Polytechnic University of the Philippines

Synthesis 3, Integrated Course in

Business Law & Taxation

Part I – Law on Obligations

Obligations, defined - An obligation is a juridical necessity to give, to do or not to

do. (Art. 1156)

Notes: This is known as civil obligation.

Juridical Necessity means it may be enforced thru court as action.

Elements: 1. Juridical or Legal Tie

2. Active Subject (One who has right to compel)
3. Passive Subject (One who is directed to perform)
4. Prestation (Object of the obligation)

Sources of obligations: (1) Law;

(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. (Art. 1157)

Notes:
1. Quasi-contracts (or implied contract) – lawful, voluntary or unilatiral
acts can give rise to quasi-contracts (e.g. unjust enrichment, solutio
indebiti (e.g. payment by mistake)
2. Quasi-delicts – acts or omission causes damage to another there being
faault or negligence if there is no pre-existing contractual relations

Art. 1158. Obligations derived from law are not presumed.

NOTE: ONLY THOSE EXPRESSED BY LAW ARE DEMANDABLE.

Art. 1159. Obligations ARISING FROM CONTRACTS HAVE FORCE OF LAW

BEWEEN PARTIES. SHOULD BE COMPLIED WITH IN GOOD FAITH.

Art. 1160. Obligations from QUASI-CONTRACTS – governed by Chap 1,

Titles XVII

Art. 1161. Civil obligations from CRIMINAL OFFENSES - governed by the

penal laws, subject to the provisions of Article 2177, and of the pertinent
provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII
of this Book, regulating damages.

Art. 1162. Obligations derived from QUASI-DELICTS shall be governed by

the provisions of Chapter 2, Title XVII of this Book, and by special laws.
 CHAPTER 2
NATURE AND EFFECT OF OBLIGATIONS

Obligation Debtor’s obli. Creditor’s right CR’s right to damages

To give a 1. To deliver To demand delivery In case of debtor’s:
determinate 2. Take care of thing (1163) 1. fraud
thing 2. negligence
3. delay
4. breach (1170)

Responsible if thing is lost Right to fruits only from If there is fraud,

due to fortuitous event if he time deliver arises. damages is
promise to deliver thing to 2 demandable. Waiver of
or more person (1165) No real right until thing action against FUTURE
delivered (1164) fraud is void (1171)

Deliver accessions and If there is negligence,

accessories even if not liability is regulated by
mentioned (1166) court (1172)

Note: To exclude accessions

and accessories, it must be
made clear

To give generic Ask obligation to be NO LIABILITY IF NON-

thing complied with at the PERFORMANCE IS DUE
expense of debtor TO UNFORSEEN
(1165) EVENT, OR
FORTUITOUS EVENT

To do Perform the obligation at

debtor’s cost (1167)

No to do Undo at debtor’s expense

(1168)

Notes:
Delay: There is delay when creditor demands and debtors fail to perform. There is delay
also when (1) law provides, (2) nature and circumstance of obligation, (3) when demand is
useless like when debtor cannot perform the obli.

Reciprocal obligation, one party is in delay when one party fulfilled his obligation (1169)

Negligence: omission of diligence required by the nature of obligation

CHAPTER 3: KINDS OF OBLIGATIONS

PURE – when Demandable at once (pwede ng hingin agad) (1179)

obligation does not
depend on any Obligation based on resolutory condition is also demandable at once.
condition

Example:

I will give you P1,000.

CONDITIONAL – when Condition based on sole will (solong kagustuhan) of debtor, the
obligation depends on a OBLIGATION is VOID. NOTE: THIS IS CALLED POTESTATIVE
condition (1181) CONDITION

2 Types: If it depends on 3rd person or by chance, VALID (1182)

1. Suspensive – if this Impossible conditions. Physical (hindi talaga pwedeng mangyari) or Legal
happens, it will give rise (ipinagbabawal ng batas o ng kabutihang asal o ng public policy), the
to the obligation obligation is ANNULED

Example: Just disregard condition NOT to do IMPOSSIBLE THING (1183)

I will give you P1,000 if Condition that something happens at a DETERMINATE thing, obligation
you pass the final exams will be EXTINGUISHED if:
1. Time expires
2. Sure that it will not happen
2. Resolutory – if this
happens, the obligation example:
stops
I will give you P1,000 if you will win as Class President on October 1,
Example: 2012.

I will give you P1,000 I will not be obligated (hindi ko kailangan magbayad) if:
monthly until you 1. Oct. 1, 2012 came and you are not yet elected class president
graduate from college 2. You dropped out even before October 1, 2012, hence it is sure that
you will not be class president (1184)

Condition that event will NOT happen at a determinate date shall render
obligation EFFECTIVE when:

1. time elapsed
2. it is evident that the event cannot occur

example:

I will give you P1,000 if you DON’T become class president on Oct. 1,
2012

1. I need to pay you on Oct. 1, 2012 if you are not yet class president
then even if no election was called

2. I need to pay you even if its still August 2012 if you dropped out since
you will never be elected class president if you are not a student
anymore (1185)

Condition deemed fulfilled (hence, obligation arises) when debtor

(obligor) voluntarily prevents its fulfillment (sinadya ng may utang wag
matupad ang kondisyon) (1186)
Obligation to give: Effect retroacts to the day obligation was constituted.

Example:

On August 7, 2012, I promised to give you my car with plate number

XXX 888 if you pass the exam on October 1, 2012.

You sold the car on August 10, 2012. You passed the exam on October
1, 2012. The sale you made is valid since you are deemed owner of
the car on August 7, 2012 (retroactive effect)

Reciprocal obli – fruits and interests mutually compensated. (No need to

turnover, unless there is an agreement)

Example:

I promise to give you 2 cows. You promised to give me your

apartment for rent.

Until delivery of the cows and the galaxy tab, I will own the milk and
the young of the cows assuming that it produces milk and give birth to
young. You will own the rent of the apartment until you give it to me.

Unilateral obli – fruits and interests belong to the debtor (Unless there is
agreement) (1187)

I promise to give you the 2 cows. I will own the milk and the young
unless there is a contrary stipulation (pwere na lang kung
napagkasunduan natin na pati iyon ay ibibigay ko sayo)

While condition is NOT yet happening:

1. Creditor may file action to preserve his right (1188)

2. Debtor may recover if he paid by mistake

3. When thing is LOST, DETERIORATED or IMPROVED

Lost – without fault of debtor – obli is extinguished

With fault – debtor liable for damages

Deteriorated – without fault – cost borne by creditor

With fault – Creditor may chose (1) rescind (2) fulfill
With damages on both cases

Improved – by nature – inure to the benefit of creditor

By expense of debtor – debtor enjoy right to use (1189)

In case of Resolutory Condition is fulfilled:

a. Obligation is to Give (determinate thing):

1. Parties to RETURN to each other what they have received

2. In case of LOST, DETERIORATED or IMPROVED, apply rule in Art.

1189 WITH RESPECT TO THE DEBTOR

b. Obligation to Do or Not to do: Apply Art. 1187 (1190)

Reciprocal obligation:

1. Power to rescind by the party willing and able to comply is IMPLIED.

2. Injured party may choose:

a. Fulfillment with damages (may still be rescinded if fulfillment is
impossible)
b. Rescission with damages (1191)
 If BREACH committed by both parties:

1. Liability of FIRST infractor will be equitably tempered (pabababain ng

husgado) by the court

If first infractor cannot be determined, obligation is extinguished and

each party shall bear his own damages

WITH A PERIOD – when Payable when means of the DEBTOR permits him (1180)
obligation is based on a
day certain (exact date) Demandable when day comes.
or an event sure to come
even though not known If resolutory period, obligation is terminated when period comes. (1193)
when (death, next rain,
next sunrise). In case of Loss, Deterioration, or Improvement, apply 1189 (1194)

Example: Payment by mistake (debtor unaware that period has not yet arrived)
may be recovered together with fruits and interest (1195)
1. On August 7, 2012, I
promised to pay you Period is for the benefit of both parties unless it is clear that period is for
P1,000 on October 1, the benefit of one party only (1196)
2012 (day certain).
Hence, a creditor cannot be forced to receive early payment if it is not
2. On August 7, 2012, I agreed upon.
promised to pay you
P1,000 on the opening of Court will fix the period if:
the enrollment for School
Year 2013-14 (sure to 1. parties failed to fix it (as long as intention to fix the period is clear)
come but not known 2. period depends on sole will of debtor (1179)
when)
Debtor loses right to use the period when:

1. He becomes insolvent and he did not give new security

2. He did not give promised security to the creditor
3. When his security was impaired (nasira) by own act (after
establishment) or when they disappear thru fortuitous event
4. He violated any undertaking (kasunduan) which is the reason why
creditor agreed to the period
5. He attempts to abscond (tumakas) (1198)

ALTERNATIVE – when Creditor cannot be compelled (mapipilit) to receive part of both

the debtor is bound by obligation.
different prestations
(obligation) Example:
In the given example, A cannot be compelled (hindi pwede pilitin) to
Example: give just 1 labrador dog and to sing for the creditor for 4 days only.
Unless of course A would approve it (pwera na lang kung papayag si
A is obliged to deliver 2 A) (1199)
labrador dogs or 1 iphone
4s or sing until the Right of choice belongs to the Debtor unless expressly granted to the
creditor debtor (1200)

Only one prestation is due Effective only when choice was communicated (1201)

Right is lost when only one prestation is practicable (1202)

If debtor cannot make a choice because of the creditor, the debtor may
rescind the contract with damages (1203)

Creditor has right to indemnity (mabayaran) when:

Debtor’s fault, all choices were lost or become impossible.

Basis: value of last thing disappeared or service last became impossible.

Damages may also be awarded (1204)

 When choice given to CREDITOR:

Obligation ceases (tumigil) to be alternative from day selection has been

communicated to the debtor.
Until then, debtor’s responsibility is:

1. To perform the choice of the creditor from the remainder of the

prestation when original choice is lost thru fortuitous event (di sinasadya
at inaasahang pangyayari)

2. If only one remains, perform that remaining prestation

3. If loss is due to fault of debtor, creditor may ask for the price of that
lost thing with right to damages

4. If all things were lost due to fault, the creditor may choose with right
to damages also.

Same rule applies to obligation to do or not to do. (1205)

FACULTATIVE - when Loss or deterioration of substitute does not make debtor liable UNLESS
only one obligation agreed the substitution has been made and there is delay, negligence or fault of
upon but debtor may the debtor. (1206)
render another in
substitution.

Example:

A is obliged to deliver 2
labrador dogs to B. They
agreed that A may give
just his iphone 4s as a
substitute .

JOINT – when there are When there are 2 or more debtors or 2 or more creditors. General rule is
2 or more debtors and obligation is joint (obligation is divided into as many equal shares as
each of them answers there are creditors or debtors) (1208)
only their part.
Example:
Example:
Peter, John and Paul owed Mary P3,000 each. Mary can demand only
Peter, John and Paul owed P1,000 per person since without any stipulation, the obligation is
Mary P1,000 each. Mary deemed joint.
can demand only P1,000
per person. She cannot
demand entire amount to If division is impossible, rights of creditors may be prejudiced (masisira)
only one or two. only by collective acts and the debt can be enforced only by proceeding
against all the debtors. If one of the debtor should be insolvent, others
shall be liable for his share. (1209)

Example:

Jose and Carlo are obliged to deliver a horse to Mario. Mario must sue
both Jose and Carlo for specific performance since law provides that
debt can be enforced only by proceeding against ALL debtors.

SOLIDARY – when there There is solidary obligation when:

are 2 or more debtors and
the entire debt may be 1. Stipulated (words like “jointly and severall”, “in solidum”, “I promise
demanded from just 1 to pay” signed by 2 or more
debtor 2. Provided by law
3. When nature of obligation requires
Example:
Indivisibility (hindi mahahati) of an obligation does not necessarily gives
Peter, John and Paul owed rise to solidarity. (1210)
Mary P3,000 jointly and
severally. Mary can May exist although creditors and debtors may not be bound in the same
demand P3,000 to any of manner and by the same periods and condition. (1211)
the debtors.
Example:

Peter, John and Paul owed Mary P3,000 jointly and severally. Peter’s is
liable to pay on August 15, 2012 while John is liable when B-Meg
became champion this PBA conference. Paul’s obligation is pure.

Mary can demand only P2,000 from any of the debtors on August 16,
2012 since B-Meg lost in the championship.
Solidary Creditors may do whatever is useful to the others but not
anything which may be prejudicial to other creditors. (1212)
Solidary Creditor cannot assign (ilipat) his rights without consent (pag
sangayon) of others. (1213)

Debtor may pay any of the solidary creditors. But if demand was made
by one of them, payment must be made to that creditor. (1214)

Obligation extinguished when there is novation, compensation,

confusion, or remission of debt made by any of the solidary creditors
without prejudice to Art. 1219.

The creditor who executed any of the acts as well as he who collects the
debt shall be liable to the others for the share in the obligation
corresponding to them. (1215)

Creditor may proceed against anyone of the solidary debtor or some or

all of them simultaneously. Others may be run after if debt is not fully
paid yet. (1216)

Debt extinguished if any of debtor pay. Creditor may choose if 2 or more

solidary debtors offer to pay.

He who made payment may claim from co-debtors. When one solidary
debtor cannot pay, such share shall be borne by all his co-debtors in
proportion to the debt of each. (1217)

If debt prescribed (lumipas na), solidary debtor who paid does not have
right to reimbursement (1218)

Remission (pagpapatawad ng utang):

Remission made by creditor to solidary debtor does not release that

debtor from his responsibility to co-debtors in case debt has been fully
paid by any one of them BEFORE remission. (1219)

When obtained by one debtor, does not entitle him to reimbursement

from other debtors. (1220)

Obligation extinguished when:

Thing lost or if prestation becomes impossible without fault of the

solidary debtors.

If with fault on any debtor, ALL shall be responsible to the creditor.

Same thing when thing is lost when there is delay on any of the debtor.
(1221)

Defenses: Solidary debtor may avail:

1. All defenses derived from nature of obligation

2. All defensPersonal to him
3. Pertain to his share

If personal to other debtor, he may avail thereof only as regards that

part of the debt for which the latter is responsible.

(1222)
DIVISIBLE – when
obligation may be
performed partially
Example:
Obligation to deliver 10
sacks of rice. It is possible
the 5 sacks will be
delivered today and the
rest, tomorrow.
INDIVISIBLE – when
obligation is not capable
of partial performance.
Example:
Obligation to deliver a
specific mobile phone
WITH PENAL CLAUSE –
obligation that contains
provision that debtor will
pay a penalty for failure to
perform the obligation
according to agreement
Example:
Obligation to pay on 10
equal monthly
installments. For failure to
pay any of the
installments, the debtor
will be charged with 10%
interest and the entire
debt shall be considered
due and demandable.
Chapter 4 – Extinguishment of Obligations
Reasons
PAYMENT – when money
owed is delivered or
obligation has been
complied with (nabayaran
na o nagawa na ang dapat
gawin) (1232)
When obligation may be executed for a certain number of days, or by
metrical units, or analogous things, it is divisible.
Example:
Certain number of days: House painting job that will last for 10 days.
Metrical units: 10 sacks of rice
Analogous: Typing job per paper
But even if thing may be divisible, the obligation is indivisible if it is
provided by law or by intention of the parties. (1125)
Joint indivisible obligation gives rise to indemnity for damages from time
any of the debtors does not comply with his undertaking. Debtor who is
ready to comply with his obligation shall not contribute to the indemnity
beyond his portion of the price of the obligation. (1224)
Example:
Peter and John are obliged to give to Maria a specific Nokia Phone.
Obligation is NOT solidary but it is indivisible.
If the phone is worth P10,000. Peter and John for whatever reason
cannot deliver the phone. Their obligation is converted to monetary.
Peter is ready with is P5,000 but John is not.
Peter is only duty bound to give P5,000 to Maria. He is not answerable
to the P5,000 debt of John (unless the obligation is SOLIDARY)
Penalty shall substitute the indemnity for damages and payment of
interests if there is no contrary stipulation. Damages will have to be
paid if debtor refuses to pay penalty or is guilty of fraud. (1226)
Debtor cannot excuse himself from performing the obligation by paying
the fine, unless that right is expressly granted to him.
Creditor cannot demand fulfillment of the obligation and payment of the
penalty at the same time unless this right has been expressly grandted.
(1227)
Proof of actual damage not necessary to demand penalty payment.
(1228)
Judge shall equitable reduce penalty when obligation has been partly or
irregularly complied with. Penalty may also be reduced even if there is
no performance at all, if it is iniquitous or unconscionable (hindi na
makatarungan dahil sobra sobra na)(1229)
Nullity of penalty clause does not carry nullity of principal obligation. But
nullity of principal obligation carries with it nullity of penalty clause.
(1230)
1. Payment or performance
2. Loss of thing due
3. Condonation or remission
4. Confusion or merger of the rights of creditor and debtor
5. Compensation
6. Novation
Requisite for Payment:
1. Thing or service itself must be paid (Identity)
2. Completely delivered or rendered (Integrity) (1233)
Less than perfect payment:

If obligation has been substantially performed in good faith (pwede na,

hanggat sa abot ng makakaya) the debtor may recover as if there was
complete performance, less damages suffered by the creditor. (1234)

When creditor accepts knowing incompleteness or irregularity of

performance, and did not express protest or objection, obligation is
deemed fully complied with. (1235)

Creditor not bound to accept payment from third person who has NO
interest in the fulfillment of obligation, unless there is stipulation to the
contrary.

Whoever pays for another may demand from debtor what he has paid.
Except: When he paid WITHOUT knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial
to the debtor. (1236)

Example:

Peter paid the airline ticket of Maria for P2,000.00. It was done
without the knowledge (or against the will) of Maria. Later, Maria
told Peter that she is entitled to half-the-price for the ticket.

In this case, Peter can only recover P1,000 from Maria.

Whoever pays on behalf of the debtor without the knowledge or against

the will of the latter, cannot compel (pilitin) the creditor to subrogate
(ilipat sa kanya) him in his rights, such as those arising from a mortgage
guaranty, or penalty. (1237)

Example:

Peter owed Maria P10,000.00. They agreed that in case Peter cant
pay, Maria will own Peter’s iphone. John paid the debt of Peter. It was
done without the knowledge of Peter.

In this case, John can recover P10,000.00 from Peter. But if Peter
cannot pay, he cannot have Peter’s iphone. Reason: No subrogation.

Payment made by third person who does NOT INTEND TO BE

REIMBURSED (di nya gusto mabayaran) by the debtor is deemed to be a
DONATION (bigay) which requires debtor’s consent. But the payment is
valid as to the creditor who has accepted it. (1238)

Obligation to give: Payment by someone who does not have the FREE
DISPOSAL (pagaari) and CAPACITY TO ALIENATE (kakayahang ibenta) it
shall NOT be valid. Without prejudice to provisions on Natural
Obligations. (1239)

To whom payment must be made:

1. To the person in whose favor the obligation has been constituted

2. Or his successor in interest (tagapagmana)
3. Or any person authorized to receive it (1240)

If payment was made to INCAPACITATED or UNAUTHORIZED persons,

payment is INVALID as a general rule.

Incapacited – persons who by law are not capable of administering

(pangalagaan) their properties. Example: Insane (mga baliw)

Unauthorized – person who is not authorized (hindi binigyan ng

katungkulan)

Payment to incapacitated valid when he kept the thing delivered or

insofar as the payment has been beneficial to him.
Payment to unauthorized person is valid if it has redounded to the
benefit of the creditor (nakabuti).

Benefit need not be proved in the following cases:

1. if after payment, the third person acquires creditor’s rights

2. if the creditor ratifies the payment (sinangayunan)
3. if by creditor’s conduct, debtor has been led to believe that the third
person had authority to receive the payment. (1241)

If payment was made to any person in possession of credit (evidence of

indebtedness), it will release the debtor if it was done in good faith.
(1242)

Payment made to the creditor by the debtor after the latter has been
judicially ordered to retain the debt shall not be valid. (1243)

Example:

Peter owed Maria P100,000. Maria owed John P100,000.

John sued Maria. Maria claims she is insolvent but claims that
Peter owed her the same amount.

Peter was asked by the court to retain the debt (this is called
garnishment). Any payment made by Peter to Maria at this
point shall be invalid.

Obligation to give:

Debtor cannot compel creditor to receive a different one, even if it is of

same value or more valuable.

Obligation to do or not to do:

An act or forbearance cannot be substituted by another act or

forbearance against the creditor’s will. (1244)

DATION IN PAYMENT – to pay the debt, the debtor gave his property
to the creditor and the creditor agreed with it.

Example:

Peter owed Maria

P1,000. Peter gave
Maria his cell phone
because he did not have
any cash. Maria agree.
Debt is extinguished.

Governed by the law on Sales. (1245)

Obligation to give a generic thing:

Creditor cannot demand thing of superior quality. Neither can debtor

deliver a thing of inferior quality. The purpose and circumstance of the
obligation shall be taken into consideration. (1246)

Unless agreed upon:

Creditor cannot be compelled to partially receive prestations in which the

obligation consists. Neither may the debtor be required to make partial
payments.
(1248)

Payment of debts in money shall be made in currency stipulated. If not

possible, then the currency which is legal tender in the Philippines.

Legal Tender -
 All notes and coins issued by the Bangko Sentral shall be legal
tender: Provided, however, That, unless otherwise fixed by the Monetary
Board, coins shall be legal tender in amounts not exceeding Fifty pesos
(P50.00) for denominations of Twenty-five centavos and above, and in
amounts not exceeding Twenty pesos (P20.00) for denominations of Ten
centavos or less.

Delivery of promissory notes or bills of exchange shall produce effect of

payment only when they have been cashed, or when through the fault of
the creditor they have been impaired.
In case of extraordinary inflation or deflation, the value of the currency
at the time shall be the basis of payment, unless there is agreement to
contrary. (1250)

INFLATION – sharp increase of money without increase in business

transaction. Results in sharp increase in prices.

DEFLATION – opposite of inflation

Place of payment – place agreed upon.

If there is no agreement:

To give determinate thing – delivery at the place where thing might be

at the moment obligation was constituted.

In any other cases – payment at domicile of the debtor. (1251)

Application of payment – out of 2 or more debts owing to the same

creditor, it refers to the debt that is being paid.

Example:

Peter has several debts to Maria, to wit:

P1,000 because he bought Maria’s puppy.
P2,000 because he bought Maria’s new book.
P5,000 because he hired Maria to do his project.

If Peter paid P1,000 to Maria, to what debt should Maria apply this
payment?

Peter may declare to which debt his payment must be applied. If Peter
does not say so, the payment may not be applied to debt that is not due.
(1252)

If Maria issued a receipt to Peter stating that his payment is applied to

the P2,000 for the book and Peter accepted it, Peter cannot complain
about it later. The payment will be applied to that debt. (1252)

If Peter did not declare and Maria did not issue a receipt stating where
she applied the payment, the payment will be applied to the most
onerous (pinakamabigat). (1254)

Example:

In the example above:

P 1,000 loan bears no interest

P 2,000 loan bears 10% interest
P 5,000 loan bears 5% interest

The P2,000 loan is the most onerous.

If the debts due are of the same nature and burden, it will be applied to
all proportionately. (1254)

If debt produces interest, payment shall be applied to the interest first

before it shall be applied to the principal. (1253)
 Payment by cession - where debtor transfer all of his properties not
subject to execution (free to dispose) to the creditors so that they may
sell them and apply proceeds to the debt.

Requirements:

1. More than one debt

2. More than one creditor
3. Insolvency of debtor, complete or partial
4. Abandonment of all debtor’s property not exempt from execution
5. Consent of all creditors
Effect:

1. Creditors shall not own the properties. They shall sell it and apply
proceeds to the debt.

2. Debtor is released up to the amount of the net proceeds of the sale,

unless there is stipulation to the contrary. Debtor still liable to balance.

3. Creditors will collect in the order of preference agreed upon. If no

agreement, based on order established by law.

Tender of Payment – act of offering the creditor what is due him

together with a demand that the creditor accept the same.

Consignation – act of depositing the thing due with the court whenever
the creditor cannot accept or refuses to accept payment

If the creditor refuses without just cause to accept tender of

payment, the debtor shall be released from responsibility by the
consignation of the thing or sum due.

Consignation ALONE shall produce the same effect if:

(1) When the creditor is absent or unknown, or does not appear
at the place of payment;
(2) When he is incapacitated to receive the payment at the time
it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1256)

LOSS OF THING DUE An obligation to deliver DETERMINATE thing is extinguished if

thing lost or destroyed without the fault of the debtor, unless:

1. Debtor incurred delay before loss

2. When by law or stipulation, the obligor is liable even for
fortuitous events
3. When the nature of the obligation requires the assumption of
risk. (1262)

If loss is partial, court will determine whether loss is so

important to extinguish obligation. (1264)

When the service has become so difficult as to be manifestly

beyond the contemplation of the parties, the obligor may also be
released therefrom, in whole or in part. (1267)

If obligation is to deliver a GENERIC thing, the loss or

destruction of anything of the same kind does NOT extinguish
the obligation. (1263)

Presumption of fault – when the thing is lost while in the

possession of the debtor, unless there is proof to the contrary.
This presumption does not apply in case of earthquake, flood,
storm, or other natural calamity. (1265)
 The debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the
fault of the obligor. (1266)

When the debt of a thing certain and determinate proceeds from

a criminal offense, the debtor shall not be exempted from the
payment of its price, whatever may be the cause for the loss,
unless the thing having been offered by him to the person who
should receive it, the latter refused without justification to
accept it. (1268)

Example:

Tonyo stole Anna’s cellphone. Tonyo was caught and was

asked to return the cellphone. Tonyo lost the cellphone due to
fortuitous event. Tonyo is still liable for the amount of the
cellphone.

The obligation having been extinguished by the loss of the thing,

the creditor shall have all the rights of action which the debtor
may have against third persons by reason of the loss. (1269)

CONDONATION OR Needs to be accepted by the debtor expressly (hayagang sinabi)

REMISSION OF DEBT – or impliedly (masasabi dahil sa mga senyales kahit di hayagang
gratuitous abandonment sinabi). (1270)
by the creditor of his
right.
Example of Implied Condonation:

Delivery of private document evidencing credit, voluntarily by

the creditor to the debtor (1271)

If creditor renounce (pinatawad) the principal debt, it shall

extinguish the accessory obligation. But waiver of accessory
obligation does not extinguish the principal debt. (1273)

CONFUSION OR Example:
MERGER OF RIGHTS –
Meeting in one person of Jun issued a check payable to “Cash”. It was given to Terry.
the qualities of creditor
Terry paid it to Migs, who later paid it to Jun.
and debtor with respect to
the same obligation

COMPENSATION – takes Kinds:

place when two persons,
in their own right, are 1. According to effect or extent:
creditors and debtors of
a. Total – both debts completely extinguished (1281)
each other (1278)
b. Partial – balance remains

2. According to origin:
a. Legal – takes place by operation of law
b. Voluntary – agreement of both parties
c. Judicial – “set-off” (1283)
d. Facultative – one party has the choice of claiming the
compensation

Requisites:

(1) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things
 due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated in
due time to the debtor.

Novation – change of an Obligations may be modified (changed) by:

obligation by another, (1) Changing their object or principal conditions;
which extinguishes the (2) Substituting the person of the debtor;
first
(3) Subrogating a third person in the rights of the creditor.

In order that an obligation may be extinguished by another

which substitute the same, it is imperative that it be so declared
in unequivocal terms, or that the old and the new obligations be
on every point incompatible with each other. (1292)

Part II - LAW ON CONTRACTS

Contract

A contract is a meeting of minds between two persons whereby

one binds himself, with respect to the other, to give something or
to render some service. (Art. 1305)

Elements:

Consent – meeting of the minds

Subject matter – obligation
Consideration – payment

Kinds:
According to Kinds
(a) Perfection (Kung 1. Consensual (perfected by mere
paano nagkaroon ng consent)
kontrata) 2. Real (perfected by delivery)
3. Formal (special formalities are
needed like execution of public
document)
(b) Cause or consideration 1. Onerous (interchange of
(kung me bayad) equivalent valuable consideration)
2. Gratuitous (free)
3. Remunerative (given for a benefit
previously given)
Example
Sale
Commodatum (borrowing of something with
intent to return the same thing)
Donation of real property inter vivos (giving
of land while donor is still alive. Such
requires public instrument [notarized
document])
Sale
Donation during relief operations
Tip after you eat in a restaurant
(c) Dependence on
another contract
(d) Parties obligated
(e) Name (kung me
pangalan ba)
1. Principal (stand alone)
2. Accessory (depends on a principal
contract)
3. Preparatory (not the end
contract)
1. Unilateral (only one party has an
obligation)
2. Bilateral (both parties have
obligation)
1. Nominate (the law gave it a
name)
2. Innominate (no name) (1307)
Loan
Guarantee
Agency (one hires an agent to do things for
business of the principal)
Commodatum (yung nanghiram lang ang
may dapat gawin – isoli ang hiniram)
Sale
Sale, commodatume, agency, deposit
4 types:

1. I do that you may do (Facio ut facias)

(f) Risk of fulfillment
(g) Time of performance
(h) Subject matter
(i) How law regards the
contract
(k) Evidence required to
prove
(l) Number of persons
entering in the contract
(m) Number of person
who drafter the contract
1. Commutative (parties expect
fulfillment)
2. Aleatory (fulfillment depends
upon chance)
1.Executed (completed at the time
contract is entered into)
2. Executory (prestation is to be
complied with at a future time)
1. Contracts involving things
2. Contracts involving rights
3. Contracts involving services
1. Ordinary
2. Institutional
1. Contracts requiring oral or parol
evidence
2. Contracts requiring written
evidence
1. Ordinary (two parties are
represented by different persons)
2. auto-contracts (one person
represent two opposite parties in
different capacities)
1. Ordinary
2. Contract of adhesion (with pro-
forma deed – take it or leave it)
2. I do that you may give (Facio ut des)
3. I give that you may do (Do ut des)
4. I give that you may give (Do ut facias)
Sale
Insurance
Sale of personal property
Deed of conditional sale
Sale
Usufruct, assignment of credit
Agency
Sale
Marriage (inviolable social institution)
Commodatum
Sale of real property
Sale, where same person represents buyer
and seller
Contract of service for home repair
Insurance

Stages of contract

1. Preparation – negotiation phase

2. Perfection – parties concluded the negotiation and came to an
agreement
3. Consummation – terms performed and contract fully executed

General Rule on when contracts are perfected

Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law. (Art. 1315)

 How contracts are perfected

o Consensual – by mere consent (e.g. sale)
o Real – by delivery (deposit)
o Formal – special form (donation of real property)

Real Contracts

Real contracts, such as deposit, pledge and Commodatum, are not

perfected until the delivery of the object of the obligation. (Art.
1316)
 o But future real contracts are Consensual Contracts
 E.g.
A agreed to lend his car to B next school year. This is a
consensual contract.

 Consequences of perfection of contract

o The parties are bound to fulfill in good faith the terms of the
contract
o The parties are bound to all the consequences of the contract

Basic Principles of Law on Contract

1. Freedom to Stipulate – parties are fee to provide the terms as long as

they are not contrary to law, morals, good customs, public order or public
policy (1306)
2. Obligatory Force – parties should comply in good faith (1159 and 1315)
3. Perfection by Mere Consent (as a general rule) (1315)
4. Mutuality - both Parties are Mutually Bound (Art. 1308)
5. Relativity – generally it is binding only between the parties, their
assigns and heirs (1311)

Principle of Freedom to Stipulate

The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary
to law, morals, good customs, public order, or public policy. (Art. 1306)

 Law – passed by congress

 Morals – deals with right and wrong and human conscience. E.g. Work
without pay to pay debt.
 Good customs – Those that have received for a period of time practical
and social confirmation.
 Public order – includes public safety
 Public policy – Public, social and legal interest in private law

Persons Bound by Contract

Contracts take effect only between the parties, their assigns and heirs

Except: in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or
by provision of law. The heir is not liable beyond the value of the
property he received from the decedent.

If a contract should contain some stipulation in favor of a third person, he

may demand its fulfillment provided he communicated his acceptance to
the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person. (Art. 1311)

 Principle of Relativity (parties to the contract are the only persons

bound by the terms of the contract)
 Parties include heirs and assigns unless the obligation (and rights) are
non-transferrable
 Situations where non-parties are affected by the contract:
 o STIPULATION POUR AUTRI (stipulation in favor of third party,
Art. 1311 2nd par.)
o Where third person induces another to violate contract (Art.
1314)
o Contracts creating real rights (e.g. Mortgage)

 Stipulations Pour Autri, Elements:

o Stipulation in favor of a third person
o Clear and deliberate favor given
o Favor not mere incidental
o Stipulation is part of the contract
o Third person communicated his acceptance
o No relation of agency between either of the parties and the
third person

 Creditors are protected in cases of contracts intended to defraud them.

(Art. 1313)

Authority to enter into Contract

No one may contract in the name of another without being authorized by

the latter, or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no

authority or legal representation, or who has acted beyond his powers,
shall be unenforceable, unless it is ratified, expressly or impliedly, by the
person on whose behalf it has been executed, before it is revoked by the
other contracting party. (Art. 1317)

Consent (As Element of Contract)

Consent is manifested by the meeting of the offer and the acceptance

upon the thing and the cause which are to constitute the contract. (Art.
1319)

Offer - Must be certain

Acceptance – Must be absolute

A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except
from the time it came to his knowledge. The contract, in such a case, is
presumed to have been entered into in the place where the offer was
made.

 Requisites of Consent
o 2 or more parties
o Parties capable of giving consent
o No vitiation of consent
o No conflict between what was declared and what was really
intended
 o Intent declared properly (form)

 Withdrawal of Offer
o May be made so long as there is no acceptance yet
o If offer was accepted, it may still be withdrawn if acceptance is
not yet known to the offeror

Acceptance

An acceptance may be express or implied.

 Acceptance may also be presumed (by law)

o Example: Silence leading to estoppel
 Qualified acceptance
o Counter-offer

Option Contract

When the offerer has allowed the offeree a certain period to accept, the
offer may be withdrawn at any time before acceptance by communicating
such withdrawal, except when the option is founded upon a consideration,
as something paid or promised. (Art. 1324)

 Option Contract – a contract granting a person the privilege to buy or

not to buy certain objects at anytime within the agreed period at a
fixed price. This is separate from the actual contract.

Advertisements

Unless it appears otherwise, business advertisements of things for sale are

not definite offers, but mere invitations to make an offer. (Art. 1325)

Advertisements for bidders are simply invitations to make proposals, and

the advertiser is not bound to accept the highest or lowest bidder, unless
the contrary appears. (Art. 1326)

Incapacitated Persons (to enter into a contract)

The following cannot give consent to a contract:

(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to
write. (Art. 1327)

 Persons incapacitated to Consent

o Unemancipated minors
 Exception
 When he misrepresents his age. Must be active,
not merely constructive misrepresentation)
 Sale and delivery of necessities
 Contracts by guardians or legal representatives

o Insane or demented persons

 Exception
 During lucid interval (Art. 1328)
 Note: Contracts in a state of drunkenness or during hypnotic
spell – voidable (Art. 1328)

o Deaf-mutes who do not know how to write (and read)

Vices of Consent (Art. 1330)

 Vices of Consent
o Mistake
o Violence
o Intimidation
o Undue Influence
o Fraud

Effect: Voidable contract

Mistake

 Should refer to the substance of the thing which is the object of the
contract, or to those conditions which have principally moved one or
both parties to enter into the contract. (Art. 1331)
 Mistake as to the identity or qualifications of one of the parties will
vitiate consent only when such identity or qualifications have been the
principal cause of the contract. (Art. 1331)
 A simple mistake of account shall give rise to its correction. (Art. 1331)
 There is no mistake if the party alleging it knew the doubt, contingency
or risk affecting the object of the contract. (Art. 1333)
 Mutual error as to the legal effect of an agreement when the real
purpose of the parties is frustrated, may vitiate consent. (Art. 1334)

Illiterate Persons

When one of the parties is unable to read, or if the contract is in a

language not understood by him, and mistake or fraud is alleged, the
person enforcing the contract must show that the terms thereof have been
fully explained to the former. (Art. 1332)

Violence
 There is violence when in order to wrest consent, serious or irresistible
force is employed. (Art. 1335)

Intimidation

 There is intimidation when one of the contracting parties is compelled

by a reasonable and well-grounded fear of an imminent and grave evil
upon his person or property, or upon the person or property of his
spouse, descendants or ascendants, to give his consent. (Art. 1335)
 To determine the degree of intimidation, the age, sex and condition of
the person shall be borne in mind.
 A threat to enforce one's claim through competent authority, if the
claim is just or legal, does not vitiate consent. (Art. 1335)

Third Person is the source of violence or intimidation

Effect: Shall annul the obligation. (Art. 1336)

Undue Influence
  When a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice. (Art.
1337)
 The following circumstances shall be considered: the confidential,
family, spiritual and other relations between the parties, or the fact
that the person alleged to have been unduly influenced was suffering
from mental weakness, or was ignorant or in financial distress. (Art.
1337)
Fraud

 When, through insidious words or machinations of one of the

contracting parties, the other is induced to enter into a contract which,
without them, he would not have agreed to. Known as Dolo Causante.
(Art. 1338)
 Failure to disclose facts, when there is a duty to reveal them, as when
the parties are bound by confidential relations, constitutes fraud. (Art.
1339)
 In order that fraud may make a contract voidable, it should be serious
and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.
(Art. 1344)

o Not Fraud
 The usual exaggerations in trade, when the other party
had an opportunity to know the facts, are not in
themselves fraudulent. (Art. 1340)
 A mere expression of an opinion does not signify fraud,
unless made by an expert and the other party has relied
on the former's special knowledge. (Art. 1341)

Misrepresentation

Misrepresentation by a third person does not vitiate consent, unless such

misrepresentation has created substantial mistake and the same is
mutual. (Art. 1342)

Misrepresentation made in good faith is not fraudulent but may constitute

error. (Art. 1342)

Simulation of Contract

Where parties do not intend to be bound.

May be absolute or relative. The former takes place when the parties do
not intend to be bound at all; the latter, when the parties conceal their
true agreement. (Art. 1345)

An absolutely simulated or fictitious contract is void. A relative simulation,

when it does not prejudice a third person and is not intended for any
purpose contrary to law, morals, good customs, public order or public
policy binds the parties to their real agreement. (Art. 1346)

OBJECT OF CONTRACT
  What may be objects of contract:
o All things
 Not outside the commerce of men
 Future things
 Rights which are not intransmissible
 Services which are not contrary to law, morals, good
customs, public order or public policy
 Cannot be objects of contract:
o Future inheritance except in cases expressly authorized by law
o Impossible things or services

 Object must be determinate

The object of every contract must be determinate as to its kind. The

fact that the quantity is not determinate shall not be an obstacle to the
existence of the contract, provided it is possible to determine the
same, without the need of a new contract between the parties. (Art.
1349)

CAUSE OR CONSIDERATION

 Causes of contracts
o Onerous contracts - the prestation or promise of a thing or
service by the other
o Remuneratory ones, the service or benefit which is remunerated
o Contracts of pure beneficence, the mere liberality of the
benefactor.

 Contracts without or with unlawful causes

o Produces no effect (ineffectual)
 It is presumed that there is always a cause in the contract even if it is
not stated in the contract (1353)
o Unless proven otherwise
 Lesion (inadequacy of cause)
o Will not invalidate a contract unless caused by:
 Fraud
 Mistake
 Undue influence (Art. 1355)

FORM OF CONTRACTS

When law requires a particular form of the contract in order for it to be

valid or enforceable.

General rule:

Contracts shall be obligatory, in whatever form they may have been

entered into, provided all the essential requisites for their validity are
present. (Consensual contract) (Art. 1356)

However, when the law requires that a contract be in some form in order
that it may be valid or enforceable, or that a contract be proved in a
certain way, that requirement is absolute and indispensable.
 Remedy:

If the law requires a document or other special form, as in the acts and
contracts enumerated in the following article, the contracting parties may
compel each other to observe that form, once the contract has been
perfected. This right may be exercised simultaneously with the action upon
the contract. (Art. 1357)

The following must appear in a PUBLIC DOCUMENT:

(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property;
Note: sales of real property or of an interest therein a governed by
Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of
those of the conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its
object an act appearing or which should appear in a public document, or
should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing in a
public document.

All other contracts where the amount involved exceeds five hundred pesos
must appear in writing, even a PRIVATE one. But sales of goods, chattels
or things in action are governed by Articles, 1403, No. 2 and 1405.

REFORMATION OF INSTRUMENTS

 Purpose
o To make the contract express the true intention of the parties
 It happens when (requisites)
o There have been a meeting of the minds
o True intention was not expressed in the instrument
o It was by reason of mistake, fraud, inequitable conduct or
accident
 If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but
annulment of the contract. (Art. 1359)
 Specific instances where reformation is allowed
o When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument
may be reformed. (Art. 1361)
o If one party was mistaken and the other acted fraudulently or
inequitably in such a way that the instrument does not show
their true intention, the former may ask for the reformation of
the instrument. (Art. 1362)
o When one party was mistaken and the other knew or believed
that the instrument did not state their real agreement, but
concealed that fact from the former, the instrument may be
reformed. (Art. 1363)
 When through the ignorance, lack of skill, negligence or bad
o
faith on the part of the person drafting the instrument or of the
clerk or typist, the instrument does not express the true
intention of the parties, the courts may order that the
instrument be reformed. (Art. 1364)
o If two parties agree upon the mortgage or pledge of real or
personal property, but the instrument states that the property
is sold absolutely or with a right of repurchase, reformation of
the instrument is proper. (Art. 1365)
 Reformation not allowed (Art. 1366)
o Simple donations inter vivos wherein no condition is imposed
o Wills;
o When the real agreement is void.
o When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation.

INTERPRETATION OF CONTRACTS
 Rules on interpretation of contracts
o Literal meaning – in case terms of the contract are clear and
leave no doubt (Art. 1370)
o Evident intention of parties prevail over the words (Art. 1370)
o Contemporaneous and subsequent acts – to determine intention
of the parties (Art. 1371)
o If some stipulation of any contract should admit of several
meanings, it shall be understood as bearing that import which is
most adequate to render it effectual. (Art. 1374)
o Words which may have different significations shall be
understood in that which is most in keeping with the nature and
object of the contract. (Art. 1375)
o The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity. (Art. 1377)

DEFECTIVE CONTRACTS

Rescissible Voidable Unenforceable Void

Effect on Valid until Valid until Has no effect No effect at all
contract rescinded annulled unless ratified
Reason for the Due to extrinsic Due to intrinsic Non-compliance Violation of law,
defect defect causing defect as in with certain lack of
lesion cases of vitiated requirements requirements of
consent contract.
Note: This is
not a case of
mutual decision
of parties to
back out of the
contract. In
rescission, it is
the law that is
the basis of
rescission.
Contracts (1) Those (1) Those (1) Those (1) Those
involved entered into by where one of entered into in whose cause,
guardians for the parties is the name of object or
their ward, who incapable of another person purpose is
suffer lesion by giving consent by one who has contrary to law,
more than one- to a contract; been given no morals, good
fourth of the authority or customs, public
value of the (2) Those legal order or public
thing; where the representation, policy;
(2) Those consent is or who has
agreed for vitiated by acted beyond (2) Those which
absentees, if mistake, his powers; are absolutely
the latter suffer violence, simulated or
the lesion of ¼ intimidation, (2) Those that fictitious;
of the value of undue influence do not comply
thing; or fraud. with the Statute (3) Those
(3) Those of Frauds (there whose cause or
undertaken in These contracts must be object did not
fraud of may be evidence IN exist at the time
creditors when annulled even WRITING) of the
the latter when there is cannot be transaction;
cannot in any no damage to received
other manner the parties. (4) Those
without the
collect the whose object is
writing, or a
claims due Susceptible of outside the
them; ratification. secondary commerce of
(4) Those which evidence of its men;
refer to things contents:
under litigation (5) Those which
if they have (a) An contemplate an
been entered agreement that impossible
into by the by its terms is service;
defendant not to be
without the performed (6) Those where
knowledge and within a year the intention of
approval of the from the the parties
litigants or of making thereof; relative to the
competent principal object
judicial (b) A special of the contract
authority; promise to cannot be
(5) All other answer for the ascertained;
contracts debt, default, or
specially miscarriage of (7) Those
declared by law another; expressly
to be subject to prohibited or
rescission. (c) An declared void by
agreement law.
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 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.
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.
Duties of the Rescission The contracting When the nullity
parties to return creates the parties shall proceeds from
obligation to restore to each the illegality of
return the other the things the cause or
things which which have object of the
were the object been the contract, and
of the contract, subject matter the act
together with of the contract, constitutes a
their fruits, and with their fruits, criminal
the price with and the price offense, both
its interest; with its interest, parties being in
consequently, it except in cases pari delicto,
can be carried provided by they shall have
out only when law. no action
he who against each
demands In obligations to other, and both
rescission can render service, shall be
return whatever the value prosecuted.
he may be thereof shall be
obliged to the basis for
restore. damages. one may cla
Neither shall
rescission take Art. 1399.
place when the When the defect
things which of the contract
are the object consists in the
of the contract incapacity of
are legally in one of the
the possession parties, the
of third persons incapacitated
who did not act person is not
in bad faith. obliged to make
In this case, any restitution
indemnity for except insofar
damages may as he has been
be demanded benefited by the
from the person thing or price
causing the received by
loss. him.

Art. 1400.
Whenever the
person obliged
by the decree of
annulment to
return the thing
can not 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.
Time to The action to The action for
commence claim rescission annulment shall
action must be be brought
commenced within four
within four years.
years.
For persons This period shall
under begin:
guardianship In cases of
and for intimidation,
absentees, the violence or
period of four undue
years shall not influence, from
begin until the the time the
termination of defect of the
the former's consent ceases.
incapacity, or
until the In case of
domicile of the mistake or
latter is known. fraud, from the
time of the
discovery of the
same.
And when the
action refers to
contracts
entered into by
minors or other
incapacitated
persons, from
the time the
guardianship
ceases.
Ratification Ratification Contracts Cannot be
extinguishes infringing the ratified
the action to Statute of
annul a Fraudsare
voidable ratified by the
contract. failure to object
to the
Ratification may presentation of
be effected oral evidence to
expressly or prove the same,
tacitly. It is or by the
understood that acceptance of
there is a tacit benefit under
ratification if, them.
with knowledge
of the reason In a contract
which renders where both
the contract parties are
voidable and incapable of
such reason giving consent,
having ceased, express or
the person who implied
has a right to ratification by
invoke it should the parent, or
execute an act guardian, as the
which case may be, of
necessarily one of the
 implies an contracting
intention to parties shall
waive his right. give the
contract the
Art. 1394. same effect as
Ratification may if only one of
be effected by them were
the guardian of incapacitated.
the
incapacitated If ratification is
person. made by the
parents or
Art. 1395. guardians, as
Ratification the case may
does not require be, of both
the conformity contracting
of the parties, the
contracting contract shall
party who has be validated
no right to bring from the
the action for inception.
annulment.
Unenforceable
Art. 1396. contracts
Ratification cannot be
cleanses the assailed by
contract from third persons.
all its defects
from the
moment it was
constituted.

Art. 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. (1306)

Art. 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.

Art. 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.
Art. 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.

Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the
prohibition by the law is designated for the protection of the plaintiff, he may, if public
policy is thereby enhanced, recover what he has paid or delivered.

Art. 1417. When the price of any article or commodity is determined by statute, or by
authority of law, any person paying any amount in excess of the maximum price allowed
may recover such excess.

Art. 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of
labor, and a contract is entered into whereby a laborer undertakes to work longer than the
maximum thus fixed, he may demand additional compensation for service rendered
beyond the time limit.

Art. 1419. When the law sets, or authorizes the setting of a minimum wage for laborers,
and a contract is agreed upon by which a laborer accepts a lower wage, he shall be
entitled to recover the deficiency.

Art. 1420. In case of a divisible contract, if the illegal terms can be separated from the
legal ones, the latter may be enforced.

Art. 1421. The defense of illegality of contract is not available to third persons whose
interests are not directly affected.

Art. 1422. A contract which is the direct result of a previous illegal contract, is also void
and inexistent.