REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS) ATTY.

BATHAN-LASCO (2021-2022)

OBLIGATIONS 1 SOURCES OF OBLIGATIONS

General Provisions 1
Article 1157. Obligations arise from:
Sources of Obligations 4
(1) Law;
Nature and Effect of Obligations 12 (2) Contracts;
Different Kinds of Obligations 15 (3) Quasi-contracts;
YOUR TRANSCRIPT TEAM 18 (4) Acts or omissions punished by law; and
DEFECTIVE CONTRACTS 19 (5) Quasi-delicts. (1089a)

Rescissible Contracts 19
Voidable Contracts 22
Unenforceable Contracts 25
Void Contracts 28
OBLIGATIONS
GENERAL PROVISIONS
Article 1156. An obligation is a juridical necessity to give,
to do or not to do. (n)
Requisites
1. Juridical or legal tie – It is the tie which binds
the parties to an obligation. This refers to the
sources of obligations in Art. 1157.
2. Active subject – It is the creditor or obligee; the
party who can demand from the other party
fulfillment of the obligation
3. Passive subject – It is the debtor or obligor; the
person who should perform the obligation
4. Prestation – It is the giving of something, the
doing of something or the not doing of something
Example: Allan promises to deliver a particular parcel of
land to Ben.
• Juridical tie – Allan’s promise to deliver
• Active subject – Ben, because he is the one who can
demand the fulfillment of the promise, which is the
giving of a particular parcel of land
• Passive subject – Allan, because he is the one called
upon to fulfill the obligation to deliver a parcel of land
• Prestation – The giving of the particular parcel of land
Is subject matter or cause of action the same as an
obligation?
No, they are not the same. Obligation is the juridical
necessity to give, to do or not to do. Subject matter refers
to the item which is the source of the controversy. A cause
of action is the act or omission that is in violation of the
legal right of another.
Example: In a Contract of Sale, A promised to sell a car
to B for Php 800,000 on August 30, 2021.
The subject matter is the Contract of Sale. If A does not
push through with selling the car, he violates the contract.
A’s breach of contract will constitute as the cause of
action. The obligation of A to sell the car and the obligation
of B to buy the car.
1. Law (Art. 1158, NCC)
Example:
• Obligation to give support
• Obligation of husband and wife to support each other
2. Contracts (Art. 1159, NCC)
Example: When you enter in a contract of sale, there is an
obligation on the part of the seller to sell, and an obligation
on the part of the buyer to buy or to pay for the item that
is the object of the contract of sale
3. Quasi-Contracts
Two types
a. Undue payment
Payment made is not yet due, so there’s an
obligation of the receiver to return the payment.
b. Unauthorized management
Example: Your house caught on fire while you
were in abroad, so your neighbors tried to save
your belongings. You didn’t tell your neighbor to
do that, but by virtue of a quasi-contract, you are
bound to give payment to your neighbor for
saving your belongings.
4. Acts and omissions punishable by law (Delicts)
When you commit a crime, it brings about two obligations:
• Civil liability
• Criminal liability
Example: If you steal something, you are criminally liable
for theft. You are civilly liable, and you may be obliged to
return the stolen item.
5. Quasi-delict (Art. 2176, NCC)
Negligence of the part of one causing damage to another.
There is no contractual relation but by your act or
omission, you have caused damage to another. There is
now an obligation on your part to pay damages.
TN: The sources of obligations enumerated in the NCC
are exclusive.

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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
CONTRACTS HAVE THE FORCE OF LAW
(1) Contracts have the force of law between
contracting parties means that the party to a contract
must abide with the provisions of the contract and must
comply with it in good faith.
If one of the parties does not comply with the terms of the
contract, the other party will have the remedy by filing a
case against the non-conforming party for breach of
contract.
(2) The contract must not be contrary to law, morals,
good customs, public order, or public policy.
Example: A contract between X and Y wherein X will sell
drugs to Y is prohibited. Such contract is void since it is
against the law.
While there is a freedom to contract, the limitation is that
it must not be contrary to law, etc.
(3) Contract is binding and obligatory between the
parties. There is an obligation to follow the terms of the
contract.
The law is not inferior to contracts. In fact, the contract
must not be contrary to law to be binding between the
parties.
This only refers to the obligatory nature of the contract.
This only stresses that once you make an agreement
between another person, you are obliged to comply to
whatever terms you have agreed with them.
QUASI-CONTRACTS
Juridical relations arising from lawful, voluntary and
unilateral acts by virtue of which the parties become
bound to each other.
Principle: No one must be unjustly enriched at the
expense of another.
Two kinds of quasi-contracts
1. Negotiorium gestio (unauthorized management)
When one person takes charge of the business or
property of another, without authority.
The owner of the property benefits from this even though
such management was without authority. The owner
who benefited from the unauthorized management must
compensate the other.
Example: Your house caught on fire while you were in
abroad, so your neighbors tried to save your belongings.
You didn’t tell your neighbor to do that, but by virtue of a
quasi-contract, you are bound to give payment to your
neighbor for saving your belongings.
The law creates a juridical relation between you and your
neighbor, where you, as the house owner, have to
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compensate the neighbor for whatever he might have
spent in saving your belongings because you benefited
from his lawful, voluntary and unilateral act of saving your
belongings while your house was on fire.
2. Solutio indebiti (undue payment)
Juridical relation which arises when one person unduly
delivers a thing by mistake to another, who has no right to
demand it. Why? There is no pre-existing contract.
Example: Instead of paying B, A gave the money to C.
This creates an obligation on the part of C, who has no
right to demand it, to return it to A.
A and C do not have a pre-existing contract, unlike A
and B. But A, through mistake, paid C. Having received
the payment by mistake, C must return the same to A.
Two conditions
a. A payment is made when there exists no binding
relation between the payor who has no duty to
pay, and the person who received the payment,
and
b. The payment is made through mistake, and not
through liberality or some other cause.
BPI vs. Sarmiento
GR NO. 146021, March 10, 2006
Both elements [of solution indebiti] are lacking in the
present case. Mr. Cascarro, the Head of the Branches
Division Investigation Unit, had categorically stated that
respondent was only terminated from service on August
26, 1988. Respondent was not suspended from office.
Consequently, during the period in question, there still
existed an employer-employee relationship between
petitioner and respondent which entitled respondent to
the payment of her salary during the said period. Thus,
there can be no mistaken payment in this case. Moreover,
it has been shown that the payment of respondent's salary
was with the knowledge and approval of respondent's
immediate superior officers. Hence, the principle of solutio
indebiti finds no application in this case.
Sarmiento’s supervisor told him not to go to work during
the period of his suspension. The SC said that it was
because of this reason sparingly went to work. That
measns that during the time of investigation and he was
given his salary, the salary was not paid by mistake, but
due to a contractual relation – employer-employee
relationship.
It is important to look into the circumstances to check if
the conditions are present or not.
No pre-existing contract between the parties
If there is one, the source of the obligation is the contract
itself, not quasi-contract.
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS) ATTY. BATHAN-LASCO (2021-2022)

CLASSIFICATION OF OBLIGATIONS

As to sanction:
• Civil obligation
• Natural obligation
• Moral obligation

As to subject matter:
• Real obligation – obligation to give something
• Personal obligation – obligation to do or not to
do

As to affirmativeness:
• Positive obligation – obligation to give or to do
• Negative obligation – obligation not to give or
not to do

As to persons obliged:
• Unilateral – one of the parties is bound
• Bilateral – both parties are bound

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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
NATURE AND EFFECTS OF OBLIGATION
Article 1163. Every person obliged to give something is
also obliged to take care of it with the proper diligence of
a good father of a family, unless the law or the stipulation
of the parties requires another standard of care. (1094a)
Standard of Care
General Rule: Art. 1163 only applies to real obligations
involving specific things. Such must be taken care of with
the proper diligence of a good father of the family
(ordinary diligence)
Standard of care: Ordinary diligence
Two kinds of things
• Specific – a thing that is segregated from a class;
it must be a particular thing
Examples:
o Mitsubishi car with plate no. 123456
clearly segregate from a class of
Mitsubishi car
o His only parcel of land in Cebu City
• Generic – a class or genus which cannot be
pointed out with particularity
Examples:
o Mitsubishi car
o A parcel of land in Cebu City
TN: Art. 1163 only applies to real obligations involving
specific things
Exception: When the stipulation of the parties requires
another standard of care.
Exception to the exception: The parties cannot agree to
a standard of care if there is a law that requires a
particular standard of care.
Example: Common carrier – extraordinary diligence
No yardstick in determining Ordinary Diligence
It depends on several factors –
• Nature of the obligation
• Circumstances of the person
• Circumstances of the time
• Circumstances of the place
Example: The diligence required in driving a car depends
on whether you are driving in the morning or evening, or
in a winding road or straight road.
Test
Would a prudent man in his position foresee harm to the
person injured as a reasonable consequence of the
course about to be pursued?
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REAL RIGHT VS. PERSONAL RIGHT
Article 1164. The creditor has a right to the fruits of the
thing from the time the obligation to deliver it arises.
However, he shall acquire no real right over it until the
same has been delivered to him. (1095)
Two concepts
1. Real right – right pertaining to a person over a
specific thing without a passive subject; right of a
person against the whole world
2. Personal right – right to demand against a
definite passive subject the fulfillment of the
obligation; when the oblige demand from the
obligor the fulfillment of the obligation
• From the time of the promises from the arrival of
the period – No right
• Arrival of period – Personal right; creditor can now
compel the delivery of the thing
• After delivery of thing – Real right; Right to the fruits
of the thing
• No period? Obligation to deliver arises right away;
demandable at once
TN: From the time the promises to deliver was made,
there is already a personal right. On the other hand, real
right is acquired only upon delivery.
Two kinds of delivery
1. Actual delivery – actual changing of hands
2. Constructive delivery
• Tradition simbolica (symbol)– when you
buy a house and the key of the house is given
to you
• Tradition longa manu (mere consent) – the
object is pointed to you
• Tradition brevi manu (tradition by the short
hand) – illustrated in a situation where the
person is occupying the property as a lessee
or tenant. Such property is bought by the
tenant from the lessor. His possession is thus
changed from a lessee to an owner (lessee
à owner)
• Tradition constitutum possesorium –
opposite of brevi manu. Selling your own
property to another but after the sale you
enter into a contract with the owner for you to
occupy the property as a lessee (owner à
lessee)
• Tradition by the execution of legal forms
and solemnities – when you buy a parcel of
land, you don’t have to be physically placed
on the land. The documents will be
considered as a delivery
San Lorenzo Development vs. CA
G.R. No. 12424, January 21, 2005
On delivery
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
Explicitly, the law provides that the ownership of the thing
sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Article
1497 to 1501. The word "delivered" should not be taken
restrictively to mean transfer of actual physical
possession of the property. The law recognizes two
principal modes of delivery, to wit: (1) actual delivery; and
(2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in the
control and possession of the vendee. Legal or
constructive delivery, on the other hand, may be had
through any of the following ways: the execution of a
public instrument evidencing the sale; symbolical tradition
such as the delivery of the keys of the place where the
movable sold is being kept; traditio longa manu or by
mere consent or agreement if the movable sold cannot
yet be transferred to the possession of the buyer at the
time of the sale; traditio brevi manu if the buyer already
had possession of the object even before the sale; and
traditio constitutum possessorium, where the seller
remains in possession of the property in a different
capacity.
On contract of sale vs. contract to sell
The distinction between a contract to sell and a contract
of sale is quite germane. In a contract of sale, title passes
to the vendee upon the delivery of the thing sold; whereas
in a contract to sell, by agreement the ownership is
reserved in the vendor and is not to pass until the full
payment of the price. In a contract of sale, the vendor has
lost and cannot recover ownership until and unless the
contract is resolved or rescinded; whereas in a contract to
sell, title is retained by the vendor until the full payment of
the price, such payment being a positive suspensive
condition and failure of which is not a breach but an event
that prevents the obligation of the vendor to convey title
from becoming effective.
Article 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the right
granted him by article 1170, may compel the debtor to
make the delivery.
If the thing is indeterminate or generic, he may ask that
the obligation be complied with at the expense of the
debtor.
If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event
until he has effected the delivery. (1096)
REMEDIES OF CREDITOR
Here, the debtor fails to comply with a real obligation.
Two types of real obligation
• Generic real obligation
• Specific real obligation
Specific real obligation
1. Demand specific performance + damages
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2. Legal compulsion - Extrajudidicial demand or file
a case in court
3. Demand rescission or cancellation + damages
4. Damages, if this is the only feasible remedy
Generic real obligation
1. Ask for performance
2. Ask for the obligation to be complied with at the
expense of another person
3. Recover damages for breach
FORTUITOUS EVENTS
Fortuitous events are those events which cannot be
foreseen, or if foreseen, is inevitable.
Examples:
• Cannot be foreseen – earthquake
• If foreseen, inevitable – typhoon
(1) Effects on specific real obligation - The obligation
is extinguished.
(2) Effects on generic real obligation - Genus never
perishes. The obligation subsists despite fortuitous event.
TN: The general rule is that a fortuitous event
extinguishes an obligation, except when the obligor
delays or is guilty of bad faith.
Article 1166. The obligation to give a determinate thing
includes that of delivering all its accessions and
accessories, even though they may not have been
mentioned. (1097a)
Example: Even if the agreement stated in the contract
was only for the delivery of a specific car, it is already
implied that the delivery of the car keys is also included.
Rita Caleon vs. Agus Development Corp. & CA
GR. No. 77365, April 7, 1992
This issue has already been laid to rest in the case of
Duellome v. Gotico (7 SCRA 841 [1963]) where this Court
ruled that the lease of a building naturally includes the
lease of the lot, and the rentals of the building includes
those of the lot.
(A) ACCESSORY FOLLOWS THE PRINCIPAL
Civil Law Principle: The Accessory will always follow
the Principal
QUESTION: If you sell your car, are you obliged to
deliver the tools of that car?
If you sell a parcel of land that you own, and there is
a structure, or perhaps a house in that parcel of land,
is the house or that small structure on that of parcel
of land, is that included in the sale?
These questions can be answered by Article 1166 of the
Civil Code,
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
Art. 1166. The obligation to give a determinate thing
includes that of delivering all its accessions and
accessories, even though they may not have been
mentioned.
What does this mean?
This means that if that if in the contract of sale where you
agreed to sell your car, even if there is no mention at all
that you should include the tools of your car, it is your
obligation to deliver the tools together with the car.
In the same manner, if you executed a contract of sale
over your parcel of land, you also have to deliver whatever
structure there is standing on that parcel of land.
This means that even if it is not stated in the contract of
sale, it would mean that whatever price you put in that
contract of sale, it already includes the structures on that
parcel of land.
QUESTION: When you buy a parcel of land, and then
you take possession of that parcel of land and then
you find out that there is in fact a structure on that
land and it was not mentioned in the contract of sale,
is the seller obliged to turn over the possession to
you of that structure? Let’s say a barn house or a
small house on that parcel of land, is that included in
the sale?
The answer is yes by virtue of Art 1166. Unless of course
in that contract of sale, it specifically makes an exception
on whatever structure that may be found on the land. But
if there is nothing there which excepts any structure, it
does not make any mention of any structure in that parcel
of land, then by virtue of Art 1166 and the principle that
the accessories will follow the principal, then the seller is
obliged to deliver that as well.
(B) CONTRACT TO SELL VS CONTRACT OF
SALE
Many of you perhaps purchased a condominium unit or a
parcel of land or a housing unit in a subdivision. When you
try to inquire from the seller or from the developer, you
would then be asked during the initial stages of the
purchase to sign a contract to sell and you’re also asked
to make a partial or a down payment.
Now is this contract to sell, this document that you
signed, is this the same as a contract of sale?
The answer is no. These two are not the same.
What then is a contract to sell?
A contract to sell is an agreement between you, the buyer,
and the seller that the ownership of the property will be
reserved still by the seller up until full payment of the price.
In other words, even if you already paid partial payment,
the property will still belong to the seller.
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In a contract to sell, the ownership of the property, be it a
condominium unit, a parcel of land, or a housing unit, will
still remain with the seller until you, the buyer, will have
already paid the purchase price.
How about a contract of sale?
A contract of sale is an agreement between the buyer and
the seller that the seller will transfer ownership over the
property being purchased by the buyer and the buyer will
also pay the price.
In other words, when the buyer and the seller will now sign
the agreement, and when they agreed to the contract of
sale, at that moment when their minds met, there is
already transfer of ownership.
That is the basic difference between the contract to sell
and the contract of sale.
Again, in a contract to sell, there is no transfer of
ownership yet to the buyer until full payment of the
purchase price. In a contract of sale, from the moment
that they agreed on the contract of sale or from the
moment that both parties signed the contract of sale,
there is transfer of ownership.
Now, what if what was signed was a contract of sale,
but there is no full payment of the purchase price yet,
is there a transfer of ownership?
As a general rule, yes. So long as in that document that
you signed, the contract of sale does not reserve
ownership in favor of the seller until full payment, then
from the moment you signed the contract of sale, it now
transfers ownership. Meaning the property that you
bought is now transferred to you.
What is the implication?
If this is a parcel of land or a parcel of land with a house
or a condominium unit, the implication then is that you can
already transfer the name of the title in your favor.
Of course this means that you will still have to pay the
appropriate taxes for the sale, then you go to the Register
of Deeds to have the title registered in your favor.
Of course that does not mean that you will no longer pay
the remaining balance. If there is a separate
Memorandum of Agreement for the payment of the
balance, then you are bound by such agreement.
That is the difference between a contract to sell and a
contract of sale.
(C) ARTICLE 1167-1168
There are two types of personal obligations:
1. Positive personal obligations or obligations to do
2. Negative personal obligations or obligations not
to do
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What are the remedies of the obligee if the obligor will
not comply with what they have agreed on?
Supposing A and B agreed that A will pay B to sing at
his party. B did not show up. What are the remedies
of A against B?
That is a positive personal obligation, the obligation of B
to sing at the party, an obligation to do. Where do we see
the remedies in the Civil Code?
It’s in Article 1167.
Art. 1167. If a person obliged to do something fails to
do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been
poorly done be undone.
When you read Art 1167, it does not give you a remedy
by the obligee to compel the obligor to do what he
promised to do. There is no remedy of specific
performance, unlike your specific real obligations. Even in
generic real obligations where you can compel
performance, although not specific performance.
How come in personal obligations, there is no
remedy on the part of the obligee to compel the
obligor to do?
The reason for that is because there is a constitutional
prohibition on involuntary servitude. You should not be
forced to do something or to render service if you do not
want to render the service.
You might say, but you agreed to it. You agreed to do
something but you did not do it. But then again, there
other remedies which will not violate the constitution. In
1167, you may ask somebody else, but it will be paid by
the obligor.
In the example, B does not wish to abide by his contract.
He did not show up. You can actually hire somebody else
to sing at your party and it will be executed at the cost of
B. So B will be the one to pay, but you cannot force B to
be the one singing at the party because of the
constitutional prohibition against involuntary servitude.
Another remedy under 1167 is that even if he does it but
not in the terms agreed upon. For example, you hired
someone to paint your house and you agreed to paint
the house red, but instead of painting the house red,
he painted it pink. What is your remedy?
Your remedy is you can ask somebody else to do the
painting of your house red but at the expense of the
original obligor. Because again, you cannot compel him
to do it. But of course, if he agrees to do it, then that’s not
a problem. This remedy will come in of course if the
obligor refuses to do it because you cannot compel him,
but you can ask someone else to do it at his expense.
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If it is poorly done, it can also be undone, can you
legally compel him to undo it?
Again, there is no legal compulsion there. Again you can
hire somebody else to undo what was poorly done.
How about in obligations not to do or negative
personal obligations, what is your remedy? Your
agreement was for the obligor not to do something but he
does it anyway.
The remedy is 1168.
Art. 1168. When the obligation consists in not doing,
and the obligor does what has been forbidden him, it
shall also be undone at his expense.
Again, there is no remedy for you to be able to compel
him to undo it because of the constitutional prohibition
against involuntary servitude, but you can hire someone
else to undo it, but the obligor will be the one to pay it,
because the law says it shall be undone at his expense.
(D) ARTICLES 1169-1170
Delay or Mora
Art. 1169. Those obliged to deliver or to do something
incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of
their obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly so
declare; or
(2) When from the nature and the circumstances
of the obligation it appears that the designation
of the time when the thing is to be delivered or
the service is to be rendered was a controlling
motive for the establishment of the contract; or
(3) When demand would be useless, as when the
obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in
a proper manner with what is incumbent upon him.
From the moment one of the parties fulfills his
obligation, delay by the other begins.
Delay will come in only when there is judicial or
extrajudicial demand. Article 1169 also tells you that there
is an ordinary delay or legal delay.
When you say ordinary delay, that means that there is
already a lapse of the agreed time but there is no legal
delay yet that would entitle the obligee to claim damages.
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
But when you are talking about legal delay where the
obligee can already ask for damages, there must be a
judicial or extra judicial demand.
General Rule: If there is no demand, there is no delay.
However, there are exceptions, which you could also find
under Art 1169.
1. The obligation or the law expressly so declare
Example: The parties agree that there is no need for a
demand to incur legal delay. Its already put in the contract
that the parties need not make a judicial or extrajudicial
demand.
Like your taxes, the tax code tells you already when you
should pay the taxes, and for you to be liable for legal
delay, meaning you will be paying penalties or interests,
the BIR need not make a demand upon you because the
law expressly so declares.
2. Time is of the essence, so no need to make a demand.
Example: You ordered a wedding cake, you already gave
the date to the supplier. The supplier cannot say that he
is not in delay if he fails to deliver on that date. He cannot
say “I am not in delay because you did not call me up to
remind me, you did not make a demand upon me.” No,
because time is of the essence.
3. Demand is useless, as when the obligor has rendered
it beyond his power to perform.
Example: A promised to deliver a specific car to B on Oct
20, 2021. Prior to Oct 20, 2021, A intentionally destroyed
his car. Is a demand still needed to consider the
obligor, or A in this case, to have incurred delay on
Oct 20, 2021?
No, because demand would be useless already. The
obligor, A, already rendered it beyond his power to
perform. He already destroyed it intentionally, so how will
he be able to deliver the car on that date? So demand
would be useless.
When do you determine delay in reciprocal
obligations? Reciprocal ,meaning both parties have an
obligation to a contract, like a contract of sale, where the
seller is obliged to deliver the thing being sold while the
buyer is obliged to deliver payment. When do you
consider either parties in delay?
If the seller already delivers, and then the buyer does not
pay, the buyer already incurs delay. Except of course if
there is an agreement by the parties as to when the
payment must be delivered.
But as a general rule, if one of the parties is ready to fulfill
and he does fulfill, while the other does not, then the one
who fails to fulfill his obligation in that reciprocal obligation
is considered in legal delay.
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If he is considered in legal delay then the aggrieved party
can ask for damages.
What are the three kinds of delay?
1. Mora Solvendi – delay on the part of the debtor to fulfill
his obligation
2. Mora Accependi – delay on the party of the obligee to
accept the performance of the obligation
3. Compensatio Morae – where there is delay on both
parties in reciprocal obligations.
We have been talking about legal delay as a cause to ask
for damages. Is there any ground to ask for damages?
Yes, under Art. 1170.
Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor
thereof, are liable for damages.
So it’s not only delay that may be a cause for you to ask
for damages. You could also ask for damages if there is
fraud, negligence or violation of the terms of the
obligation.
There are several kinds of damages (MENTAL):
• Moral Damages – you can ask for this if you can
prove that you have suffered anxieties, sleepless
nights, besmirched reputation, etc. This must be
proved and not merely alleged
• Exemplary – asking for such to correct a wrong or
to set an example
• Nominal – damages that you ask for to vindicate
a right where there is no other type of damage
that can be awarded to you
• Temperate – asked of when the exact amount of
damages cannot be determined
• Actual – when there is actual loss, like loss of
profits, but you have to prove such loss
• Liquidated – when in your contract, you already
have a predetermined amount, an amount that
must paid in case of breach of the agreement.
(E) GROUNDS FOR DAMAGES (0-4)
What do you mean by Damages?
When you go over the Civil Code, you do not actually see
there a definition of damages. What you do see is an
enumeration of the different types of damages. But of
course we have to know first what damages are, what is
the definition of damages?
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The Supreme Court defined damages:
MEA Builders Inc vs CA
GR 121484, Jan 31, 2005
In legal contemplation, the term "damages" is the sum
of money which the law awards or imposes as a
pecuniary compensation, a recompense, or
satisfaction for an injury done or a wrong sustained as
a consequence either of a breach of a contractual
obligation or a tortious act.
In simple terms therefore, “damages” is the amount of
money that is being awarded to another person because
he suffered an injury or because there was a wrong done
to him by another person.
What is this wrong done?
It could be because of a contractual obligation or an act
he has done that caused damage to that other person.
FORTUITOUS EVENT
Art. 1174. Except in cases expressly specified by the
law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the
assumption of risk, no person shall be responsible for
those events which, could not be foreseen, or which,
though foreseen, were inevitable.
due to a typhoon. Nothing was saved. It got totally
destroyed prior to the 6 months agreed upon. Are you
liable for damages to your friend? Are you still liable
to deliver that house?
Not anymore. Because the loss of the house was due to
a fortuitous event and you cannot be made liable for a
fortuitous event.
Remember however that you cannot be held liable for
fortuitous events will only apply if the contract or your
obligation covers specific things.
Meaning, that thing that you have promised to deliver
have already been segregated from a class. Like a
particular house. Like a particular car. A Mitsubishi car
with plate number XYZ 123.
This principle that you are not liable for a fortuitous event
is not applicable if we are talking about a generic thing.
Like money.
So you cannot say that I am not liable to pay you because
I got robbed. While getting robbed may be considered a
fortuitous event, you cannot use this principle on “not
being liable for fortuitous event” because the thing that
you have promised to deliver is a generic thing and it can
be replaced.
This principle is only applicable to specific things, like in
our previous example on a particular house that is being
promised to be sold or delivered but not for generic things.

Specific Generic
What are fortuitous events?
These are events that cannot be foreseen, or which Already segregated from Not segregated from a
though foreseen, are inevitable. a class, that is the only class
one and you have agreed
to deliver that particular You cannot exempt
Examples: thing yourself from liability by
-A typhoon.
saying that it was loss
You can foresee it because of technology but it is If that thing is lost and the due to a fortuitous thing.
inevitable. cause is a fortuitous
Foreseeable BUT inevitable or unavoidable. event, then you are no Genus nunquam perit
longer liable to fulfill that
obligation because you Genus never perishes.
-Another example is an earthquake. We don’t have the
technology to foresee an earthquake days ahead yet. can no longer fulfill it it
being lost already due to
a fortuitous event
-Pandemic
Were we able to foresee this? NO. Never did it cross our
minds that we would be in a pandemic so this is a Other exemptions to the principle that you cannot be
fortuitous event. liable for fortuitous events

What is the effect of a fortuitous event on an a. When LAW SO DECLARES

obligation or contract? b. The Civil Code said that you are still liable even if
the loss is due to a fortuitous event if there is
already LEGAL DELAY.
Art. 1174 says that no person shall be responsible for c. When there is BAD FAITH.
fortuitous events which could not be foreseen or though d. When it is EXPRESSLY DECLARED BY
foreseen are inevitable. STIPULATION OR BY CONTRACT (Agreed
In other words, you are not liable for fortuitous events. upon by parties that obligation still subsists even
if there is fortuitous event, because you are free
Example: to stipulate in the contract so long as it is not
against the law, morals, customs, public order, or
You entered into a contract with your friend that you will public policy)
sell your house 6 months from now and you put that into e. Obligation requires the ASSUMPTION OF RISK
writing that you will sell and deliver the house 6 months (Example: carrying dangerous stuff)
from now. Unfortunately your house got totally wrecked
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
The obligor is still liable for damages in these instances.
REMEDIES OF THE CREDITOR
Art. 1177. The creditors, after having pursued the
property in possession of the debtor to satisfy their
claims, may exercise all the rights and bring all the
actions of the latter for the same purpose, save those
which are inherent in his person; they may also
impugn the acts which the debtor may have done to
defraud them.
Right of Creditors
(1) Exact fulfillment/Payment
(2) Pursue Leviable Properties (by attachment)
(3) Accion subrogatoria (Subrogatory Action)
-exercise all rights and actions except those
inherent in the person
(4) Accion Pauliana
-impugn the acts
Supposing you are a creditor and you have a debtor who
promised to pay you his debt but he fails to pay such
debt, or you have a debtor who promised to deliver to
you but this debtor failed to deliver to you the thing that
he promised.
What then are your remedies?
When you look into Art. 1177, it will tell you that creditor
has in fact 4 remedies.
1. Exact Fulfillment
This means that creditor can give out a demand letter to
the debtor demanding him to pay. If still the debtor will not
heed to the demand of the creditor, then he can file a case
in court for specific performance (if delivery of specific
thing), or for collection of sum of money if he is to collect
owing to him.
If after availing of the first remedy, still your debtor will not
pay. The 2nd remedy is to pursue the leviable properties
of the debtor.
2. Pursue Leviable Properties
This means that creditor can now attach all leviable
properties, but only those enough to answer the debt
owing to him.
What if debtor has no properties that you can attach?
Does it mean that you cannot collect anymore?
No. What you will do now is to look WON the debtor may
have any other asset perhaps in the form of receivables.
This is when the debtor might be expecting payment from
somebody else. Perhaps your debtor might be a creditor
to somebody else.
This will help the creditor because the 3rd remedy is for
you to subrogate the debtor in his rights or what we also
call accion subrogatoria or subrogatory action.
3. Accion subrogatoria
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In availing of accion subrogatoria, that means that you as
a creditor will look into WON the debtor has owing
receivables in his favor. If you find out that your debtor
also has a debtor, then you can take the place of the
debtor.
Instead of the debtor collecting from his debtor, now you
collect from that debtor so that whatever may be owing to
him can now be applied to the debt owing to you.
This is accion subrogatoria.
What if you really looked into WON debtor has any
receivable but there is none, does that mean that you
no longer have any remedy to collect?
No. There is still another remedy. Accion pauliana
4. Accion pauliana (Action for rescission)
Your action for rescission means that you are now asking
the court to cancel contracts entered into by the debtor
with third persons.
Example:
Your debtor has recently entered into a contract of sale.
Or recently donated a property.
So you have already tried exact fulfillment but you could
not do so. He has no money and he has no properties nor
any receivables that could let you avail of accion
subrogatoria, but you learned that he sold something or
has donated something.
Can that be cancelled through accion pauliana?
Yes. If you can prove that the donation was made to
DEFRAUD CREDITORS so that he will not be able to pay
his debt to you.
That is when you can ask the court to rescind the
donation. So the property donated by the debtor will be
returned to him and it will be applied to the payment of the
debt owing to you.
NOTE: When you avail of the remedy of rescission or
accion pauliana, you can only resort to this ONLY if you
have availed of the first three remedies.
An action for rescission is a SUBSIDIARY REMEDY.
You cannot just simply ask the court to cancel the
contracts entered into by the debtor with a third person
simply. You cannot just simply ask the court to rescind or
to cancel the contract entered into.
You have to prove that you have availed of all
remedies before you resort to rescission. And that
such contract was entered into by the debtor to
defraud you, and it has now affected your rights.
Remedies are CUMULATIVE.
In other words, you avail of the first remedy and then the
second, and then the third before you can move on to the
4th remedy. The action for rescission is a subsidiary
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS) ATTY. BATHAN-LASCO (2021-2022)

remedy. It cannot be availed if you cannot prove to the General Rule: Rights are transmissible.
court that you have already exhausted all the remedies.
Exceptions:
Adorable v. CA 1. When by its nature, the right is not
GR No. 119466 transmissible – PURELY PERSONAL RIGHT
Ex. Right to vote
2. Parties agree that the right will not be
Petitioner here was asking the court to cancel a transmissible.
contract of sale that was entered into by his debtor with 3. When the law declares that it is not
a third person. SC here said that you cannot ask for transmissible.
rescission of the contract of sale because he did not
even exhaust all the remedies yet. There was no
showing that he attached properties of the debtor. In
this case, it was shown that debtor indeed has
properties. There was also no showing that he tried to
subrogate the debtor in his rights. So SC said that you
cannot just jump and avail of the 4th remedy. You have
to go through all the remedies first before you can ask
the court to rescind or cancel contracts entered into by
the debtor with 3rd persons.

TRANSMISSIBILITY OF RIGHTS

Art. 1178. Subject to the laws, all rights acquired in

virtue of an obligation are transmissible, if there has
been no stipulation to the contrary.

Will you inherit the debt of your parents after their

death? Or can you collect the debt owed to your
parents after their death?
YES. Because of Art. 1178.

General Rule All rights arising from an obligation are

transmissible.
Example. If X and Y are parents of A. X and Y has a
debt with a bank.
A, the child of X and Y, inherits the debt of the latter after
their death.
In the same manner, the bank can still collect from A.

Is there a limitation to inheriting debts?

Yes. The limitation is the extent of the value of the
properties that you inherited.

In other words, if X and Y is indebted to the bank for 10M.

But their properties they have left after their death is only
8M. Then A is only liable to the extent of 8M.

Now let us look at on the side of the creditor.

If the creditor dies and is survived by an heir, can the

heir collect the debt?
Yes.

Example.

X is a creditor of Y. X is survived by A.

Can A still collect from Y? Yes. Rights are transmissible.

Art. 1178 says that rights that are derived from an
obligation are transmissible. So A can still collect from Y.

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DIFFERENT KINDS OF OBLIGATIONS
PURE AND CONDITIONAL OBLIGATIONS
What is a pure obligation?
A pure obligation is an obligation whose fulfilment is not
dependent upon a future and uncertain event and a past
event unknown to the parties. This means that the
obligation is demandable at once.
Article 1179. Every obligation whose performance
does not depend upon a future or uncertain event, or
upon a past event unknown to the parties, is
demandable at once.
Every obligation which contains a resolutory condition
shall also be demandable, without prejudice to the
effects of the happening of the event.
Example:
“I will pay you 500,00 pesos.”
The promise to pay P500,000 is not dependent on a
condition on a future event. It does not depend on
something from happening for me to pay you P500,000.
A pure obligation, therefore, is characterized by its
immediate demandability. In other words, the person
whom you have promised to the 500,000 can immediately
demand from you the payment. He can immediately
compel you to pay without waiting for anything else to
happen; without waiting for an arrival of a certain period.
Because it is immediately demandable.
In conditional obligations on the other hand, the effectivity
of the obligation is dependent upon the happening or non-
happening of a future and uncertain event. Both requisites
must be present. That the event is a future event and
second is that the event is uncertain.
How about if the obligation says, “I will give you P5,000 if
your pet dog dies.” Is that a condition? Is that a future and
uncertain event? The answer is no. That is a future event,
but death is certain. So, that cannot be considered a
condition. And that example is not considered a
conditional obligation. Both two characteristics of it being
future and uncertain event for it to qualify as a condition
will make up a conditional obligation.
QUESTION: If the obligation is dependent on a future
and certain event, what is that obligation called?
It is now called an obligation with a period, not a
conditional obligation.
Article 1181. In conditional obligations, the acquisition
of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of
the event which constitutes the condition.
1181 basically tells you that the acquisition of right by
virtue of the obligation, or the extinguishment of the rights
already acquired also by virtue of an obligation, is
dependant upon the happening of a future and uncertain
event. What is this future and certain event? That is the
condition. This is why we call this obligation a conditional
obligation.
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2 Examples:
First Example (happening of the condition will give
rise to the obligation):
“I will give you P500,000.00 if you pass the bar
examinations.”
This is an example of a condition, the happening of which,
will give rise to an obligation. We call this condition a
suspensive condition.
QUESTION: Why is this called a suspensive
condition?
Because it will hold in suspense the obligation until the
happening of the condition.
In the example, I make the promise to give P500,000
today. My obligation has not arisen yet. Why? Because
the future event, the passing of the bar examinations, has
not come yet. It is a condition because it is a future event
and an uncertain event. And it is suspensive because it
holds in suspense, momentarily up until the happening of
the condition, my obligation to give P500,000.00.
Second Example (happening of the condition will
extinguish, or give stop, to the obligation):
“I will give you a P20,000.00 monthly allowance until you
pass the 2022 Bar Examinations.”
The condition is still passing the bar exams in 2022, still a
future and uncertain event. This time, however, the
happening of the event will extinguish my obligation. Why
do we say the happening of the future and uncertain event
will extinguish the obligation?
My example actually means that my obligation is
demandable at once. There is that obligation already to
give the P20,000 monthly allowance. The happening of
the future and uncertain event, the passing of 2022 bar
exams, will extinguish my obligation. This means then that
the condition that you passed the bar exams in 2022, it is
still a condition (future and uncertain) but this is now a
resolutory condition.
A resolutory condition is one the happening of which will
extinguish the obligation. As supposed to a suspensive
condition, the happening of which will give rise to the
obligation.
Again, the difference between a pure and conditional
obligation, in conditional, the extinguishment or effectivity
of the obligation is dependent upon a future and uncertain
event. While pure obligation is demandable at once and
not dependent upon any condition.
OBLIGATIONS WITH A PERIOD
What is a period?
A period is a future and certain event. As supposed to a
condition which is a future and uncertain event. Your
period, however, is a future and certain event.
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
In obligations with a period, it is the arrival of this future
and certain event that will bring about the demandability
of an obligation or its extinguishment.
Please note, that a condition is future and uncertain. In
other words, that event may or may not happen. While a
period is certain to happen. That is why we say that a
period is future and certain.
Article 1193. Obligations for whose fulfillment a day
certain has been fixed, shall be demandable only when
that day comes.
Obligations with a resolutory period take effect at once
but terminate upon arrival of the day certain.
A day certain is understood to be that which must
necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come
or not, the obligation is conditional, and it shall be
regulated by the rules of the preceding Section.
As I have said, the period in an obligation with a period
determines whether the obligation now becomes
demandable or when it is extinguished or terminated. That
first paragraph of Article 1193 gives you an example
where the period determines the demandability of the
obligation.
Example:
“I will give you P20,000.00 on December 25, 2023.”
December 25, 2023 is a day certain to come. It is future
and a certain event as that date will necessarily come.
That is now an example of a period the arrival of which
will determine the demandability of the obligation. In this
example, the obligation was the giving of P20,000.00 and
the period was set at December 25, 2023. And so, when
that date arrives the obligee or the person whom you
promised to pay the P20,000.00 can demand from you
fulfilment of that obligation.
Now, lets take a look at the second paragraph. It says
obligation with a resolutory period take effect at once but
terminate upon the arrival of the day certain. This time, it
tells you that the arrival of the period will now extinguish
the obligation. In other words, the obligation is already
there, and the arrival of the period will terminate or
extinguish the obligation.
Example:
“I will give you a P10,000.00 monthly allowance until
December 31, 2024.”
In this example, the obligation is demandable at once. It
takes effect at once. The giving of the P10,000 monthly
allowance. And that obligation will end upon the arrival of
the period. And in this example, the period was set at
December 31, 2024.
Remember the two examples. The first example was an
obligation to give P20,000 on December 25, 2023. The
period will affect the demandability of the obligation. It
triggers its demandability. We actually call that period a
suspensive period. Because the arrival of such period will
make the obligation demandable.
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In our second example, the obligation was to give a
P10,000 monthly allowance until December 31, 2024. The
period involved here is actually a resolutory period. Why
resolutory? Because the arrival of the period (December
31, 2024) will extinguish the obligation. In other words, in
that example, the obligation became demandable at once.
This the second paragraph of 1193. It became
demandable at once, and when the period will arrive
(December 31, 2024) the obligation to give a P10,000
monthly allowance will stop. It will not be extinguished.
These basically tells you the two ways in classifying your
periods. It could be suspensive period or a resolutory
period. There are other ways of classifying period. You
could also classify it depending on whether it’s a definite
period or an indefinite period.
A definite period is a day certain, an exact date, or even
a period which says, “I will deliver to you a specific parcel
of land one year from today.” So that is definite. Indefinite
period would be something in the future but is certain to
happen. Like “I will donate to you this parcel of land when
my pet rabbit dies.” Because death is certain. It is future
but it is certain to happen. Its indefinite because you don’t
know when it will happen.
Another way of classifying your periods would be the
source of the period. It could be conventional, meaning
by agreement by the parties. It could be legal as it is
provided for by law. It could be judicial meaning it is the
court who has decided upon the period.
Now, let’s venture into the discussion on the
consequences of having an obligation with a period.
Example:
You borrowed money from a friend P50,000.00. Both of
you agreed that you will pay two years from today. A year
from now, you paid him the P50,000 probably thinking two
years have already lapsed. You pay to him the P50,000
when in fact it is actually not yet due and demandable
because both of you agreed it will be paid two years from
today. But you paid one year from today. What are the
consequences of such? Can you still get back the money
you paid in advance once you realize that your debt was
in fact not yet due?
The answer is YES. You can actually get back the money
that you paid, why? Because the period has not arrived
yet. And in that example, the period was set two years
from today. And yet, you paid one year early. That is
basically your Article 1195.
Article 1195. Anything paid or delivered before the
arrival of the period, the obligor being unaware of the
period or believing that the obligation has become due
and demandable, may be recovered, with the fruits and
interests.
Remember however, that recovery can be done if the
obligor or the person who paid in our example believing
that it was already due. If you were aware you that you
were paying your debt in advance, Article 1195 is not
applicable. You can no longer get the money you paid
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because you were aware that you were paying in
advance.
Remember that the recovery of the amount that you paid,
if you were truly unaware and if you truly believed that it
was really due and demandable, and two months after
you paid you realized that you paid early and want to get
the money back, yes you can get the money back. In fact,
you can also the interest from the advance payment.
But when do you start and stop computing the interest?
You start counting the interest from the time of premature
payment up to the time that you recover the premature
payment.
QUESTION: What if you realize that you prematurely
paid only on the day that the obligation became due
and demandable? In other words, as what we have
mentioned in the example, you paid one year in
advance. But then you realize such advance payment
two years from the time you promised. Its already due
and demandable. Can you still recover the money?
OBLIGATION WITH A PERIOD
It’s already due and demandable.
Can you still recover the money?
Not anymore because the debt is already due and
demandable.
How about the fruits and interests?
Yes, you may recover.
When do you start counting the interests?
From the time that you wrongfully paid in advance up to
the time that the debt was due.
Article 1196. Whenever in an obligation a period is
designated, it is presumed to have been established for
the benefit of both the creditor and the debtor, unless
from the tenor of the same or other circumstances it
should appear that the period has been established in
favor of one or of the other. (1127)
This means that when there is a period, the period is
supposed to benefit both the creditor and the debtor.
EXAMPLE: A and B agreed that A will pay back his loan
of 100,000 to B on Aug. 5, 2025. The period there is Aug.
5, 2025. In applying Art. 1196, A cannot compel B to
accept payment before Aug. 5, 2025. In the same manner
B, cannot compel A to make payment before or after the
arrival of the period.
Why do we say that that is for the benefit of both?
Because if we were to allow B, creditor, to accept
payment prior to the arrival of the period (Aug. 5, 2025),
then you will be depriving the creditor of interests. If you
cut short the period, you will deprive the creditor of
interests. In the same way, the debtor cannot be
compelled to pay before the period because the debtor
may not be ready yet to pay the debt before the period.
Nor can the creditor compel the debtor to pay after the
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period because it may then be burdensome to the debtor
as it will accumulate interests.
GENERAL RULE: when a period is designated, it is
presumed to have been established for the benefit of both
the creditor and the debtor
EXCEPTION: when from the tenor of the obligation, it
should appear that the period has been established in
favor of only one party.
EXAMPLE: A and B agreed that A will pay his debt of
50,000 to B on or before Aug. 5, 2025.
With that agreement, the period of Aug. 5, 2025, who
do you think is the period for?
That period benefits the DEBTOR because this time, the
debtor has the option to pay when the period arrives or to
pay prior to that period. The debtor hence can compel the
creditor to accept the advance payment or before Aug. 5,
2025. However, the creditor cannot compel the debtor to
make payment before Aug. 5, 2025. The creditor has to
wait for the period to arrive to be able to compel payment.
TAKE NOTE: In other words, if the obligation is on or
before a certain period, that period is actually beneficial to
the debtor, as an exception to the general rule.
Meaning, he can now be compelled by the creditor to pay
his debt even prior to the arrival of the period.
EXAMPLE: X and Y agreed that X will pay his debt on
Jan. 5, 2024.
Applying the general rule in Art. 1196, X cannot be
compelled by Y to pay before Jan. 5, 2024. That is the
benefit of the debtor.
When are the instances when the debtor loses the
benefit of a period?
Article 1198. The debtor shall lose every right to make
use of the period:
1) When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or
security for the debt;
2) When he does not furnish to the creditor the
guaranties or securities which he has promised;
3) When by his own acts he has impaired said
guaranties or securities after their establishment,
and when through a fortuitous event they
disappear, unless he immediately gives new ones
equally satisfactory;
4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the
period;
5) When the debtor attempts to abscond. (1129a)
1. When after the obligation has been
contracted, he becomes insolvent.
This means that after he became indebted, if it is found
that he is now insolvent. Meaning, that he has more debts
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
than he has assets or properties. Because he is now
insolvent, the creditor can now demand the debtor to pay
his debt even before the arrival of the period.
XPN: unless he gives a guaranty or security for the
debt.
If he cannot give a guaranty or security, the creditor can
now go after the debt even before the arrival of the period
or from the example, before Jan. 5, 2024.
2. When he does not furnish to the creditor the
guaranties or securities which he has
promised.
In the example, if X in fact made a promise to Y to secure
his debt, like an execution of a mortgage, and he does not
do so, Y now can demand from him the payment of the
obligation even before Jan. 5, 2024.
3. When by his own acts he has impaired said
guaranties or securities after their
establishment, and when through a fortuitous
event they disappear, unless he immediately
gives new ones equally satisfactory.
Par. 3 will tell you that it does not matter whether the
guaranty or security was actually lost through a fortuitous
event or through the fault of the debtor.
So, if X promised to Y to execute a mortgage over a house
to secure the debt and, by the negligence of X, the house
was razed by fire or even if the house was destroyed due
to a typhoon at no fault of X, Y can now actually demand
from X the fulfilment of his obligation even prior to Jan. 5,
2024. X cannot say that it is not his fault because his
security was totally destroyed due to a fortuitous event.
TAKE NOTE: The law is clear. It does not matter whether
the guaranty or security that he has promised is lost either
by the fault of the debtor or by a fortuitous event. The
creditor can now demand from the debtor even prior to the
arrival of the period.
If the debtor does not want to pay prior to the arrival of the
period, he must furnish another guaranty or security that
is equally satisfactory.
4. When the debtor violates any undertaking, in
consideration of which the creditor agreed to
the period.
If X and Y agreed that there will be payment of interest
every month and if X fails to pay interest, that is now a
violation of the undertaking. Y can now demand the full
payment of the obligation even before Jan. 5, 2024.
5. When the debtor attempts to abscond.
The creditor should not be made to wait until the debtor is
successful in evading payment. So, if the creditor already
has an information that the debtor is attempting to
abscond, the creditor can now compel the debtor to pay
even before the arrival of the period agreed upon.
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DIVISIBLE AND INDIVISIBLE OBLIGATIONS
Be careful not to confuse this with solidary obligations.
Divisible and indivisible obligations are covered by Arts.
1223-1225 while solidary obligations are covered by Arts.
1207-1222 of the Civil Code.
Article 1223. The divisibility or indivisibility of the things
that are the object of obligations in which there is only
one debtor and only one creditor does not alter or modify
the provisions of Chapter 2 of this Title. (1149)
Chapter 2 actually covers joint and solidary obligations.
What Art. 1223 is telling you is that when you classify your
obligation as divisible or indivisible, it does not change
that such obligation may be joint or solidary.
It basically means that when we classify obligations as
joint and solidary, it refers to the tie between the parties.
When we talk about an obligation being divisible or
indivisible, that refers to the nature of the obligation.
Art. 1225 gives you a definition or a guide as to how to
determine whether your obligation is divisible or
indivisible.
Article 1225. For the purposes of the preceding
articles, obligations to give definite things and those
which are not susceptible of partial performance shall
be deemed to be indivisible.
When the obligation has for its object the execution of
a certain number of days of work, the accomplishment
of work by metrical units, or analogous things which by
their nature are susceptible of partial performance, it
shall be divisible.
However, even though the object or service may be
physically divisible, an obligation is indivisible if so
provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibility shall
be determined by the character of the prestation in
each particular case. (1151a)
1st par. Indivisible
If the obligation is TO GIVE definite things and such thing
cannot be divided, such thing is indivisible.
For obligations TO DO or performance of a service, if it
is not capable of partial performance, it is considered
indivisible.
2nd par. Divisible
Article 1225.
XXX
When the obligation has for its object the execution of
a certain number of days of work, the accomplishment
of work by metrical units, or analogous things which by
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
being their nature are susceptible of partial
performance, it shall be divisible.
So now it tells you that if an obligation is to do something
or it is surrendering of a service, then it will be considered
divisible if it can be accomplished by days of work or there
is the accomplishment in metrical units because there is
a measure of how you can divide the work.
So basically when you look at the first two paragraphs of
article 1225, it basically tells you that to determine
whether the obligation is divisible or indivisible, you look
at the object of the obligation.
If it is the giving of a definite thing, then you consider it as
indivisible.
If it is the performance, the obligation is to perform a
service or to render a service or an obligation to do, then
it would depend on whether it can be accomplished by a
number of days of work or it can be measured by metrical
units because if it can, then it is divisible. If it can't, then it
is indivisible.
Article 1225.
XXX
XXX
However, even though the object or service may be
physically divisible an obligation is indivisible if so
provided by law or intended by the parties so here we
have the parties.
So here we have the parties determining or treating rather
a divisible object as an indivisible one and so they are
bound by that treatment or that agreement or if the law
treats it as indivisible.
An example of an object or a thing that can be treated by
the parties as indivisible is money. Money is clearly
divisible. It can be divided but if the parties agree to treat
it as indivisible, then so be it, because contracts or
agreements between the parties have the force of law
between them and they are bound by that agreement. So
these are the two exceptions for when the visible
obligations, which by nature are actually divisible are
treated as indivisible by the parties.
1. their agreement
2. the law treats it as indivisible.
Art. 1224. A joint indivisible obligation gives rise to
indemnity for damages from the time anyone of the
debtors does not comply with his undertaking. The
debtors who may have been ready to fulfill their
promises shall not contribute to the indemnity beyond
the corresponding portion of the price of the thing or of
the value of the service in which the obligation consists.
(1150)
Article 1224 brings a situation where the obligation is an
indivisible one but the tie between the parties is a joint
one. As I've mentioned earlier when we talk about it being
joint and solidarity that refers to the time between the
parties while when we talk about it being divisible or
indivisible we actually look into the object of the obligation.
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Now Article 1224 brings about an obligation that is joint
but indivisible.
Article 1224 is actually very much related to article 1209
of the civil code that talks about joint and solidarity
obligations.
Now let's go back to Article 1224. Again it says there that
it's joint and indivisible. Remember again when we talk
about it being joint and solidarity, it talks about the tie
between the parties and very basic is the principle in a
joint obligation where we say that the debtors are on its
own. In other words, if one of the debtors becomes
insolvent, the other debtors will not be liable for his share.
That's why we have that principle to each his own in joint
obligations, such that if one of the debtors would be in
delay then the other debtors will not be liable for damages
as opposed to a solidary liability where the principle
behind it is the act of one is the act of all. So if one is
negligent or if one incurs delay, then all the other solidarity
debtors shall be liable for damages.
In article 1224 it speaks of an obligation being joint. The
principle behind the tie between the debtors would now
be to each his own but the obligation is indivisible,
meaning the nature of the object of the obligation is
indivisible.
Example: A and B bound themselves jointly to deliver a
particular car to X. So A and B now agreed that their
liability is joined. In other words, the principle behind it is
to each his own, if B becomes insolvent then A will not be
burdened by his share.
If B incurs delay, then A will not also be liable.
Why is this example indivisible? Because when you look
at the object of the obligation, it is the giving of a definite
thing that by nature cannot be divided and that is the
measure being given by article 1225. So, A and B being
bound or being liable to deliver a particular car to X, that
is a joint indivisible obligation.
Supposing the debt is now due and demandable, and X
now demands the delivery of that particular car. A is
willing and ready to comply with his obligation but B
refuses to comply. Because there is already a demand
that was made by X, it is now in incumbent upon A and B
to deliver but then again as I’ve mentioned A is willing to
comply but B refuses to comply.
As I have already explained, if there is already a demand
and you do not comply, then there is already delay. If you
are in delay, then you are liable for damages.
Question: If they cannot deliver the particular car because
B refuses to comply with this obligation can A be made
liable rather for damages? No. Article 12 24 says the
debtors who may have been ready to fulfill their promises
shall not contribute to the indemnity beyond the
corresponding portion of the price of the thing or of the
value of the service in which the obligation consists. It tells
you that A cannot be made liable for damages because
he was willing to comply with the obligation. Because it is
an indivisible obligation and because one of the joint
debtors is not willing to comply, then the delivery of that
particular car cannot be done anymore.
Question: What happens now to the obligation? The
obligation becomes a monetary liability because they can
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no longer deliver that particular car since one of the
debtors is unwilling. Article 1224 says that the debtor who
was willing shall only be liable to contribute to the
corresponding portion of the price of the thing that they
have promised.
Let's say the car is worth two million, then he is only liable
to pay 1 million pesos, his share in the joint obligation. But
B on the other hand, the one who refused to comply, shall
be liable to pay his corresponding portion which is also 1
million plus damages.
The reason behind the law for not letting A shoulder any
part of the indemnity is because the obligation is joint.
Again, the principle behind a joint obligation is to each his
own. So there are as many debts as there are debtors.
The debts of A is his, while the debts of B is his. If B
defaults in his obligation, then A should not be punished
for it.
That is the reason why A cannot be made liable for
damages for the default that was committed by B, it shall
only be B who will be liable for damages. But of course
since A obliged himself to deliver a particular car, which
now cannot be delivered because of B, Article 1224 says
it's okay just deliver the corresponding portion of the
liability and that is your share without paying damages.
Another important thing to remember when we talk about
divisible and indivisible obligations is that it is not required
that if it's an indivisible obligation that there must only be
one debtor or one creditor nor does it require two or more
debtors in a divisible obligation. When we talk about the
number of debtors or creditors that would pertain to it
being joint or solidary but that does not affect the
divisibility or the indivisibility of the obligation.
OBLIGATIONS WITH A PENAL CLAUSE
It is an obligation with an accessory undertaking that if the
debtor fails to comply, he will be liable to pay a penalty.
Purpose:
1. Ensure performance – it discourage from not
fulfilling the obligation since the obligation will not
be more burdensome. There is now another
undertaking that he must comply because he
failed to fulfill his obligation.
2. Liquidiate the damges that is suffered by the
injured party due to the nonfulfillment of the
debtor of his obligation
3. Punish the debtor for failing ot comply with the
bligation
Can the debtor exempt himself from fulfilling the
obligation by just paying the penalty?
NO.
Article 1227. The debtor cannot exempt himself
from the performance of the obligation by paying
the penalty, save in the case where this right has
been expressly reserved for him. Neither can the
creditor demand the fulfillment of the obligation and the
satisfaction of the penalty at the same time, unless this
right has been clearly granted him. However, if after the
creditor has decided to require the fulfillment of the
obligation, the performance thereof should become
impossible without his fault, the penalty may be
enforced. (1153a)
General Rule: The debtor cannot opt to just pay the
penalty so that he will not fulfill the obligation
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Exception: If that right has been granted to him. In other
words, if both the debtor and creditor have agreed that he
can just opt to pay the penalty without fulfilling his
obligation.
Question: Can the creditor demand the fulfillment of the
obligation plus payment of the penalty?
Answer: NO
Article 1227. The debtor cannot exempt himself from
the performance of the obligation by paying the
penalty, save in the case where this right has been
expressly reserved for him. Neither can the creditor
demand the fulfillment of the obligation and the
satisfaction of the penalty at the same time, unless
this right has been clearly granted him. However, if
after the creditor has decided to require the fulfillment
of the obligation, the performance thereof should
become impossible without his fault, the penalty may
be enforced. (1153a)
General Rule: He cannot demand the fulfillment of
obligation plus the penalty
Exception: If the parties have agreed that he may do so.
Article 1227. The debtor cannot exempt himself from
the performance of the obligation by paying the
penalty, save in the case where this right has been
expressly reserved for him. Neither can the creditor
demand the fulfillment of the obligation and the
satisfaction of the penalty at the same time, unless this
right has been clearly granted him. However, if after
the creditor has decided to require the fulfillment of
the obligation, the performance thereof should
become impossible without his fault, the penalty
may be enforced. (1153a)
If it is without the fault of the creditor, and the obligation
cannot anymore be fulfilled, then it is his right to enforce
the penalty.
Supposing the debtor fails to fulfill the obligation, and now
the creditor is enforcing the penalty as his right, can the
debtor refuse to pay the penalty because the creditor
could not show proof damaged from the failure to comply
with the obligation?
NO.
Article 1228. Proof of actual damages suffered by the
creditor is not necessary in order that the penalty may
be demanded. (n)
The creditor needs only to prove that the obligor failed to
comply with his obligation, he need not offer proof that he
in fact suffered damages from the fulfillment of the debtor.
In fact, one of the purposes of the penalty is to liquidate
the damages that the creditor may have suffered and that
liquidation of damages will already take the place of proof
of actual damages that may be suffered by the creditor.
Article 1229. The judge shall equitably reduce the
penalty when the principal obligation has been
partly or irregularly complied with by the debtor.
Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or
unconscionable. (1154a)
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If the parties agreed on the penalty, the courts may
reduce it on the following instances:
1. Irregular or incomplete fulfillment.
Incomplete fulfillment: If the debtor was only able
to pay 30, 000 of the 50, 000 debt.
Irregular Fulfillment: If the debtor was oblige to
paint a house in cream but instead painted the
house in green.
Check Your Transcript Team (2021-2022) for:
• Alternative and facultative obligations
• Joint and Solidary Obligations
• Divisible and Indivisible Obligations
• Extinguishment of Obligations
• General Provisions on Contracts
• Essential Requisites of Contracts
• Form of Contracts
• Reformation of Contracts

2. Penalty iniquitous or unconscionable - There is

no standard to determine that the penalty is
already iniquitous or unconscionable. When you
revisit cases of obligation with a penal clause,
there is no common standard or measure to say
that the penalty is already iniquitous or
unconscionable because it will have to depend on
the circumstances of each case. In one case, the
SC could decide that a 5percent monthly interest
is iniquitous or unconscionable, but in another
case, it may not. It really depends on the
circumstances of the case. It will not have to be
exercised by reasonable discretion of the court.
3.
Article 1230. The nullity of the penal clause does not
carry with it that of the principal obligation.

The nullity of the principal obligation carries with it that

of the penal clause. (1155)

Principle: The accessory follows the principal. If the

principal obligation is void, then the accessory obligation
is also void. If the accessory obligation is void, it will not
affect the principal obligation.

If it’s the reverse: if the accessory obligation is void, it

will not affect the principal. The principal will continue to
subsist.

QUESTION: Why is this principal important in the

discussion of Art. 1230?
It is important because a penal clause is an accessory
obligation, such that if the principal obligation is void, then
the accessory penal clause is void. If it is the reverse, if
the accessory penal clause is void, it will not affect the
principal obligation.

Example:
Principal Obligation: Pay P100K debt
Penalty: sell prohibited drugs
The principal obligation is valid but the penalty is void.

Principal Obligation: Pay P100K debt

Penalty: sell prohibited drugs
The principal obligation is void and the penalty comes
along with it because the accessory follows the principal.

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DEFECTIVE CONTRACTS
RESCISSIBLE CONTRACTS 1 & 2 wards and absentees – this is about lesion.

Article 1380. Contracts validly agreed upon may be Lesion is the economic prejudice or financial
rescinded in the cases established by law. disadvantage of one of the parties to a contract.

Wards and absentees cannot enter into a contract. That

REQUISITES:
is why a guardian, or a representative comes in to take
1. The contract must be valid or at least voidable care of their affairs. This provision is a remedy for the
(valid until annulled). wards and absentees when the wards attain the age of
2. Economic prejudice or lesion majority or when the absentee’s whereabouts are
3. Mutual restitution (return whatever you have known. They can examine the contract and if they see
received) that they suffer lesion, then they may ask for rescission.

The rescission under 1191 is different from that under Lesion of more than ¼
1380.
Example:
A minor inherits a house. The guardian assumes the
Art. 1191 Art. 1380 renting out of the house.
Rescission based on Rescission based on
nonperformance or lesion Actual Rental – P75K
nonfulfillment Market value for rental – P100K
Action is instituted by the Action is instituted by
injured party contracting party or 3rd How much is ¼ of P100K?
party P25K, not rescissible, exactly ¼
The courts may grant a The courts are not
term or period. granted the authority to Example:
set a period for which the
Actual Rental – P60K
other party must comply
because it is not about Market value for rental – P100K
nonperformance. Economic prejudice – P40K
Nonperformance is Nonperformance is not
essential essential Can the contract be rescinded?
Yes. If the ward or absentee suffers lesion by more than
¼, then he may ask that the contract to be rescinded.
Supposed both parties mutually agree to cancel the
contract. Is that properly called rescission?
Technically no. That is mutual backing out of a contract.
(3) Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the claims
Can you rescind a void contract?
due them
No. First requisite, the contract must be valid or
voidable. A void contract does not exist, so it cannot be
rescinded. This is accion pauliana.

UFC v. CA – discussed the difference between Arts. Remember creditor’s remedies:

1191 and 1380 a. exact fulfillment
b. attach properties
Article 1381. The following contracts are rescissible: c. accion subrogatoria
(1) Those which are entered into by guardians d. accion pauliana
whenever the wards whom they represent suffer lesion
by more than one-fourth of the value of the things which This is why the contracting party OR a third person may
are the object thereof; file an action to rescind if it causes them economic
(2) Those agreed upon in representation of absentees, prejudice.
if the latter suffer the lesion stated in the preceding
number; (4) Things in litigation
(3) Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the claims due
Example: A sues B for recovery of specific car. Pending
them; litigation, B sells the car without approval from the court
(4) Those which refer to things under litigation if they or of A. If A wins, A can rescind the contract.
have been entered into by the defendant without the
knowledge and approval of the litigants or of competent
judicial authority;
(5) All other contracts specially declared by law to be 5th TYPE: All other contracts that are declared by law as
subject to rescission. rescissible, like:
a. Article 1098 (Partition);
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
b. Article 1189 (Results of Deterioration);
c. Article 1526-1534 (Rights of an Unpaid Seller);
or
d. Article 1539 (Sale of Real Estate).
6th TYPE (ARTICLE 1382): Premature payments made
in a state of insolvency.
ARTICLE 1382, NCC
Article 1382. Payments made in a state of insolvency
for obligations to whose fulfillment the debtor could not
be compelled at the time they were effected, are also
rescissible.
REQUISITES:
a. Debtor/payor must have been insolvent (does
not need to be judicially declared insolvent);
b. The debt was not yet due and demandable.
EXAMPLE: Let’s say today is May 1, 2020. A owes
X for the amount of 100,000 due on August 12, 2020. A
also owes Y for the amount of P100,000 due on March
20, 2020.
Supposing that A is insolvent, and A pays X, the law tells
you that the payment may be rescinded by Y because it
is a premature payment. It will disadvantage Y. It will be
disadvantageous to Y because the debt in his (Y’s) favor
is already due and demandable while X’s collectible is not
yet due and demandable.
CHARACTERISTICS OF A RESCISSIBLE
CONTRACTS
A. Their defect consists in injury or damage either to
one of the contracting parties or to third persons.
Just like when the defrauded creditors will file an
action for rescission of a contract entered by the
debtor.
B. Before rescission, they (the contracts) are valid
and legally effective.
C. They can be attacked directly only, and not
collaterally.
D. They can be attacked only either by a contracting
party or by a third person who is injured or
defrauded.
E. They are susceptible of convalidation only by
prescription, and NOT by ratification.
In other words, the parties affected by the
economic prejudice cannot say that they are
waiving their right to file an action to rescind
because they cannot ratify it. They can
convalidate it only by prescription
Meaning, if the prescriptive period will lapse
without them having availed the remedy, then that
is the only time it is validated. It cannot be
validated by ratification.
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PRESCRIPTIVE PERIOD
GR: 4 YEARS (from the time the contract has
been entered into)
XPN: 4 YEARS (from the termination of the
incapacity of persons under guardianship or until
the domicile of an absentee is known)
ARTCILE 1389, NCC
Article 1389. The action to claim rescission
must be commenced within four years.
For persons under guardianship and for
absentees, the period of four years shall not
begin until the termination of the former's
incapacity, or until the domicile of the latter is
known.
F. The action for rescission is subsidiary.
Another characteristic is in Article 1383. It means
that it is not a principal remedy, and you use it
only when you have exhausted all other remedies
available to you.
ARTICLE 1383, NCC
ARTICLE 1383. The action for rescission is
subsidiary; it cannot be instituted except when the
party suffering damage has no other legal means
to obtain reparation for the same.
In fact, in a previous case, where the creditor
immediately filed an action to rescind the
donation of a parcel of land, but the court found
out that there were other parcels of land that he
could have attached. It was not necessary to ask
for recission right away because it is only
subsidiary.
ARTICLE 1384, NCC
Article 1384. Rescission shall be only to the extent
necessary to cover the damages caused.
If the damage caused is only P50,000, then you don’t
have to rescind the entire value of P100,000. You rescind
only to the extent that will cover the damage that was
caused.
MUTUAL RESTITUTION
Article 1385. Rescission creates the obligation to
return the things which were the object of the contract,
together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who
demands rescission can return whatever he may be
obliged to restore.
Neither shall rescission take place when the things
which are the object of the contract are legally in the
possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded
from the person causing the loss.
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
Mutual Restitution- It is required that if you ask for
rescission, you must be able to give back whatever you
may have received by virtue of the contract.
a. You must put things back the way they were
before the contract was entered.
NOTE: So, you cannot ask for rescission if you cannot
anymore restore or return what you have received by virtu
of the contract.
b. Also, third persons are protected so long as they
are in good faith. They cannot be punished for the
things that was done by the contracting parties.
c. It the thing cannot be returned; you may ask for
indemnity for damages from the person causing
the loss.
Article 1386. Rescission referred to in Nos. 1 and 2 of
article 1381 shall not take place with respect to
contracts approved by the courts.
PRESUMPTIONS OF FRAUD
Article 1387. All contracts by virtue of which the debtor
alienates property by gratuitous title are presumed to
have been entered into in fraud of creditors, when the
donor did not reserve sufficient property to pay all debts
contracted before the donation.
Alienations by onerous title are also presumed
fraudulent when made by persons against whom some
judgment has been rendered in any instance or some
writ of attachment has been issued. The decision or
attachment need not refer to the property alienated and
need not have been obtained by the party seeking the
rescission.
In addition to these presumptions, the design to
defraud creditors may be proved in any other manner
recognized by the law of evidence.
For Gratuitous Contracts (1st paragraph)
If there was a donation that was made, and you
had debts prior to the donation without reserving sufficient
property for those, then the presumption is that the
donation is fraudulent.
For Onerous Contracts (2nd paragraph)
There is a presumption of fraud when made by a
person where there Is already a judgement against.
EXAMPLE: There is already a judgement against A and
in favor of Y (In the judgement case, it was A vs. Y).
A now sells a parcel of land to X. This parcel of land is not
in any way connected to the case of A and Y.
Is the sale of A to X fraudulent?
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YES. The decision (in the judgement case) need not even
refer to the property alienated and need not have been
obtained by the party seeking rescission. So, the sale of
A to X is already presumed fraudulent.
However, these are just presumptions. Thus, they are
disputable. If A can prove that the sale was made not to
defraud Y, then the contract may not be rescinded.
Oria vs Memicking
SUMMARY: After Gutierrez sued Oria Company, the
latter sold all its properties to a co-owner’s son. Upon
judgement in favor of Gutierrez, he had the steamship
of the company despite the sale to the son. The son
then sued for the recovery but the same was not
granted.
RULING: The sale to the son of the properties was void
insofar as the steamship (only the steamship because
it was enough to cover the judgement debt) was
concerned because it bore the badges of fraud.
Badges of Fraud (Indicia of Fraud)- rules by which
fraudulent character if transaction may be determined:
1. Fictitious or insufficient consideration
2. Conveyance made after suit has begun and
while it is pending
3. Sale upon credit by the insolvent debtor
(nagpautang ang debtor)
4. Evidence of insolvency or large indebtedness
5. Transfer of nearly or all of debtor’s properties
6. Transfer between father and son when some
of above is present
7. Failure of vendee to take exclusive possession
of the property unless such failure is with legal
basis or practical reason.
Additional Badges of Fraud (according to De Leon)
8. At the time of the conveyance, the vendee was
living with the vendor and the former knew that
there was a judgement against the latter.
9. It was known to the vendee that the vendor had
no properties other than that sold to him.
10. Certificate of title covering the lands sold
remained in the name of the vendor who declared
them for taxation purposes, and actually paid the
taxes or assumed by his heirs after his death.
11. Gross disparity between the real value and
consideration.
NOTE: The above enumeration is not exclusive.
Article 1388. Whoever acquires in bad faith the things
alienated in fraud of creditors, shall indemnify the latter
for damages suffered by them on account of the
alienation, whenever, due to any cause, it should be
impossible for him to return them.
If there are two or more alienations, the first acquirer
shall be liable first, and so on successively.
Remember that if the thing is already in the hands of a
third person, then you can no longer ask that the thing be
given back to you. You can only ask for damages against
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS) ATTY. BATHAN-LASCO (2021-2022)

the person who caused the loss. This only true if the third
person acted in good faith. QUESTION: Why not void?

However, Article 1388 tells you your remedy if you are It is not void because there is still consent. However, it is
the person prejudiced in the contract, defrauded, or you only vitiated. If there was total absence of consent, then it
suffered lesion, and that is to ask for rescission. will be a void contract.

Here, you must prove that the third person acted in bad
faith.
If the third person also can no longer return or it is
impossible for him to return, then he is liable for damages.
On the 2nd paragraph
If there are two or more alienations, the first
acquirer shall be liable first, and so on successively.
CHARACTERISTICS OF A VOIDABLE CONTRACT
1. It consists of the vitiation of consent or one of the
contracting parties is incapacitated to give
consent;
2. Binding and valid until annulled;
3. Susceptible of convalidation by ratification or
prescription; and
4. Voidable character cannot be invoked by third
person.

ANNULMENT VS. RESCISSION

VOIDABLE CONTRACTS
These are contracts that are valid until it is
annulled. Annulment Rescission
Article 1390. The following contracts are voidable or (a) Defect is intrinsic (a) Defect is external
annullable, even though there may have been no (b) Ground is vitiated (b) Ground is lesion or
damage to the contracting parties: consent or incapacity to damage (economic
give consent prejudice)
(1) Those where one of the parties is incapable (c) Action is principal (c) Action is subsidiary
of giving consent to a contract; (d) Both a remedy and a (d) Mere remedy
sanction
(2) Those where the consent is vitiated by (e) Damage is immaterial (e) Damage is material
mistake, violence, intimidation, undue (f) Susceptible of (f) Not susceptible to
influence or fraud. ratification ratification
(g) Based on law (g) Based on equity
These contracts are binding, unless they are annulled (h) Public interest (h) Private interest
by a proper action in court. They are susceptible of predominates predominates
ratification. (i) plaintiff must be a party (i) plaintiff may be a
to the contract contracting party or a third
Two (2) Types of Voidable Contracts: person
1. One of the parties is incapable of giving (j) Indemnity will not bar to (j) if plaintiff is
consent; or the prosecution of the indemnified, recission
action cannot prosper.
Such party may either be a minor, insane, or (k) completely compatible
suffers any disability that will not enable him to (k) Not compatible with a with a perfectly valid
give consent as defined by law. perfectly valid contract contract.

2. Vitiation of consent.
WHO MAY INSTITUTE THE ACTION FOR
Presence of mistake, violence, intimidation, ANNULMENT
undue influence or fraud.
Article 1397. The action for the annulment of contracts
EXAMPLE #1: A, a minor, enters into a contract with B. may be instituted by all who are thereby obliged
This falls under the first type of voidable contracts since A principally or subsidiarily. However, persons who
is incapacitated to give consent. are capable cannot allege the incapacity of those with
whom they contracted; nor can those who exerted
QUESTION: What happens if both parties are intimidation, violence, or undue influence, or employed
incapacitated to give consent? fraud, or caused mistake base their action upon these
flaws of the contract.
That is already an unenforceable contract, since both are
incapable of giving consent. Article 1397 tells us who may institute the action for
annulment.
EXAMPLE #2: A entered into a contract with B to sell a
parcel of land because B employed intimidation against A EXAMPLE #1: If A is the minor, then B who is of legal
(B will kill A’s wife). age, cannot file an action to annul the contract and allege
the incapacity of A.
This makes the contract of sale voidable.
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
It shall be A, upon attaining, capacity or through the
guardian of A, will he be able to file the action.
EXAMPLE #2: If B was the one who employed
intimidation and A’s consent was vitiated, B, as the guilty
party, cannot file an action to annul alleging the vitiated
consent of A.
In other words, it must be the innocent party or the
incapacitated party who must file an action to annul. In
the case incapacitated, once his incapacitated ceases or
the guardian of the incapacitated person may file an
action to annul.
The person of legal age cannot file an action to annul
alleging that the other party is a minor. Also, the guilty
party cannot file an action to annul alleging that the other
party was just forced due to a vice of consent.
May creditors of the innocent party ask for
annulment?
No, because a creditor of an innocent party is not one of
the persons allowed by law to file an action for annulment.
The creditor is a third party.
Example:
A forced B to enter a contract with him. B’s consent was
vitiated. If B has a creditor, X. X cannot file an action to
annul the contract between A and B because he is a third
party.
Singson v. Isabela Sawmill
In this case, the creditor, a third party filed an action for
annulment and yet the court allowed the said filing of
an action to annul the contract.
Comment:
Atty does not agree with this because the creditor is a
third person and the law is very clear that third parties
are not allowed to file an action to annul.
He should have filed an action to rescind because such
remedy is available to third parties.
But maybe the SC allowed it because the effects of
annulment and rescission are the same. It’s mutual
restitution.
As to the propriety of the action, if you want to be
correct in the action that you are filing, if you are a third
person, you cannot file an action to annul. You may,
however, look into other remedy and that is an action
to file for rescission.
PRESCRIPTION
Art. 1391. The action for annulment shall be brought
within four years.
This period shall begin: In cases of intimidation,
violence or undue influence, from the time the defect of
the consent ceases.
In case of mistake or fraud, from the time of the
discovery of the same.
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And when the action refers to contracts entered into by
minors or other incapacitated persons, from the time
the guardianship ceases. (1301a)
What is the prescriptive period for filing an action to
annul a contract?
Art. 1391 of the Civil Code says that the action for
annulment shall be brought within four years.
When to start the counting of the 4-year period?
• In cases of intimidation, violence or undue influence,
from the time the defect of the consent ceases.
Only when there’s no more violence or intimidation that
you can count the 4-year period. If you are still suffering
from such vice, then the period will not start to run.
• For mistake or fraud, the 4-year period will be counted
from the time of discovery.
When you commit a mistake, you will not know right away
at the inception of the contract that you committed a
mistake. The 4-year period will come from the time of
discovery.
For fraud, at the start of the contract, you are led to believe
that what you are entering into was a perfectly valid
contract. The discovery may come only later, hence, the
4-year period will start only from the time of discovery.
• When one of the persons is incapacitated to give
consent, the 4-year period will start when the
incapacity ceases to exist.
In case of the minor, the 4-year period will start from the
time the minor attains the age of majority.
In case of insanity, the 4-year period will start from the
time the he becomes sane.
EFFECT OF ANNULMENT
Art. 1398. An obligation having been annulled, the
contracting parties shall restore to each other the things
which have been the subject matter of the contract, with
their fruits, and the price with its interest, except in
cases provided by law.
In obligations to render service, the value thereof shall
be the basis for damages. (1303a)
As mentioned earlier, annulment has the same effect with
rescission. In annulment, there is also mutual restitution.
You return whatever you have received by virtue of the
contract.
How about for obligations to render service?
The law says the value thereof shall be the basis for
damages.
If the object of the contract is in the hands of the third
person, can you obliged him to return?
It depends. If the third person is innocent, then he is
protected, he cannot be obliged to restore.
If the third person is not innocent then he may be obliged
to restore.
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
Art. 1402. As long as one of the contracting parties
does not restore what in virtue of the decree of
annulment he is bound to return, the other cannot be
compelled to comply with what is incumbent upon him.
(1308)
Art. 1399. When the defect of the contract consists in
the incapacity of one of the parties, the incapacitated
person is not obliged to make any restitution except
insofar as he has been benefited by the thing or price
received by him. (1304)
If you are dealing with an incapacitated person, they are
not obliged to restore whatever they have received unless
they were benefited by it. The capacitated person must
prove that the incapacitated person was benefited.
Example:
The money received by the minor was used for the
payment of tuition fees. (In this case, there was benefit in
favor of the minor. Hence, he may be obliged to restore)
Art. 1400. Whenever the person obliged by the decree
of annulment to return the thing cannot do so because
it has been lost through his fault, he shall return the
fruits received and the value of the thing at the time of
the loss, with interest from the same date. (1307a)
This presupposes that there was a decree of annulment.
The court already ordered the return of whatever they
have received by the virtue of the contract.
What if the party cannot return due to his fault?
The law says that you have to return the fruits received
and the value of the thing at the time of the loss, with
interest from the same date.
Art. 1401. The action for annulment of contracts shall
be extinguished when the thing which is the object
thereof is lost through the fraud or fault of the person
who has a right to institute the proceedings.
If the right of action is based upon the incapacity of any
one of the contracting parties, the loss of the thing shall
not be an obstacle to the success of the action, unless
said loss took place through the fraud or fault of the
plaintiff. (1314a)
Paragraph 1 deals with vitiation of consent. It means that
if the object to be returned by the guilty party is lost due
to the fault of the innocent party, the action for annulment
cannot be had. You can no longer ask for the annulment
and that the thing be restored to you, you being the
innocent party because you are the reason for the lost of
the object which was in the hands of the guilty party.
The 2nd paragraph deals with capacity. Even if the thing is
lost, it will not stop the plaintiff from filing suit, unless, it
was his fault that the object or thing is lost.
RATIFICATION
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Art. 1392. Ratification extinguishes the action to annul
a voidable contract. (1309a)
What are the requisites for the ratification of the
contract?
1. The contract must be voidable
2. The ratification is made with knowledge of the
cause for nullity
3. At the time of the ratification, the cause of nullity
has already ceased to exist.
Example:
You discovered that there was fraud employed to entice
you to enter into the contract. Can you ratify it?
Yes, you can ratify it if you know that there was fraud. You
know what kind of fraud was committed against you.
How can you ratify voidable contract committed
through violence?
You can ratify it when there is no longer violence at that
time. Or if there was intimidation employed against you,
you can ratify the voidable contract if you know that there
was intimidation and at the same time the defect is no
longer existing. You can ratify if the cause of nullity
ceased to exist.
4. The ratification must have been made expressly
or by an act implied a waiver of an action to annul.
The person ratifying must be the injured party
Art. 1393. Ratification may be effected expressly or
tacitly. It is understood that there is a tacit ratification if,
with knowledge of the reason which renders the
contract voidable and such reason having ceased, the
person who has a right to invoke it should execute an
act which necessarily implies an intention to waive his
right. (1311a)
Ratification may be made expressly or impliedly.
Uy Soo Lim v. Tan
Here, he wanted to file an action to annul the contract
of sale, saying that he was a minor then. However, he
actually used a substantial amount of the proceeds. So
there is ratification.
Example:
A forces B to sell his particular parcel of land by pointing
a gun at B. B was forced to sell his land to A and A paid
B. Clearly, there was vitiated consent because B would
have not sold the parcel of land, had A not pointed a gun
at him.
But if after receiving the money, B goes shopping or go
on vacation or uses the money in such a way that benefits
him, that is tacit ratification.
If there’s tacit ratification, the remedy of the action for
annulment is no longer available to you.
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
Art. 1394. Ratification may be effected by the guardian
of the incapacitated person. (n)
In ratification, do we need the conformity of the guilty
party? In the previous example, if B ratifies the
contract, does need the consent of A?
No.
Art. 1395. Ratification does not require the conformity
of the contracting party who has no right to bring the
action for annulment. (1312)
If conformity will be allowed, you are giving the guilty party
the chance to back out from the contract when in fact, he
is the reason why there is the contract. As a punishment,
when the injured party chooses to continue the contract
then the guilty party has no choice but to abide it.
Art. 1396. Ratification cleanses the ng contract from all
its defects from the moment it was constituted. (1313)
UNENFORCEABLE CONTRACT
What is an unenforceable contracts?
Unenforceable Contract has the following characteristics:
1. It cannot be enforced by proper court action.
Example:
You enter into contract with A which is an unenforceable
contract. If A do not abide with the terms agreed upon,
you cannot ask help from the court. You cannot file a case
in court to compel A to do his part in the agreement
because it is an unenforceable contract.
2. It is susceptible of ratification which may be
express or implied.
3. It cannot be assailed by third persons.
4.
Art. 1403. The following contracts are unenforceable,
unless they are ratified:
(1) Those entered into in the name of another person
by one who has been given no authority or legal
representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds
as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or
memorandum, thereof, be in writing, and subscribed by
the party charged, or by his agent; evidence, therefore,
of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
a. An agreement that by its terms is not to be
performed within a year from the making thereof;
b. A special promise to answer for the debt, default,
or miscarriage of another;
c. An agreement made in consideration of
marriage, other than a mutual promise to marry;
d. An agreement for the sale of goods, chattels or
things in action, at a price not less than five
hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the
evidences, or some of them, of such things in
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action or pay at the time some part of the
purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount
and kind of property sold, terms of sale, price,
names of the purchasers and person on whose
account the sale is made, it is a sufficient
memorandum;
e. An agreement of the leasing for a longer period
than one year, or for the sale of real property or
of an interest therein;
f. A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving
consent to a contract.
Article 1403 of the New Civil Code gives out the three
types of Unenforceable Contract.
1. Unauthorized Contracts or those entered into
entered into in the name of another person by one
who has been given no authority or legal
representation, or who has acted beyond his
powers
Example: No authority
I have a car. If my brother will sell my car without any
authority from me, then the sale of my car to his friend is
Unenforceable Contract.
It means that even though his friend has already paid him
the money for the car, that friend cannot file an action
against me to deliver the car to him. It is because that sale
is unenforceable, it is an unauthorized contract.
Another is when a person who may have been authorized
but has went beyond the authority.
Example: With authority but exceeded beyond his
powers
I authorized my brother to borrow money in my behalf and
the car will be used as a collateral. That is the authority
that I am giving him. My brother exceeded the authority
by selling the car. This is still an unenforceable contract,
unauthorized contract.
2. Those that do not comply with the statute of
frauds.
It tells you that there are certain types of contracts that
must be in writing to be enforceable. These kinds of
contracts pertain to those enumerated in Article 1403 (2)
(a-e).
Why is it necessary to be put in writing?
For the Statute of frauds to make those contracts
unenforceable when it is not in writing to prevent fraud.
Entering those contracts enumerated orally may
perpetrate fraud because man’s memory is faulty. We
might forget the terms of the contract that we entered into.
To prevent mistake and to prevent fraud, the law gives us
this Statute of Fraud. That for this type of contracts, it must
be put in writing.
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
Statute of Frauds are only applicable to those contracts
that are executory. Meaning, yet to be executed. If the
contract is already partially executed, it is already
removed from the Statute of Frauds.
Contracts that must be in writing to comply with the
Statute of Frauds:
(a) An agreement that by its terms is not to be
performed within a year from the making thereof;
If you have an agreement and it will not take effect within
a year from the time you entered such contract, it must be
in writing.
Example: If you enter into a contract of loan but the loan
will take effect only next year, not within one year from the
time that you executed the contract, the law says that you
must put it into writing because if you do not do so, then it
is unenforceable. When that date comes, which is beyond
1 year from entering into such contract, you can no longer
compel by court action the other person to abide by the
terms of the contract.
Rationale: To prevent fraud, mistake, because man’s
memory is faulty.
This means that if a contract was entered into only orally,
then you might have forgotten the terms, or someone
might use such faulty memory to defraud the other. To
avoid that, the law requires that it must be in writing to be
enforceable.
ARTICLE 1403 (2) (b)
A special promise to answer for the debt, default, or
miscarriage of another;
Example: A surety or guarantor. This must also be in
writing to be enforceable.
ARTICLE 1403 (2) (c)
An agreement made in consideration of marriage other
than a mutual promise to marry;
ARTICLE 1403 (2) (d)
An agreement for the sale of goods, chattels or things
in action, at a price not less than five hundred pesos,
unless the buyer accept and receive part of such
goods and chattels, or the evidences, or
some of them, of such things in action, or pay
at the time some part of the purchase money; but
when a sale is made by auction and entry is made
by the auctioneer in his sales book,
at the time of the sale, of the amount and
kind of property sold, terms of sale, price,
names of the purchasers and person on whose
account the sale is made, it is a sufficient
memorandum;
“not less than P500” – P500 or MORE involving a sale,
it must be in writing
less than P500 – It may be orally made, and you may
enforce it by an action in court if the other party will not
abide by the terms of the agreement.
(EH 405, 2020-2021) ACHAY – ALGARME – BELARMA – CRISTORIA – CRUZ – DALUSUNG – DAWSON – DIAZ – EBAL – ENRIQUEZ – IBONES – JABINES
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ATTY. BATHAN-LASCO (2021-2022)
If you sell a particular mobile phone which is P500 or
more, the sale must be in writing to be enforceable. This
is because in the event that either one of you breaches
the agreement, then the other can file a case in court.
Of course, there is no problem if it is orally made, and you
abide by the terms of the agreement. If one pays and the
other delivers, then it is already removed from the Statute
of Frauds because it is no longer executory. It is already
executed.
“unless there is already partial delivery or partial
payment” – We say that the Statute of Frauds will cover
only executory contracts. If it is already partially executed,
then you can no longer use statue of Frauds.
Example: A sells a particular car to B for P300,000, and
it was orally made. But B makes a down payment of
P100,000 to A. The agreement was that it can be
delivered only when full payment is made. And there was
no written contract. So, if you follow the Statute of Frauds,
if B will now fully pay, A can use the Stature of Frauds in
saying that A will not deliver the car because it is
unenforceable in court, if we use the Statute of Fraud. But
since it is already partially executed, the laws will tell you
that the Statue of Fraud will no longer apply.
Why? Because the purpose of the Statute of Frauds is to
prevent fraud. If we use the Statute of Fraud in the above
example, it will now aid in the fraud that will be committed
by A against B.
Even if it was only orally made, since there was already a
partial execution by partially paying A, then A can longer
use the Statute of Frauds.
To reiterate, if there is already a partial execution, then
Statute of Frauds will no longer apply.
Example: Sale of a car for P300,000 and there is no
payment yet. So, B cannot compel A by court action for A
to deliver because there is no partial payment yet.
ARTICLE 1403 (2) (e)
An agreement for the leasing for a longer period than
one year, or for the sale of real property or of an
interest therein;|
ARTICLE 1403 (2) (f)
A representation as to the credit of a third person.
Again, these types of contracts must be in writing to be
enforceable. If it is orally made, it is unenforceable. But if
it is already fully executed, one has paid while the other
has delivered, then there is no need to bring up Statute of
Frauds.
So, if you want to represent someone as being able to pay
a loan, then you must also have to put that in writing to
make it enforceable.
RECAP/SUMMARY OF UNENFORCEABLE
CONTRACTS
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
1. Unauthorized Contracts
2. Those that do not comply the Statute of Frauds
3. Those where both parties are incapable of giving
consent to a contract
Situation 1: If A is a minor and B is a minor, both
are incapacitated to give consent to a contract
and they entered into a contract, then that
contract is unenforceable.
Situation 2: If A is a minor and B is capacitated,
only one is incapacitated, this is not an
unenforceable contract. Instead, it is voidable.
Can the Statute of Frauds be waived?
Yes. It may be waived.
For instance, in an oral sale of a particular car, it was not
done in writing. The seller now sues the buyer to pay the
particular car with the agreed price. This should have
been covered by the Statutes of Frauds, that means that
the seller should have been able to purse a court against
the buyer.
Supposing the buyer answers the case and if he does not
raise the defense of the Statute of Frauds, then he is
deemed to have waived such defense. In other words, if
you are being sued, and the contract is supposed to be
an unenforceable contract, then your lawyer must be
quick to identify it and to use the defense that it is
unenforceable, therefore you cannot be sued.
PNB vs. Philippine Vegetable Oil
Atty: This is about an agreement for backing of the
vegetable company where the Supreme Court said
there was no evidence to show that there was unlimited
backing. There was no evidence to show that the
President was authorized by the Board of Directors
because in a corporation, an action to be valid, it must
be authorized by the Board of Directors.
Ruling: The issue in this case is whether or not PNB
ever entered into any valid agreement where it bound
itself to provide necessary operating capital the Oil
Company. The legal inquiry relates to the applicability
or non-applicability of the Statute of Frauds is found in
section 335 of our Code of Civil Procedure. The
question of fact goes on the assumption that the oral
evidence can be received without violating the Statute
of Frauds and then, of course, comes down to the
weighing of the evidence.
No contract entered into by the General Manager of
the Bank would be valid unless made with the
advice and consent of its Board of Directors. What
the Board of Directors had decreed was that the
Vegetable Oil Company be financed under the
receivership to the extent of P500,000, a sum which
was later increased. There was no indication in any
action taken by the Board of Directors that it had
ever consented to an agreement for practically
unlimited backing of the Vegetable Oil Company, or
that it had ratified any such promise made by its
General Manager.
ROSENCOR DEVT CORP vs. PATERNO INQUING
(EH 405, 2020-2021) ACHAY – ALGARME – BELARMA – CRISTORIA – CRUZ – DALUSUNG – DAWSON – DIAZ – EBAL – ENRIQUEZ – IBONES – JABINES
LABASTIDA – LAO - LUMBRE – MOJICA – NAPATOTAN – OBALLO – PATALINGHUG – RODELAS – RONGCALES - SAW – TAN – VILLANUEVA
ATTY. BATHAN-LASCO (2021-2022)
Atty: This actually discusses whether a right if first
refusal is covered by the Statute of Frauds. The
Supreme Court said that a right of first refusal is not a
sale of real property, therefore, it is not covered by
the Statute of Frauds. Consequently, it is still
enforceable even though it is only orally made. But, in
this case, the SC agreed that there exists such right of
first refusal, however, they could not defeat the right of
the innocent purchaser for value, the one who was
really able to buy the property because the purchaser
was in good faith.
Ruling:
The term "statute of frauds" is descriptive of statutes
which require certain classes of contracts to be in
writing. This statute does not deprive the parties of the
right to contract with respect to the matters therein
involved, but merely regulates the formalities of the
contract necessary to render it enforceable. It is
included in the provisions of the Civil Code regarding
unenforceable contract.
"Art. 1403. The following contracts are
unenforceable, unless they are ratified:
xxx xxx xxx
e) An agreement for the leasing of a longer period
than one year, or for the sale of real property or of
an interest therein;
Not all agreements "affecting land" must be put
into writing to attain enforceability. A right of first
refusal is not among those listed as unenforceable
under the statute of frauds. Furthermore, the
application of Article 1403, par. 2(e) of the New Civil
Code presupposes the existence of a perfected, albeit
unwritten, contract of sale. Aright of first refusal, such
as the one involved in the instant case, is not by any
means a perfected contract of sale of real property; at
best, it is a contractual grant of right of 1st refusal over
the property sought to be sold. As such, a right of first
refusal need not be written to be enforceable and
may be proven by oral evidence.
ARTICLE 1405
Contracts infringing the Statute of Frauds, referred to
in No. 2 of article 1403, are ratified by the failure to
object to the presentation of oral evidence to
prove the same, or by the acceptance of benefits
under them.
One of the characteristics of an unenforceable contract is
ratification. It may be expressed or implied. So if you fail
to object in a case in court that it is an unenforceable
contract, then you have waived such right to raise it.
Another is acceptance of the benefit. In the earlier
example where my brother sold my car without my
authority. If my brother sells the car, he gets the proceeds
of the sale. But then I get the money, I put it in the bank,
then I withdraw some money and I spent it. That is
acceptance of the benefit. So, even if the sale was
unauthorized, it has already been ratified. The defect has
been cured by my ratification.
27
REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
Carbonnel vs. Poncio
Doctrine: Statute of Frauds cover only executory
contracts or contracts that are still to be executed. If
there is partial performance, that contract is already
removed from the Statute of Frauds.
ARTICLE 1406
When a contract is enforceable under the Statute of
Frauds, and a public document is necessary for its
registration in the Registry of Deeds, the parties may
avail themselves of the right under Article 1357.
Article 1357 grants a party the right to compel the other
to observe a particular form.
Example: A sale of a parcel of land is covered by the
Statute of Frauds, to be enforceable, it must be in writing.
What if the sale is only in a private instrument?
If it is a sale of a parcel of land and you want to register it
under your name, the Registry of Deeds will require that
it be notarized (it must be in a public document). If it is in
writing, it is also enforceable, then you can compel the
other party or the seller to have the Deed of Sale notarized
to observe a particular form because anyway it is already
enforceable.
ARTICLE 1407. In a contract where both parties are
incapable of giving consent, express or implied
ratification by the parent, or guardian, as the case may
be, of one of the contracting parties shall
give the contract the same effect as if only one of them
were incapacitated.
If ratification is made by the parents or guardians,
as the case may be, of both contracting
parties, the contract shall be validated
from the inception.
This article provides the effects of ratification when both
of the parties are incapable of giving consent and who
may also ratify.
A is a minor, B is a minor. A’s parent ratified the contract.
So what happens now? It is only as if only one is
capacitated. This means that the status of the contract
has now been raised to it being voidable.
But if both parents of the incapacitated persons ratified
the contract, it cures the defect. The contract now
becomes valid.
VOID CONTRACTS
Characteristics:
1. Inexistent from the very beginning
2. Produces no effect
3. Cannot be ratified
ARTICLE 1409
The following contracts are inexistent and void
from the beginning:
(EH 405, 2020-2021) ACHAY – ALGARME – BELARMA – CRISTORIA – CRUZ – DALUSUNG – DAWSON – DIAZ – EBAL – ENRIQUEZ – IBONES – JABINES
LABASTIDA – LAO - LUMBRE – MOJICA – NAPATOTAN – OBALLO – PATALINGHUG – RODELAS – RONGCALES - SAW – TAN – VILLANUEVA
ATTY. BATHAN-LASCO (2021-2022)
(1) Those whose cause, object or purpose is contrary
to law, morals, good customs, public order or public
policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist
at the time of the transaction;
(4) Those whose object is
outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative
to the principal object of the contract cannot be
ascertained;
(7) Those expressly prohibited or declared void by
law.
These contracts cannot be ratified. Neither
can the right to set up the defense of illegality be
waived.
(1) Those whose cause, object or purpose is contrary
to law, morals, good customs, public order or public
policy
Object – from the perspective of the one giving the thing
up)
Cause (from the perspective of the one expecting to
receive the thing)
Example: If I will sell a particular ring for P100,000. In my
perspective, the object is what I am giving, the ring; while
my cause is the one which I am expecting in return, the
price of P100,000.
But in the perspective of my buyer, his object is the money
that he is going to pay me. While his cause is the ring or
the object that he is expecting to receive from me.
If the object or cause is contrary to law, morals, good
customs, public order or public policy, then it is as if
there is no object or cause. Why? Because there are 3
elements that make up the contract—consent, object,
and cause. So if the object or cause is illegal, then the
law deems it as if it does not exist. The contract is void
from the very beginning because it lacks an essential
element.
(2) Those which are absolutely simulated or
fictitious
This is void because of the lack of consent. In an
absolutely simulated contract, there is really no
intention to be bound at all, hence, there is no consent.
Since there is a missing element of a contract,
therefore, such contract does not exist or a void contact.
(3) Those whose cause or object did not exist
at the time of the transaction
If at the time of the transaction there was no object or
no cause at the time it was perfected, then it is also void.
(4) Those whose object is
outside the commerce of men
If the object is the sun, the moon, and the stars, clearly
it cannot be an object of a contract. Hence, the law
deems it as if there is no object. So, lacking essential
element, therefore the contact is void.
(5) Those which contemplate an impossible service
This does not only pertain to physical impossibility but
also illegal impossibility or even impractical or beyond
the contemplation of the parties.
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REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
(6) Those where the intention of the parties relative
to the principal object of the contract cannot be
ascertained
As to the object, you are not sure of what it is, so the
law will consider that as the parties having no object in
the contract. So, lacking essential element, therefore
the contact is void.
(7) Those expressly prohibited or declared void by
law.
As we mentioned, one of the characteristics of a void
contract is that it cannot be ratified. The last paragraph
of Article 1409 provides that these contracts cannot be
ratified. Neither can the right to set
up the defense of illegality be waived.
For void contracts, you can also classify them as,
rather, those enumerated. The first one, those whose
cause, object or purpose is contrary to law, morals,
good customs, public order or public policy.
These above can be further classified as either:
1. An act that constitutes a criminal offense; or
2. An act that does not constitute a criminal offense.
Because while your object or your cause can be
considered inexistent, it doesn’t necessarily mean that the
act is criminal.
PARI DELICTO RULE
Article 1411. When the nullity proceeds from the
illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being in
pari delicto, they shall have no action against each other,
and both shall be prosecuted. Moreover, the provisions
of the Penal Code relative to the disposal of effects or
instruments of a crime shall be applicable to the things
or the price of the contract.
COMMENT: This article covers those acts constituting a
criminal offense or contracts entered into constituting a
criminal offense. It gives you the the consequences of
such contract.
This article introduces the concept of in pari delicto.
Meaning both are at fault. Since both are at fault, you
cannot ask for relief from the court. You will be left as you
are.
This article also tells you that the proceeds of such
contract will be confiscated in favor of the state. Both
parties will also be prosecuted but neither parties can sue
each other.
2nd paragraph: This rule shall be applicable when only
one of the parties is guilty; but the innocent one may
claim what he has given, and shall not be bound to
comply with his promise.
COMMENT: If both parties are guilty, you cannot get back
(EH 405, 2020-2021) ACHAY – ALGARME – BELARMA – CRISTORIA – CRUZ – DALUSUNG – DAWSON – DIAZ – EBAL – ENRIQUEZ – IBONES – JABINES
LABASTIDA – LAO - LUMBRE – MOJICA – NAPATOTAN – OBALLO – PATALINGHUG – RODELAS – RONGCALES - SAW – TAN – VILLANUEVA
ATTY. BATHAN-LASCO (2021-2022)
whatever you may have given from the contract. If only
one party is guilty, the innocent party may recover. But
again, it will be up to the discretion of the court.
ILLEGAL CONTRACTS
Article 1412. If the act in which the unlawful or
forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting
parties, neither may recover what he has given by
virtue of the contract, or demand the performance
of the other's undertaking;
(2) When only one of the contracting parties is at fault,
he cannot recover what he has given by reason of
the contract, or ask for the fulfillment of what has
been promised him. The other, who is not at fault,
may demand the return of what he has given
without any obligation to comply his promise.
2 kinds of illegal contract:
1. Those where there is a criminal offense
2. Those where there is no criminal offense
MEANING OF EXCESS
Article 1413. Interest paid in excess of the interest
allowed by the usury laws may be recovered by the
debtor, with interest thereon from the date of the
payment.
COMMENT: The usury laws have been already
suspended. The limit on interest now is the conscience of
the lender. This does not mean that if you will be
victimized by unscrupulous lender that you do not have a
remedy. You can ask the court to lower the interest on the
reason that the interest is unconscionable or shocking to
the conscience of men.
WHERE RECOVERY CAN BE HAD EVEN IN THE
PRESENCE OF PARI DELICTO
Article 1414. When money is paid or property delivered
for an illegal purpose, the contract may be repudiated
by one of the parties before the purpose has been
accomplished, or before any damage has been caused
to a third person. In such case, the courts may, if the
public interest will thus be subserved, allow the party
repudiating the contract to recover the money or
property.
COMMENT: The recovery of the money or the property
depends upon whether the purpose has been
accomplished or if damage has not yet been caused to a
3rd person.
EXAMPLE:
A hires B to kill X. A promises B a reward of P1M for
killing X. But A advanced that money to B, so B has not
yet killed X.
This provision in 1414 tells you that A is allowed to
recover the money (if the court will allow it) so long as
the purpose has not yet been accomplished.
29
REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS)
BASIS for allowing: If the court believes that public
interest will be served by allowing such return.
EFFECT IF ONE PARTY IS INCAPACITATED
QUESTION: What happens if one party to an illegal
contract is incapacitated to give consent? Can the
incapacitated person recover whatever he has given by
virtue of the illegal contract?
Answer: Article 1415.
Article 1415. Where one of the parties to an illegal
contract is incapable of giving consent, the courts may,
if the interest of justice so demands allow recovery of
money or property delivered by the incapacitated person
COMMENT: It will depend upon the court.
AGREEMENTS THAT ARE NOT ILLEGAL PER SE
BUT PROHIBITED
Article 1416. When the agreement is not illegal per se
but is merely prohibited, and the prohibition by the law
is designed for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he has
paid or delivered.
COMMENT: If you can observe with the preceding articles
(1414,15,16), recovery was allowed and the underlying
reason for allowing such recovery is public interest. The
courts will decide as whether they would allow recovery.
EXAMPLE: A donating everything he owns to X.
Under the family code, it mentions there that if you donate
something, you must make sure to leave enough to
support yourself and those you are legally obliged to give
support.
This act is not illegal per se but it is prohibited. This article
is to protect you.
Can A recover? Supposing he no longer has money
to support himself?
Yes. Only to the extent that he may need to support
himself and those he needs to support.
PHIL. BANKING CORP V. LUI SHE
There was a lease of a certain property but in the
contract, it was not merely a lease but the alien who
was renting it was given an option to buy a piece of that
property.
The Supreme Court that this is a circumvention of the
Constitution, because the Constitution does not allow
aliens to own land in the Philippines.
There are only certain exceptions under the law
however this case does not fall under any of the
exceptions.
Q: Will the heirs of that person who entered into
contract with the aliens in the contract of lease (with an
option to buy) recover the property?
A: YES. Although the original parties to the contract
were both guilty for entering into such an illegal contract
hence they are in pari delicto (so the SC will leave them
as they are), this case is an exception because if they
(EH 405, 2020-2021) ACHAY – ALGARME – BELARMA – CRISTORIA – CRUZ – DALUSUNG – DAWSON – DIAZ – EBAL – ENRIQUEZ – IBONES – JABINES
LABASTIDA – LAO - LUMBRE – MOJICA – NAPATOTAN – OBALLO – PATALINGHUG – RODELAS – RONGCALES - SAW – TAN – VILLANUEVA
ATTY. BATHAN-LASCO (2021-2022)
were to do that, they are now allowing aliens to own
land in the Philippines and public interest will not be
served by doing so. The public interest here is to
protect the Filipino owners. The SC here ordered the
aliens to return the property to the heirs of the original
lessor.
From Fanta notes:
YES, THE SUBJECT CONTRACTS SHOULD BE
ANNULLED AS THEY ARE PROHIBITED BY LAW.
To be sure, a lease to an alien for a reasonable period
is valid. So is an option giving an alien the right to buy
real property on condition that he is granted Philippine
citizenship.
BUT if an alien is given not only a lease of, but also an
option to buy, a piece of land, by virtue of which the
Filipino owner cannot sell or otherwise dispose of his
property, this to last for 50 years, then it becomes clear
that the arrangement is a virtual transfer of ownership
whereby the owner divests himself in stages not only of
the right to enjoy the land but also of the right to dispose
of it— rights the sum total of which make up ownership.
It is just as if today the possession is transferred,
tomorrow, the use, the next day, the disposition, and so
on, until ultimately all the rights of which ownership is
made up are consolidated in an alien.
And yet this is just exactly what the parties in this case
did within this pace of one year, with the result that
Justina’s ownership of her property was reduced to a
hollow concept. If this can be done, then the
Constitutional ban against alien landholding in the
Philippines is indeed in grave peril.
TAKE NOTE: RECOVERY MAY BE ALLOWED IF
PUBLIC INTEREST IS SUBSERVED.
ALFRED FRENZEL V. EDERLINA CATITO
This is a love story between an Australian man and a
Filipina woman. The Australian man bought a property,
knowing that the property cannot be named after him ,
he put it under the name of the woman.
He wanted to get the property back saying that the
Filipina woman cannot get that property.
The Supreme Court said he is not allowed to buy
property in the Philippines, he even knew fully well that
he is not allowed to do so, he entered into an illegal
contract so he will be left as he is. Recovery is not
allowed because it will not serve public interest
because even if it was his money, the SC cannot give
the property back to him because it will not be running
afoul to the Constitutional prohibition that aliens cannot
own land in the Philippines.
FROM FANTA NOTES:
NO, ALFRED CANNOT INVOKE ARTICLE 1416 OF
THE CIVIL CODE.
The provision applies only to those contracts which are
merely prohibited, in order to benefit private interests.
It does not apply to contracts void ab initio.
The sales of 3 parcels of land in favor of the petitioner
who is a foreigner is illegal per se. The transactions are
void ab initio because they were entered into in
violation of the Constitution. Thus, to allow the
30
REALFAM NOTES CIVIL LAW (OBLIGATIONS & CONTRACTS) ATTY. BATHAN-LASCO (2021-2022)

petitioner to recover the properties or the money used Article 1420. In case of a divisible contract, if the illegal
in the purchase of the parcels of land would be terms can be separated from the legal ones, the latter
subversive of public policy. may be enforced.

COMMENT: Self-explanatory
RULE IN CASE OF PAYMENT IN EXCESS OF
MAXIMUM PRICE Article 1421. The defense of illegality of contract is not
available to third persons whose interests are not
Article 1417. When the price of any article or directly affected.
commodity is determined by statute, or by authority of
law, any person paying any amount in excess of the
maximum price allowed may recover such excess. COMMENT: Third persons cannot file a case in Court to
ask that the contract be declared null and void. Only those
party to the contract can file such case.
COMMENT: This article is telling us that the excess that
you paid is void and that can be returned.
Article 1422. A contract which is the direct result of a
previous illegal contract, is also void and inexistent.
This is very relevant now during the pandemic. We have
the Bayanihan act which prohibits overpricing (we also
have this in the Consumer’s act)
COMMENT: The spring cannot rise higher than its
source. If the source is illegal, then all the other contracts
In facts, if you bought those alcohol, mask, thermometers springing from that illegal contract will also be declared
overpriced, you can actually recover the excess. (You illegal and void.
have to go to the proper authorities (DTI))
PRESCRIPTIVE PERIOD
PP to have the contract declared null and void is
Article 1418. When the law fixes, or authorizes the fixing
imprescriptible.
of the maximum number of hours of labor, and a contract
is entered into whereby a laborer undertakes to work
longer than the maximum thus fixed, he may demand WHY? Because it does not exist, so anytime you can ask
additional compensation for service rendered beyond the court to declare it null and void.
the time limit.
Article 1410. The action or defense for the declaration
of the inexistence of a contract does not prescribe.
COMMENT: This will actually be covered under your
labor class.
RELY AT YOUR OWN RISK.
For those of you who are working, if you exceed the Do not upload this on Scribd, Academia, Coursehero
number of hours, you are given an overtime pay. If you or on any other sharing platform online.
work on holidays, you are entitled to an holiday pay.
Waiving your right to overtime pay is VOID.
Real Family Notes
Exception: managerial employees. ACHAY, EMILY GRACE
ALGARME, MA. ISABELA
BELARMA, NIŇO LOUIS
Article 1419. When the law sets, or authorizes the CRISTORIA, ADRIAN DAINTLY
setting of a minimum wage for laborers, and a contract CRUZ, JOHN KARLO
is agreed upon by which a laborer accepts a lower wage, DALUSUNG, ABIGAIL
he shall be entitled to recover the deficiency. DAWSON, MORGAN KENT
DIAZ, TRIXIA LOU
EBAL, QUEENNIE JOY
COMMENT: When you study your labor law, you will ENRIQUEZ, KIRK YNGWIE
introduced by the fact that there are different minimum IBONES, WILSON LANCE
wages for different types of cities. JABINES, MARILOU
LABASTIDA, SEAN CLARK LUINOR A.
What if you are employed and your employees gives you LAO, AMIESTEVEN CLARKE
a contract of employment and it says there that you will LUMBRE, WALTER SHANE
be receiving less than the minimum wage, and you badly MOJICA, MURIEL ALLYSON
needed the work so you accepted the rate despite the fact NAPATOTAN, ZENNIE
that it is much below the minimum wage, so you signed OBALLO, JUSTINE YNNES
the contract. Can you still file an action against your PATALINGHUG, ANNE FRANCES
employer for the deficiency? RODELAS, RENEE DOMINIQUE
YES. Because you cannot bargain away what is given to SAW, VERIŇA
you by law. TAN, TERESA
VILLANUEVA, RANI

(EH 405, 2020-2021) ACHAY – ALGARME – BELARMA – CRISTORIA – CRUZ – DALUSUNG – DAWSON – DIAZ – EBAL – ENRIQUEZ – IBONES – JABINES
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LABASTIDA – LAO - LUMBRE – MOJICA – NAPATOTAN – OBALLO – PATALINGHUG – RODELAS – RONGCALES - SAW – TAN – VILLANUEVA