined by the choice which as a
general rule, belongs to the debtor.
- One where debtor is given alternative prestations.
Illustration:
As payment of his debt to B, it was agreed that A could
payback B a cash amount of P10,000.00 or deliver his motorcycle to
B.
Effect:
The delivery of either cash amount or the motorcycle is
sufficient to comply with the obligation.
Creditor However cannot be compelled to accept partly on
the cash and part ownership over the motorcycle.
RULES:
1. Performance of one prestation is sufficient for the fulfillment of
the obligation. The creditor cannot be complelled to receive part
of one and part of the other under taking.
Illustration:
As payment of his debt to B, it was agreed that A could
payback B a cash amount of P10,000.00 or deliver his motorcycle to
B.
Effect:
The delivery of either cash amount or the motorcycle is
sufficient to comply with the obligation.
Creditor However cannot be compelled to accept partly on
the cash and part ownership over the motorcycle.
2. The choice of the performance belongs to the debtor unless it
has been expressly granted to the creditor.
Limitations:
1. Debtor cannot choose those prestations which are
impossible, unlawful or which could not have been the object of the
obligation.
2. Debtor has no more right of choice when among the
prestations, only one is practicable.
3. Remedies:
A. If debtor cannot make a choice according to the terms of
the obligation through creditor’s act, he may rescind the
contract with damages.
B. Creditor shall have the right to Damages when through
fault of debtor, all the things which are alternatively the
object of the obligation have been lost or compliance is
impossible.
Illustration:
Juan agreed to deliver item 1, item 2, or item 3 to Pedro.
A. If item 1 is lost through acts of Pedro, Juan may rescind
the contract and ask for damages.
B. If all items will be lost, Juan will be liable to Pedro for
damages.
C. If item 1 is lost due to Juan’s fault, he will still have the
option to fulfill either item 2 or 3.
C. If choice is Given to the creditor, before communication of
the choice, the following rules shall apply:
1. If thing is lost through fortuitous event.
Debtor is not liable, he can choose from the remainder.
2. If thing is lost through debtor’s fault
value
Creditor may claim any of the remainder or demand
of what was lost
with right to damages.
3. When all things are lost through fault of debtor,
Creditor may demand payment of the price of any one
of the choices with a right to damage
4. When all things are lost through fortuitous event,
Obligation is extinguished
IIIA. Facultative OBLIGATION
- One where only one prestation has been agreed upon but the
obligor may render another in substitution.
- One prestation, but a substitute at the will of the debtor is
provided.
Illustration:
I will give you my car or I may give you my bicycle as a
substitute.
Juan will give Pedro item 1 or if Juan wants, item 2
RULES:
1. Before substitution, the loss of the substitute will not create
liability.
2. Choice is always given to the debtor.
Iv. Joint & solidary OBLIGATIONs
(Kinds of Obligation according to number of parties)
Joint obligation – one where the whole obligation is to be paid or
fulfilled proportionately by different debtors and/or is to be
demanded proportionately by different creditors.
Solidary obligation – one where each one of the debtors is bound to
render and/or each one of the creditors has a right to demand from
any of the debtors, entire compliance with the prestation.
Illustration:
Juan and Pedro borrowed money from Lisa the amount of
P10,000.00
RULES “Joint Obligations”:
1. Where there is Plurality of parties, the presumption is that
the obligation is joint.
2. There are as many debts as there are debtors, there are as
many credits as many creditors.
 3. The debts and/or credits are considered distinct and
separate from one another; vi. Obligation with a penal clause
4. Each debtor is liable only for a proportionate part of the
debt and each creditor is entitled only to a proportionate Penal Clause – A coercive means to obtain from the debtor
part of the credit. compliance.
5. Words indicating joint liability: joint, proportionate, pro an accessory undertaking to assume a greater liability in case of
rata breach. It is attached to the obligations in order to insure their
performance.
Illustration:
Juan and Pedro borrowed money from Lisa the amount of Kinds of penal clause:
P10,000.00 a) Legal – one that is imposed by law
1. The presumption is that the liability of Juan and Pedro is b) Conventional – agreed by the parties
Joint.
2. There are 2 debts and 1 credit. Penal Clause vs Condition
3. The debt of Juan is distinct from the debt of Pedro.
4. Juan is liable for P5,000 while Pedro is Liable for P5,000. Penal Clause:
-Constitute as an obligation
RULES “Solidary Obligations”: - Demandable
1. There is solidary liability only when: - Purpose: ensure performance substitute for damages
A. The obligation expressly so states
B. The Law requires solidarity Condition:
C. The nature of the obligation requires solidarity -does not const. as obli.
D. Imposed by Final Judgment against several defendants. - not demandable
- Fulfillment of obligation
Kinds of solidarity
1. Passive solidarity – solidarity on the part of the debtors.
2. Active solidarity – solidarity on the part of the creditors.
3. Mixed solidarity – solidarity on both.

2. There is only one debt and one credit regardless of the

number of parties.
3. Any of the debtor can be held liable of the whole amount
due and/or any of the creditor is entitled to the whole
amount due.
4. Words of solidary liability:
a. solidary
b. joint and solidary
c. individually and collectively
d. in solidum
e. each will pay whole value
5. Each one of the solidary creditors may do whatever may be
useful to others but not which is prejudicial, hence cannot
also assign his rights without consent of other creditors.

vi. Divisible & indivisible obligation

(Kinds of Obligation according to object)

Divisible obligation – one capable of partial performance.

Ex. To deliver 200 kilos of sugar
Indivisible obligation – one not capable of partial performance.
Ex. To deliver a 2016 Toyota fortuner

Rules:
1. In Joint indivisible obligations, debtors who does not comply with
his undertakings can be held liable for damages. However, debtors
who are ready to fulfill shall not contribute to the indemnity
beyond their corresponding portion of the price of the thing or the
value of the service.

Illustration:
Carl and Len promised jointly to give a specific car worth 1.5M to
AL.
1. The obligation is converted into a monetary one for indemnity.
2. The debtor who is ready to fulfill his/her share shall not be held
liable more than his/her corresponding portion of the price.
3. The defaulting debtor is liable to the creditor.

2. In case of divisible contract, if the illegal terms can be separated

from the legal ones, the latter may be enforced.

Chapter 4 Extinguishment of obligations
Chapter 4 AIM:
To provide answers on the following:
1. What are the grounds for extinguishment of an obligation?
2. Define each ground
3. Effect if an obligation is extinguished
Extinguishment of Obligation
 The obligation assumed ceased to have legal effects, hence
will not be binding upon the obligor and the obligee has no
right to demand performance.
 All accessory clause dependent upon the existence of the
obligation shall likewise be extinguished.
 For other causes of extinguishment (annulment, recession,
fulfillment of a resolutory condition, prescription) the parties
are reinstated to their former status prior to incurring the
obligation.
Obligations are extinguished
1. Payment or Performance
2. Loss of the thing due
3. Condonation or remission of debt
4. Confusion or merger of rights of creditor and debtor
5. Compensation
6. Novation
Payment or performance
Definition
- That mode of extinguishing obligations which consist of:
A. The delivery of money (Obligations to give)
B. The performance in any other manner of an obligation
(Obligations to do)
“There is payment when there is a pre-existing obligation”
Requisites:
1. The very thing or service contemplated must be paid
2. Fulfillment must be complete
3. Must be accepted by the creditor expressly or impliedly
4. Burden of Proof:
Creditor – That a valid debt exists
Debtor – That he has paid the same
Rules:
1. Substantial performance in good faith is equivalent to
performance when damages suffered by the obligee has been
deducted.
A. Substantial Performance – essential part of the
contract has been performed and only a small part thereof
has not been carried out.
B. Good Faith – always presumed in the absence of proof.
2. Incomplete or irregular performance is deemed to be a valid
payment only when:
A. The creditor knows its incompleteness or
irregularity
B. The creditor does not interpose any protest or objection.
3. Payments made by third persons:
A. Creditor is not bound to accept payment
Except:
i. Third persons who has interest in the obligation
ii. Stipulations
B. Third Person may collect reimbursement plus subrogation
rights.
Except: (may recover only in so far as beneficial to
the debtor)
i. Payment made was without knowledge of
debtor.
ii. Against the will of debtor
C. Effect of payment by third person who does not intend to
be reimbursed:
i. Deemed to be a donation
ii. Requires debtor’s consent
iii. Valid against the creditor
4. Payment by those who does not have free disposal of the thing or
capacity to alienate is not valid except upon provisions under art
1425(not applicable).
Effect: Payment may be recovered back.
5. Payment to incapacitated person is not valid unless the thing is
kept.
6. Payment to third persons:
A. Not valid except:
i. as it has redound to the benefit of the creditor
Presumption of benefit to the creditor:
1. subrogation of the payer in the creditor’s right.
2. ratification by the creditor
3. estoppel on the part of the creditor
B. Valid when third person is in possession of credit.
(promissory note)
7. Prestation due must be complied with subject to exceptions:
1. Facultative obligations
2. Dation in Payment – conveyance of ownership of a thing
as an accepted equivalent of performance.
i. Law on Sales governs the validity of payment
8. Payment other than legal tender:
Legal tender – that currency which if offered by the debtor in
the right amount, the creditor must accept in payment of a debt in
money.
Rule:
i. Payment shall only be made in the currency stipulated
ii. If not possible, then currency of the Philippines
iii. Promissory notes and bills of exchange shall produce
effect only when cashed or impaired by act of the
creditor.
9. Place of Payment:
i. In the place designated in the obligation
ii. Wherever the thing might be at the moment the
obligation is constituted (determinate thing)
iii. In any other case the place of payment shall be the
domicile of the debtor.
Application of payments
Definition
- is the designation of the debt to which should be applied
the payment made by a debtor who has various debts of the
same kind in favor of one and the same creditor.
Requisites for applicability:
1. There must be 1 debtor and 1 creditor
2. There must be 2 or more debts
3. The debts must be of the same kind
4. The debts to which payment made by the debtor has been
applied must be due
5. The payment must not be sufficient to cover all debts
Rules:
1. Debtor has the first choice.
2. The right to make the application once exercised is irrevocable
unless creditor consents.
3. If debtor does not apply payment, the creditor may make the
designation by specifying in the receipt.
4. If creditor does not designate, the debt which is most onerous
to the debtor among those debts shall be deemed to have been
satisfied.
5. If debts are of the same nature, payment shall be applied to all
proportionately.
6. If debts produces interest, interest must be covered first before
principal
Payment by Cession
Definition
- is a special form of payment. It is the 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 their credit.
Requisites for applicability:
1. There must be two or more creditors
2. The debtor must be partially insolvent
3. The assignment must involve all the properties of the debtor
4. The cession must be accepted by the creditors.
5. Will only release the debtor up to the net proceeds of the sale
of the property assigned.
Tender of payment and consignation
Definition
Tender of Payment - is the act on the part of the debtor, of
offering to the creditor the thing or amount due. (interest will
stop)
Requisites:
1. Tender must comply with the rules of payment
2. It must be unconditional
3. It must be actually made
Consignation – is the act of depositing the thing or amount due with
the proper court when the creditor does not desire or cannot receive
it, after complying with the formalities required by law. (release the
debtor)
Requisites:
1. The existence of a valid debt
2. Tender of payment and refusal without justifiable reason.
3. Previous notice of consignation to persons interested in the
fulfillment of the obligation
4. Consignation of the thing or sum due
5. Subsequent notice of consignation made to interested parties.
LOSS OF THE THING DUE
Lost – when a thing perishes or goes out of commerce or disappears
in such a way that its existence is unknown or cannot be recovered.
Requisites so that loss may extinguish obligations:
1. The obligation is to deliver a specific or determinate thing.
2. The loss occurs without the fault of the debtor
3. The debtor is not guilty of delay.
Exceptions:
1. When the law so provides
2. When stipulations so provides
3. When nature of obligation requires the assumption of risk
4. When the obligation to deliver specific thing arises from a
crime.
Condonation or remission of debt
Definition
- The gratuitous abandonment by the creditor of his right
against the debtor. A form of donation
Requisites
1. It must be gratuitous
2. It must be accepted by the obligor
3. The parties must have the capacity
4. It must not be inofficious
5. If made expressly, it must comply with the forms of donation.
CONFUSION OR MERGER OF RIGHTS
Definition
- Is the meeting of one person of the qualities of creditr and
debtor with respect to the same obligation.
Requisites
1. It must take place between the principal debt and creditor.
2. It must be complete
Illustration:
A bought a car from B using check as payment. B indorsed the
check C which later on indorsed it to A.
Compensation
Definition
- Is the extinguishment to the concurrent amount of the
debts of two persons who, in their own right, are debtors and
creditors of each other.
Requisites
1. That each one of the obligors be bound principally and that he
be at the same time a principal creditor of the other.
2. That both debts consist in a sum of money, or if the things due
are consumable, they must be of the same kind, and also of the
same quality if the latter has been stated.
3. That the two debts be due. (Exception: Art. 1282 Voluntary)
4. That they be liquidated and demandable.
5. That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to
the debtor.
Novation
Definition
- The total or partial extinction of an obligation through
the creation of a new one which substitute it. It is the
substitution or change of an obligation by another, which
 extinguishes or modifies the first, either by changing its object
or principal conditions or by substituting another in place of the
debtor, or by subrogating a third person in the rights of the
creditor.
Requisites
1. A previous valid obligation
2. Capacity and intention of the parties to modify or extinguish
the obligation.
3. The modification or extinguishment of the obligation
4. The creation of a new obligation.
Test of Novation – whether they can stand together, each one having
independent existence
5. Generally, binding only between parties, their assigns, and heirs
(Relativity) (1311)
Limitations
> Contracts must not be contrary to law, morals, good customs,
public order, or public policy.
> Determination of performance shall may be left to third person but
should be made known to the parties (1309)
> Contracts take effect only between the parties, their assigns, and
heirs. (1311) Exception: Pour Atrui

Kinds of Navation:
1. Real or objective – when the object or cause or principal
conditions of the obligation are change.
E.g. Classification
Juan obliged himself to deliver to pedro 100 sacks of seven According to perfection or formation
tonner of rice. On a Later date, both agreed that instead of delivering
rice, Juan should deliver instead P100,000.00. The obligation to 1. CONSENSUAL – perfected by mere consent
deliver rice is extinguished. e.g. contract of sale
2. Personal or subjective – when the person of the debtor is 2. REAL – perfected by delivery
substituted and/or when a third person is subrogated in the e.g. depositum, pledge, commudatum
rights of the creditor. 3. FORMAL OR SOLEMN – those with special formalities required.
E.g. E.g. donation of real properties
Substitution of debtor (Expromission/delegacion)
Subrogation of creditor According to Cause
3. Mixed – when the object and/or principal conditions of the 1. ONEROUS – where there is an interchange of equivalent valuable
obligation and the debtor or the creditor, or both parties are consideration.
changed. e.g. contract of sale
E.g. 2. GRATUITOUS – one party receives no equivalent prestation.
Combination e.g. DONATION
3. REMUNERATIVE – one prestation is given for a benefit or
service that had been rendered previously.
contracts
Definition According to importance
- Meeting of the minds between two persons whereby one
binds himself, with respect to the other, to give something or to 1. PRINCIPAL – the contract may stand alon
render some service. 2. ACCESSORY – depends for its existence upon another contract
- In a contract, there must be at least two persons or 3. PREPARATORY – means thru which future transaction or
parties. contracts may be made.
Contract vs. obligation According to participation in preparation
CONTRACTS 1. ORDINARY – prepared based on agreement of both parties
 One of the sources of Obligation 2. CONTRACT OF ADHESION – the preparation of the terms and
 No contract if there is no obligation accepted in return for condition is left to one person
some benefit to be enjoyed.
STAGES OF CONTRACT
OBLIGATION
a) PREPARATION – here the parties are progressing with their
 The legal tie or relation itself that exists after a contract has negotiations; they have not yet arrived at any definite
been entered into. agreement, although there may have been a preliminary offer
 Obligation may exist without a contract. and bargaining.
b) PERFECTION – here the parties have at long last came to a
General Principles definite agreement, the elements of definite subject matter and
1. Contracting parties may establish such stipulations, clauses, terms valid cause have been accepted by mutual consent
and conditions (Freedom to stipulate) as they may deem convenient. c) CONSUMMATION – here the terms of the contract are
(1306) performed, and the contract may be said to have been fully
executed.
2. Perfection by mere consent (Consensuality). (Art. 1159, 1315).
Elements
3. The contract must bind both parties, its validity or compliance ESSENTIAL
cannot be left to the will of one of them. (Obligatory force and A. CONSENT – manifested by the meeting of the offer and
compliance in good faith) (1308) acceptance upon the thing and the cause which are to constitute the
contract.
4. Both parties are Mutually bound (Mutuality) (1308)
 B. OBJECT – Subject matter
C. Cause – the essential reason or purpose which the
contracting parties have in view at the time of entering into a
contract.
Consent
Definition
- The conformity or concurrence of wills and with respect
to contracts, it is the agreement of the will of one (1) contracting
party with that of another or others, upon the object and terms of the
contract.
- Manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer. (1319)
CHARACTERISTICS
1. It is INTELLIGENT – there is capacity to act.
2. It is FREE & VOLUNTARY – there is not vitiation of
consent by reason of violence or intimidation.
3. It is CONSCIOUS OR SPONTANEOUS – there is not
vitiation of consent by reason of mistake, undue influence,
or fraud.
Offer
- a proposal made by one party to another, indicating to
enter into a contract. It is more than an expression of desire or hope.
Requirements:
1. Offer must be certain – liability may be exactly fixed
Will you buy this car for P1m – certain offer
Will you buy me a car – not certain
2. It must be seriously intended – not made in jest or in anger,
or while emotionally upset or in other ways indicating that
the same was not seriously intended.
Acceptance
- The manifestation by the offeree of his assent to all the
terms of the offer. Without acceptance, there can be no meeting of the
minds between the parties.
Requirements:
1. Must be clear
2. Must be absolute
- if acceptance is qualified, it will result as a counter-offer
which must be accepted by the original offeror in order to result a
contract.
Rules on offer & acceptance
1. An acceptance made by a letter or telegram does not bind
the offeror except from the time it came to his knowledge.
(1319)
2. Acceptance may be express or implied. (1320)
3. The person making an offer may fix the time, place, and the
manner of acceptance, all of which must be complied with.
(1321)
4. If the offer is made by an agent, communication of the
acceptance to him binds the principal (1322)
5. An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before
acceptance is conveyed. (1323) – An offer may be revoked
or withdrawn at anytime before it is accepted.
Option contract
- Giving a person for a consideration a certain period within
which to accept the offer of the offerer.
General Rule: MAY BE WITHDRAWN BEFORE ACCEPTANCE
Exception: When the option is founded upon
CONSIDERATION (OPTION MONEY), OR SOMETHING PAID
OR PROMISED.
ILLUSTRATION:
A offered to sell his only car to B for P10,000.00 giving
him to decide within 10 days.
Advertisements
A. BUSINESS ADVERTISEMENTS – not definite offers but
mere invitations to make and offer.
Rule: Not valid offer hence even if accepted, will not
result in a contract.
Exception: If the advertisement is complete in all
particulars.
Illustration: For sale 200 sq. meters House and Lot
B. ADVERTISEMENTS FOR BIDDERS – invitations to make
proposals and the advertiser is not bound to accept the highest
or lowest bidder unless contrary appears.
Voidable contracts
The following will result into a voidable contracts (valid until
annulled):
1. Consent given by disqualified persons:
A. Minors
B. Insane or demented persons, and deaf-mutes who do
not know how to write.
2. When there are vices of consent
Vices of consent
Consent given through:
1. MISTAKE
2. VIOLENCE
3. INTIMIDATION
4. UNDUE INFLUENCE
5. FRAUD
6.
Errors or mistake
- False notion of a thing or a fact material to the contract.
To vitiate CONSENT, mistake must refer:
1. Substance of the thing which is object of the contract
2. Those conditions which have caused parties to the contract.
3. Identity or qualification of one of the parties provided the
same was the principal cause of the contract.
Mistake which does NOT vitiate CONSENT unless it is the essence
of the contract:
1. Errors as to incidents or accidental qualities of a thing.
2. Mistake as to quantity or amount. May give rise to
correction.
3. Errors as regard to motives of the contract.
4. Mistake as regards the identity or qualifications of a party
unless it is the principal cause of the contract.
5. Error which could have been avoided by the party alleging
it.
MISTAKE OF LAW
Rule:
Does not invalidate consent
Exception:
Mistake in doubtful questions of law or on the construction
or application of law
Violence & intimidation
Violence – there is violence when in order to wrest consent, serious
or irresistible force is employed.
requirement: employment of physical force
Intimidation – when one of the contracting parties is compelled by
reasonable and well grounded fear of an imminent and grave evil
upon his person or property or upon the person or property of his
spouse, descendants or ascendants, to give consent.
Undue influence
- influence of a kind that so overpowers the mind of a party
as to prevent him from acting understandingly and voluntarily to do
what he would have done if he had been left to exercise freely his
own judgment and discretion.
requirement: Influence must be undue or improper.
Circumstances to be considered:
1. confidential, family spiritual and other relation between the
parties.
2. Mental weakness
3. Ignorance
4. Financial distress of the person alleged to have been unduly
influenced.
Causal fraud
- employment of insidious words and machinations of one
of the contracting parties, the other is induced to enter into a
contract which without them, he would not have agreed to.
- fraud committed by one party before or at the time of the
celebration of the contract to secure the consent of the other.
REQUISITES
1. There must be misrepresentation or concealment of a material
fact with knowledge of its falsity.
2. It must be serious
3. Must have been employed by one of the parties
4. Made with bad faith or with intent to deceive
5. Must have induced the consent of the other party
6. Must be alleged and proved by clear and convincing evidence.
OBJECT
- The object of the contract is its subject matter. The obligation
created by a contract.
Requisites as a valid object of a contract (Things)
1. Within the commerce of men.
2. It must not be impossible, legally or physically
3. It must be in existence or capable of coming into existence.
4. It must be determinate or determinable without need of a new
contract.
Requisites as a valid object of a contract (Service)
1. Service must be within the commerce of men
2. It must not be impossible, physically or legally
3. It must be determinate or capable of being made derterminate.
CAUSE
- The essential reason or purpose which the contracting parties have
in view at the time of entering into the contract.
Requisites
1. It must exist at the time of the contract is entered
2. It must be lawful
3. It must be true or real
Rules
1. Contracts without cause or with unlawful cause, produce no
effect whatever. (void contracts)
2. Statement of false cause shall render a contract void if it should
not be proved that they were founded upon another cause
which is true and lawful.
EXERCISES
State whether the contract is VALID, VOID OR VOIDABLE
1. A contract of sale where one of the parties is a Minor.
2. An unaccepted unilateral offer to sell a HP laptop with
serial no. 123 for an amount of P5,000.00.
3. Mistake as to the color of the phone purchased.
4. Agreement to sell two kilos of marijuana.
5. Contract to buy the Cagayan de Oro City hall entered into
by private individuals.
6. Sale of Future inheritance.
7. Sale of a Fake Diamond Ring where the seller
misrepresented the to the buyer as to the quality of the
Diamond.
8. Sale of 50 kilos of sugar but only 49 kilos was actually
delivered.
9. Sale of an inexistent thing.
10. Contract of lease where the object is the Marcos Bridge.
REFORMATION OF INSTRUMENTS
- Remedy allowed by law by means of which a written
instrument is amended or rectified so as to express or conform to the
real agreement or intention of the parties when by reason of mistake,
fraud, inequitable conduct or accident, the instrument fails to express
such agreement or intention.
Requisites for Reformation of Instrument
1. There is a meeting of the minds of the parties
2. The written instrument does not express the true agreement or
intention of the parties.
3. The failure to express the true intention is due to mistake,
fraud, inequitable conduct, or accident.
4. The facts upon which relief by way of reformation of the
instrument is sought are put in issue.
5. There is a clear and convincing evidence of the mistake, fraud,
inequitable conduct, or accident.
Grounds:
1. Mistake
A. Mistake on one party
i. The mistake must be in good faith
ii. Mistake of facts
iv. Mistake must be cause the failure of the
instrument.
B. Mutual Mistake
i. Mistake of facts
ii. Must be proved by clear and convincing proof
iii. Mistake must be mutual
iv. Mistake must be cause the failure of the
instrument.
2. Fraud (only the innocent party may ask for reformation)
A. Fraud in Fact
B. Concealment of mistake
 3. Inequitable conduct – any act or omission which is unjust
or unfair. The innocent party may seek for the reformation
of the instrument.
4. Accident – those which prevented a meeting of the minds
of the parties.
When Reformation is not allowed:
1. Simple inter-vivos donation wherein no condition is
imposed.
2. Wills
3. When real agreement is void
4. Estoppel (When one of the parties has brought action
for enforcement of the instrument)
Party entitled for reformation
1. Either of the parties if mistake is mutual
2. In all other cases, the injured parties
3. Heirs, successors in interest, in lieu of the party
entitled.
Interpretation of instruments
- The determination of the meaning of the terms or words
used by the parties in their written contract. The process of
ascertaining the intention of the parties from the written words
contained in the contract.
Rules in interpretation of contracts
1. Literal meaning controls when language is clear – contracts
should be fulfilled according to the literal sense of their
stipulations, if the terms of a contract are clear and
unequivocal.
2. Evident Intention of parties prevails over terms of contract
– applies only when words and clauses are in conflict with
the manifest intention of the parties.
3. Contemporaneous and subsequent acts shall principally be
considered in the determination of intention.
4. Special Intent prevails over general intent.
5. In interpreting stipulations with several meanings, the same
shall be interpreted which is most adequate to render it
effectual.
6. A contract must be interpreted as a whole.
Defective contracts
KINDS OF DEFECTIVE CONTRACTS:
1. Rescissible Contracts
2. Voidable Contracts
3. Unenforceable Contracts
4. Void or inexistent Contracts
Rescissible contracts
Valid because all the essential requisites of a contract exist
but by reason of economic injury or damage to one of the parties or to
third persons, such as creditors, the contract may be rescinded.
Rescission
- a remedy granted by law to the contracting partoes and
sometimes even to third persons in order to secure reparation of
damages caused them by a valid contract, by means of restoration of
things to their condition in which they were prior to the celebration of
said contract.
Requisites
1. The contract must be validly agreed upon
2. There must be lesion or pecuniary prejudice to one of the
parties or to a third person
3. The rescission must be based upon grounds provided by law
4. There must be no other legal remedy to obtain reparation for
the damage
5. The party asking for rescission must be able to return what he
is obliged to restore by reason of the contract
6. The object of the contract must not legally be in possession of
third persons who did not act in bad faith
7. The period for rescission must not have prescribed yet.
RESCISSIBLE CONTRACTS
1. Those which are entered into by guardians in behalf of wards
whom suffer lesion by more than ¼ of the value of the things
which are the object thereof. (Selling a property for less than
its value)
2. Those agreed upon in representation of absentees if the latter
suffer lesion by more than ¼ of the value of the thing which
are the object thereof. Absentee – a person who disappears
from his domicile his whereabouts unknown and without
leaving an agent to administer his properties.
3. Those undertaken in fraud of creditors.
requisites:
A. Existing credit
B. Fraud on the part of debtor
C. the creditor cannot recover his credit
4. Contracts which refers to things under litigation, without
obtaining consent of the litigants or approval from the
court.
5. 5. Payments made in state of insolvency whose fulfillment
the debtor could bot be compelled at the time they were
affected.
Prescriptive Period:
General Rule: Four years from the date the contract was entered
Exceptions: 1. For persons under guardianship, the period shall
begin from termination of incapacity.
2. For absentees, from the time the domicile is
known.
Voidable contracts
- Those which possess all the essential requisites of a valid
contract but one of the parties is incapable of giving consent, or
consent is vitiated by Mistake, violence, intimidation, undue
influence, or fraud.
Nature
- valid and binding between the parties unless annulled by a
proper action in court by the injured party.
Prescriptive period
General Rule:
Annulment shall be brought within four years; the period shall begin:
1. For violence, intimidation and undue influence, from the
time the said vices ceases.
2. In cases of mistake or fraud, from the time of the discovery.
3. In cases of contracts entered into by the minors or
incapacitated persons, the time the guardianship ceases.
Exception: RATIFICATION
Ratification
- means that one voluntarily adopts or approves some
defective or unauthorized act or contract which, without his
subsequent approval or consent, would not be binding on him.
Indicates an intention on the part of the ratifier to be bounded to the
provisions of the contract.
- it cleanses the contract from all its defects from the
moment it was constituted. The contract thus becomes valid. Hence,
the action to annul cannot be valid.
KINDS OF RATIFICATION Defective Contracts compared
1. Express
2. Implied
REQUISITES FOR RATIFICATION
a. There must be knowledge of the reason which renders the
contract voidable
b. Such reason must have ceased
c. The injured party must have executed an act which
necessarily implies or expresses an intention to waive his
right.

Unenforceable contracts
- Those which cannot be enforced or given effect in a court
of law or sued upon by reason of certain defects provided by law
until and unless they are ratified according to law.

Nature
Valid but unenforceable in court unless cured or ratified.

UNENFORCEABLE CONTRACTS
1. those ENTERED INTO IN THE NAME OF ANOTHER
BY ONE WITHOUT, OR ACTING IN EXCESS OF,
AUTHORITY.
2. THOSE THAT DO NOT COMPLY WITH THE STATUTE
OF FRAUDS
3. THOSE WHERE BOTH PARTIES ARE INCAPABLE OF
GIVING CONSENT.

STATUTE OF FRAUDS
A. Agreeement to be performed within one (1) year from the
making thereof.
B. Promise to answer for the debt, default, or miscarriage of
another
C. Agreement in consideration of marriage other than mutual
promise to marry.
D. Agreement for the sale of goods at a price not less than
P500.00
E. Agreement for leasing for a longer period than 1 year
F. Agreement for the sale of real property or of an interest
therein
G. Representation as to the credit of a third person.

Void or inexistent contracts

- Those which because of certain defects, generally
produces no effect at all. They are considered inexistent from the
very beginning.
Nature
Void and produces no effect whatsoever.

VOID CONTRACTS
1. Contracts whose cause, object or purpose is contrary to
law, etc.
2. Contracts which are absolutely simulated or fictitious.
3. Contracts without cause or object
4. Contract whose object is outside the commerce of men.
5. Contracts which contemplates an impossible service.
6. Contracts where the intention of the parties cannot be
ascertained.
7. Contracts expressly prohibited or declared void by law

CHARACTERISTICS
a) Generally, produces no effect whatsoever.
b) Cannot be ratified
c) The action or defense for the declaration of its nullity does
not prescribe
d) Cannot give rise to a valid contract