OBLIGATIONS AND CONTRACTS

Delict Quasi-delict
Obligation Criminal or malicious intent Negligence only
[1156] – a juridical necessity to give, to do or not to or criminal negligence
do For punishment For indemnification
Public interest Private interest
Elements Criminal and civil liability Civil liability only
1. Passive subject (Obligor/Debtor)
- person bound to fulfill obligation
Classifications
2. Active subject (Obligee/Creditor)
- person who can demand fulfillment
3. Object (Prestation) Pure – not subject to a condition or period
- conduct to be observed by parties Conditional – depends on a future event
Real obligations – to give
With a period
Personal obligations – performance
– some space or time suspends demandability
Positive – to do
or produces extinction of the obligation
Negative – not to do
Simple – one prestation
Joint – obligation prorated among the parties
Multiple – many prestations Solidary – each party is entitled to the entire
Conjunctive – all are due and demandable obligation but the party shouldering the
Distributive – one or some must be performed entire obligation may demand
Alternative – only one of the several reimbursement from the others
Facultative – prestation due may be
substituted by another Divisible – may be partially performed
Indivisible – cannot be partially performed
4. Juridical tie (Vinculum Juris)
With a penal clause
Kinds
– an accessory undertaking (dependent upon
some other obligation to exist) to assume
Enforceability Basis greater liability in case of breach
Civil Court action Positive law
obligations Determinate – individualized or specified
Natural Conscience of Equity and Generic – referred by the class, kind or genus
obligations debtor natural justice
Unilateral – one debtor and one creditor
Sources Bilateral – reciprocal obligations
1. Law [1158] 1. both obligation arise from same source
2. each prestation is equivalent to the other
2. Contracts [1159] 3. performance of one is conditioned to performance
- stipulation of the parties of the other
3. Quasi-contracts [2142]
- lawful, voluntary and unilateral acts which
Individual – unipersonal
are enforceable to the end that no one shall
be unjustly enriched at the expense of another Collective – plurapersonal
1. Joint
2. Solidary
Negotiorum gestio [2144]
– voluntary management of the property
of another without the knowledge or Accessory – existence depends on another
consent of the latter Principal – can stand alone

Solutio Indebiti [2154]

– something is received when there is no Nature and Effects of Obligations
right to demand it and it was duly (Prestations, Breach, Remedies, Subsidiary Remedies, Fortuitous
delivered through mistake Event, Usurious Transactions, Fulfillment, Transmissibility of Rights)

4. Acts or Omissions punished by law Kinds of Prestations

- civil liability arising from criminal offense
1. Restitution
2. Reparation for damages
3. Indemnification for consequential damages
5. Quasi-delicts [2176]
- damage arising from fault or negligence
1. there is an act or omission
2. there is fault or negligence
3. there is damaged caused
4. there is a direct relation of cause and effect
between the act or omission and the damage
5. there is no contractual relation
1. To give – purpose to transfer title or real rights
Determinate thing
1. to deliver the thing itself [1244]
2. to preserve the thing – diligence of a good
father of a family (ordinary care) [1163]
3. to deliver the accessions and accessories
4. deliver the fruits [1166, 1164]
Generic thing – creditor cannot demand thing of
superior quality; debtor cannot deliver
thing of inferior quality [1246]
Act or forbearance cannot be substituted
by another act or forbearance against the
obligee’s will [1244]
 2. To do
3. Not to do
Breach of Obligation 3. Delay (Mora) [1169]
1. Pre-existing obligation - failure to perform obligation in due
2. Conduct of the party in violation of the contract time because of dolo or culpa
3. Accountability of the conduct - delay incurred from the time obligee makes
4. Absence of justification
judicial or extrajudicial demand
5. Injury to the other party
- demand not necessary when:
Substantial breach – can cause the annulment or 1. obligation or law expressly so declares
rescission of the contract 2. from the nature of the circumstances of
Casual/Slight breach – breach is too small that it cannot the obligation it appears that the time
cause the rescission of the contract was a controlling motive
3. demand would be useless as the obligor
has rendered it beyond his power to
perform
Modes of Breach
1. Fraud (Dolo) [1171]
- in reciprocal obligations, delay by the other
- voluntary execution of wrongful act
begins from the moment one fulfills
- waiver of action for future fraud is his obligation
void Mora Solvendi – failure of debtor to perform
1. obligation requires positive act
Dolo Incidente
2. demandable, due and liquidated
- committed while in the performance of the
3. delay due to fraud or negligence
contract; consent was not based on the fraud
4. creditor demands performance
Dolo Causante
Mora Accipiendi – failure of creditor to accept
- fraud is the root of the obligation; injured
1. obligation requires cooperation of
party would not have entered the contract had
creditor for its fulfillment
he known about the fraud
2. debtor has done ALL that is incumbent
upon him
3. creditor refuses to accept
2. Negligence (Culpa) [1173]
Compensatio Morae – delay of the obligor in a
- omission of the diligence which is required
reciprocal obligation
by the nature of the obligation and - neither party incurs delay if the other
corresponds with the circumstances of does not comply or is not ready to comply
the persons, time and place in a proper manner with what is incumbent
upon him [1169 par3]
- if diligence not specified – good father of a
family applies
Culpa Contractual 4. Contravention of the tenor [1170]
- breach of contract as a result of negligence - any act of defective performance which
impairs strict and faithful fulfillment
Culpa Aquiliana
- failure to observe the care required by law
- liable for damages
with respect to other persons who were not
bound by the contract
Remedies of Creditor in Case of Breach

1. Action for performance [1165]

Culpa Culpa
Contractual Aquiliana
Damages may only be Damages may be claimed
claimed by heirs and by strangers or third
privies of the contracting parties
party
Law presumes Negligence must be proved
negligence as the cause as the cause of the
of the damage damage
Moral damages cannot Moral damages can be
be recovered recovered
Interest is due Interest depends on the
contract
The employee is never The employer and the
liable; it is always the employee are both liable if
employer diligence is absent
No need for diligence of May prove that he
a good father of a family exercised the diligence of a
good father of a family
Specific performance - SPECIFIC thing
- in addition to the rights in 1170, may compel
debtor to make delivery [par1]
Substituted performance – GENERIC thing
- obligation may be complied with at the
expense of the debtor [par2]
Substituted performance – undoing poor work
- what is poorly done be undone [1167]
Undoing in obligation not to do
- undone at his expense [1168]
2. Action for damages [1170]
- fraud, negligence, delay or contravention of
tenor
3. Action for rescission [1191, 1192]
- implied in reciprocal ones in case
one of the obligors should not comply
 - injured party may choose between
fulfillment and rescission with
payment of damages
- court decree is necessary, unless
there is just cause authorizing the
fixing of a period
- no prejudice to rights of third
persons
- liability of first infractor shall be
equitably tempered by the courts if
both parties committed breach
- if it cannot be determined, liability is
extinguished and each shall bear his
own damages
Subsidiary Remedies of Creditor
1. Accion Subrogatoria (Subrogation)
- after exhausting the property of the
debtor, may exercise all the rights and
bring all the actions of the debtor for
the same purpose [1177]
- except those inherent in his person
(legal separation, nullity of marriage,
patria potestas, etc)
- the debtor of my debtor is also my
debtor
1. Interest of the creditor to bring the action
2. Inaction of the debtor whether wilful or not.
3. Existence of the credit even if not liquidated.
4. Credit must be due and demandable.
5. Exhaustion of assets in the hand of the
debtor.
2. Accion Pauliana (Rescission)
- action to rescind where the creditor
may impugn the acts which the debtor
may have done to defraud them
1. Prior existence of the credit
2. The credit must be due and demandable
3. Exhaustion of the assets of the debtor
4. Fraudulent intention if the transaction is
onerous
5. Bad faith of the debtor’s transferee
6. Prejudice to the creditor
Accion Accion
Subrogatoria Pauliana
Action can be brought The credit must exist
as long as debtor is before the fraudulent act
solvent
No need for fraudulent There must be a
intent fraudulent intent
No prescription period Rescissory action shall
be brought within 4
years from the discovery
of the fraud
3. Sublesee liable to the lessor for any rent
due from lessee, but not beyond the amount
of rent due from him [1652]
4. Laborers have an action against the owner
up to the amount the owner owes the
contractor. [1729]
5. Vendor may bring action to third persons
who derived possession of things from the
vendee. [1608]
6. Principal has action against a substitute for
obligations which the latter contracted
under the substitution [1893]
Extinguishment of Liability in Case of Breach Due
to a Fortuitous Event
- no person shall be responsible for those
events which could not be foreseen or which,
though foreseen, were inevitable. [1174]
Act of God – independent of will of obligor
Act of Man – unavoidable accidents caused by man
1. Must be independent of the human will
2. Must be impossible to foresee or if it can be
foreseen, it must be impossible to avoid
3. Must render it impossible for the debtor to fulfill
the obligation in a normal manner
4. Debtor must be free of participation in the
aggravation of the injury to the creditor
- there is no liability except:
- in cases expressly specified by law or declared
by stipulation, or the nature of the obligation
requires the assumption of risk [1174]
- obligor delays or has promised to deliver the
same thing to two or more persons who do not
have the same interest [1165]
- when possessor acted with fraudulent intent or
negligence [552]
- bailee is liable for the loss of the thing (different
purpose from which is loaned) [1942]
- depositary is liable for the loss of the thing (no
permission of the owner) [1979]
- act of a thief or robber without use of arms or
irresistible force [2001]
-officious manager is liable for the loss of the
thing if there is bad faith [2147]
Usurious Transactions
- governed by special laws [1175]
- interest paid in excess of the interest
allowed by the usury laws may be recovered
by the debtor [1413]
Fulfillment of Obligations
- receipt of the principal by the creditor give
rise to the presumption that the interest has
been paid
- receipt of later instalment of a debt give rise
to presumption that the prior instalment have
been paid [1176]
Transmissibility of Rights
- all rights acquired in virtue of an obligation
are transmissible if there is no stipulation to
the contrary [1178]
 Kinds of Obligations - same rules apply to resolutory
(Pure and Conditional, Reciprocal, With a Period, Alternative, Joint conditions with respect to the party bound
and Solidary, Divisible and Indivisible, With a Penal Clause
to return

Pure and Conditional Obligations - condition is deemed fulfilled when the

obligor voluntarily prevents its fulfillment
Pure Obligations [1179] [1186]
- does not depend upon a future or e.g. Katz will sell her laptop to Yen upon the
condition that Yen will loan money from Cuayo.
uncertain event, or upon a part event
Katz told Cuayo not to lend Yen money. The
unknown to the parties condition is deemed fulfilled since Katz
- demandable at once prevented its fulfillment.

Conditional Obligations [1181] Reciprocal Obligations [1191]

- acquisition of rights, as well as - obligations arising from the same cause
extinguishment or loss of those already and the performance of one is designed
acquired depends upon the happening of to be equivalent and the condition for the
a future or uncertain event performance of the other
- different from an obligation with a - power to rescind is implied
period; latter depends on a future event - remedies: fulfillment or rescission
but not an uncertain one - alternative remedy: rescission after
- a thing is lost if it perishes, goes out of injured party chose fulfillment and it failed
commerce or disappears [1189] - requisites and effect of rescission
As to EFFECT
Suspensive Condition 1. substantive breach must be by fault or fraud
- condition precedent 2. judicial decree or notarial demand
- retroact to the day of the 3. obligation is extinguished
constitution of the obligation [1187] 4. the juridical tie is invalidated
Resolutory Condition 5. both parties is required to surrender what
- condition subsequent they have received
- condition imposed after fulfillment 6. parties may waive rescission in reciprocal
obligations
As to CAUSE [1182]
Potestative - rescission without judicial intervention –
- depends solely on the will of one
UP vs de los Angeles
party – VOID!
Casual
- depends upon chance or will of a Obligation with a Period
stranger - a period is a certain event upon the arrival
Mixed
of which the obligation subject to it either
- depends partly upon the will of one
party and partly on chance arises or is extinguished
- period is a certain event which must happen
sooner or later while a condition is an
As to POSSIBILITY
Possible uncertain event
- can be performed according to law - period refers only to the future while
Impossible condition may also refer to a past event
- contrary to good customs or public - period merely fixes the time for the
policy and those prohibited by law
- annuls the obligation [1183] efficaciousness of the obligation while
condition causes an obligation to arise or to
cease
As to MODE - 1189 applies in case of loss, deterioration or
Positive improvement before the arrival of the day
- happening of an event [1184]
Negative
certain
- non-happening of an event [1185] - court can fixed a period if it can be
inferred that a period was intended or if it
depends upon the will of the debtor
(take note: if it would have been a condition
[1189] Suspensive dependent solely upon the will of the debtor,
With fault of the Without fault of the it would have been void!)
debtor debtor
Loss Obliged to pay damages Obligation extinguished As to EFFECT
Suspensive Period (ex die)
Deterioration Creditor may choose: Impairment is to be
- obligation demandable only when the fixed
Rescission with borne by the creditor
damages OR fulfillment day comes
Resolutory Period (in diem)
with damages
- obligation takes effect at one but terminate
Improvement By nature or time: At the expense of the
upon arrival of the day certain
Benefits goes to the debtor:
creditor Usufructuary rights
 As to EXPRESSION
Express Facultative Obligations [1206]
- period is specified - only one prestation has been agreed
Implied
- from the nature and circumstances of the
upon but the obligor may render
obligation it can be inferred that a period was another in substitution
intended - before substitution, the debtor is not
liable for the loss of the substitute
As to DEFINITENESS - after the substitution, the debtor is
Definite liable for loss of the substitute
- period is fixed
Indefinite
- duration is not fixed in an obligation to pay Joint and Solidary Obligations
when one’s means permit
Joint Obligations
As to SOURCE - existing between several persons
Voluntary
among whom the benefit or the
- fixed by the parties
Legal burden of the obligation is divided
- fixed by law 1. plurality of subjects
Judicial 2. determination of shares
- fixed by the court

- other terms: mancomunada,

mancomunadamente, prorate,
- anything paid in advance, the obligor being
proportionately, individually,
unaware of the period, may be recovered with
separately, “we promise to pay”
the fruits and interests [1195]
signed by two persons
- once the period is fixed by the court, the
- if one of the debtors is insolvent, the
period cannot be changed by the parties
others are not liable for his share
[1197]
- there exists a presumption against
- period is presumed to be for the benefit of
solidarity
both the creditor and debtor [1196]
- creditor cannot compel the debtor to pay in
Solidary Obligations
advance of the date fixed [1198]
- each one of the debtors is bound to
- the debtor cannot compel the creditor to
render, and/or each one of the
receive payment in advance
creditors has a right to demand entire
- debtor shall lose every right to make use of
compliance
the period [1198]:
- he becomes insolvent 1. plurality of subjects
2. intention to establish solidary liability must appear
- does not furnish the guaranties or securities 3. express provision of solidarity
- he impaired the guaranties or securities
- violates any undertaking in which the creditor
based his consent to the period
- other terms: joint and several, in
- he attempts to abscond solidum, “I promise to pay” with two
or more persons, individually and
collectively
Alternative Obligations
As to SOURCE
- debtor is required to perform completely Legal
only one of the several obligations provided [1199] - derived by law
- right of choice belongs to the debtor unless Conventional
- stipulation of the parties
it has been expressly granted to the creditor
Real
[1200] - nature of the obligation
- the choice must be communicated to the
creditor [1201]
As to PARTIES BOUND
- in case of loss or improvement: Active
- if only one is lost, debtor shall chose between - creditors
the remaining ones Passive
- if only one remains, the obligation ceases from - debtors
being an alternative obligation and becomes Mixed
simple - creditors and debtors
- if all alternatives are lost by fault of the
debtor, the creditor must be indemnified for
As to UNIFORMITY
damages
Uniform
- if all alternatives are lost by fortuitous event,
- same terms and conditions to all
the creditor bears the loss
Varied
- different periods and/or conditions
for each
 Solidary creditors
Divisible and Indivisible Obligations
Common debtor Solidary co-creditors
Each creditor can collect the Creditor which collects the entire Divisible Obligations
entire debt debt id liable to the others for - can be performed by parts
their share - presumed to be divisible when
Debtor may pay any one of the Each of the solidary creditors obligation involves certain number of
solidary co-debtors (but may do whatever may be useful days of word, work by metrical units
payment shall be made to the to the others
or analogous things
one making demand)
Novation, compensation, One solidary creditor cannot Indivisible Obligations
confusion or remission made by assign his rights without the
any of the creditors shall consent of the others
- by reason of their purpose are not
extinguish the obligation susceptible of being executed by parts
or fractions
- presumed to be indivisible when
obligation is to give a definite thing
Solidary debtors and in obligations not to do
Common creditor Solidary co-debtors
Indivisible Solidary
Each debtor is bound to perform Solidary debtor who made the
the whole obligation as the payment may claim from his co- Only one creditor and Many creditors and/or
creditor may proceed against debtors only the share which one debtor many debtors
any one of them corresponds to each Arises from the nature Arises from the tie that
Each debtor may utilize against No contribution may be of the thing binds the parties
the creditor his own defenses demanded if payment is made
after obligation has prescribed KINDS
Natural
If two or more solidary debtors Remission made by the creditor - prestation is physically indivisible
offer to pay, the creditor may to the share which affects one of Legal
choose which offer to accept the debtors does not release the - indivisible by law
latter from his responsibility Conventional
Mora of one is mora of all and towards his co-debtors when the - intended by the parties
all shall bore the loss in case of obligation was paid before the
a fortuitous event remission was effected
Payment by one extinguishes If one of the debtors is Obligations with a Penal Clause
the obligation to the extent of insolvent, his share shall be - accessory stipulation added to an obligation
the payment borne by all his co-debtors
whereby the debtor promises to perform a
If the thing was lost or became Share of debtors are presumed prestation in case the principal obligation is
impossible without the fault of equal not performed
the debtors, the obligation is
extinguished As to EFFECT
Subsidiary
If there was fault on the part of Damages paid due to negligence - when only the penalty may be enforced
any one of the debtors, all are or fault of one are subject to Complementary
liable to the creditor proportional contribution - when both the principal and penalty may be
enforced
- defenses available to solidary
debtor: As to SOURCE
- from the nature of the obligation that Conventional
destroy the legal tie (prescription, illegality, - stipulation of the parties
nullity ab initio, suspensive condition) Legal
- personal defenses (incapacity, consent) - provided by law
- pertaining to his own share
- personally belonging to other co-debtors As to PURPOSE
but he may avail himself thereof only as Punitive
regards that part of the debt for which the - damages may be collected
co-debtors are responsible Reparatory
- penalty substitutes for damages
Joint Indivisible Obligations
- several debtors and creditors but Effects of Penal Clause
prestation is indivisible 1. Substitute for indemnity for damages and
- necessity of collective fulfillment and payment for interest
the action must be against all debtors 2. Does not exempt debtor from performance
- indivisibility does not give rise to of the principal obligation
solidarity nor does solidarity give rise 3. Creditor cannot demand both performance
to indivisibility [1210] and penalty at the same time
 4. Creditor cannot collect other damages in - creditor at the time of payment
- his successor in interest
addition to penalty
- any person authorized to receive payment by
law or stipulation
- judge shall equitably reduce the penalty - person not authorized provided the creditor is
when there is partial performance or if it is benefited must prove said benefit except:
1. after the payment, the payee acquires
iniquitous or unconscionable [1229] the rights of the creditor
- nullity of penal clause does not carry with it 2. creditor ratifies the payment
that of the principal obligation but the nullity 3. creditor by his conduct leads the debtor
of the principal carried with it that of the to believe that the payee had authority
to receive payment
penal clause [1230] 4. payment made in good faith to any
person in possession of the credit

Extinguishment of Obligations
[1231] (Payment or Performance, Loss or Impossibility, Condonation
3. Object (solutio)
or Remission, Confusion or Merger, Compensation, Novation) What is to be paid?
- the thing or service or abstention due
- debtor cannot compel the creditor to receive a
Payment or Performance different one
- in generic obligations, the thing paid must be
- carrying out of an obligation of the quantity and quality specified
- delivery of the money due - the legal tender in the Philippines includes all
- requires acceptance of the creditor notes and coins issued by he Central Bank
- debtor has burden of proving payment - payment by check or other negotiable
instruments shall only produce the effect of
1. payor (solvens) 4. manner (integrity) payment when they have been cashed
2. payee (accipiens) 5. time
3. object (solution) 6. place
7. expenses of making payment 4. Manner (integrity)
How is payment made?
- payment must be complete
1. Payor (solvens) - no partial payment is allowed except:
1. in case of express stipulation
Who can pay? 2. the debt it in part liquidated and in part
- debtor or his duly authorized agent unliquidated
- debtor’s heir or successor in interest (privy) 3. in case of compensation
- any person interested in the fulfillment 4. several guarantors invoke the benefit of
whether the debtor consents to it or not, and division
even without the debtor’s knowledge [1302] 5. debtor dies, each heir answers only for
- a third person not interested but the creditor his share
is not bound to accept payment by him [1236] 6. when work is to be done by parts

Without debtor’s With debtor’s 5. Time

consent Consent When is payment made?
- upon demand judicial or extrajudicial
Cannot compel the creditor May demand subrogation in - when debt has become due and demandable
to subrogate him in his the creditor’s rights - when time is the essence of the agreement
rights - when debtor loses the benefit of the period
Can recover only in so far May demand from the debtor - obligation is reciprocal
as the payment has been what he has paid
beneficial to the debtor 6. Place
Where is payment made?
- payment made by a third person who does not - place designated by the obligation [1251]
intend to be reimbursed is deemed a donation - if no place is designated:
which requires the debtor’s acceptance - specific thing: place wherever the
thing might be habitually
- generic thing: domicile of the
Reimbursement Subrogation debtor
Personal action to recover Not only reimbursement but
the amount paid the exercise of other rights 7. Expenses of making payments
attached to the original - paid according to stipulation
obligation - in the absence of stipulation:
- extrajudicial expenses – debtor
- in obligations to give, payment by one who - judicial costs – Rules of Court
does not have the free disposal of the thing due
shall not be valid except that voluntary payment Application of Payments
by a minor without the consent of his parent or - designation of the debt to which should be
guardian of a fungible thing does not entitle him
to recover the payment made if the creditor
applied the payment made by a debtor who
spent it in good faith [1427] has various debts of the same in favor of one
and the same creditor
1. one debtor and one creditor
2. two or more debts
2. Payee (accipiens) 3. debts must be of the same kind
Who can accept payment? [1240] 4. debts applied must be due
5. payment made must not be sufficient to cover all debts
 creditor to accept immediate
performance
- unjust refusal leads to consignment
Rules in Application of Payments Consignation
1. debtor has first choice; he must indicate - deposit of the thing due made by
choice at the time of making payment the debtor in lawful form, whenever
2. if the debtor does not apply payment, the creditor refuses or cannot accept
creditor may make the designation by payment
specifying in the receipt which debt is - purpose is to avoid delay
paid - not required when the payment is
3. if the creditor has not also made the voluntary and not coercible
application, the most onerous - if creditor accepts consignation, the
(burdensome) to the debtor is deemed obligation is extinguished
satisfied - if the court declares that the consignation
4. if debts due are of the same burden, was properly made, the obligation is
payment shall be applied extinguished
proportionately to all - if before approval of the court the debtor
withdraws the deposit, the obligation
Payment by Cession [1255] subsists
- Payment by Assignment - if without creditor’s approval,
- debtor abandons all his property to guarantors and co-debtors remain
his creditors, so that the latter may liable
- if with creditor’s approval, guarantors and
apply the proceeds to their credits
co-debtors are liberated
1. plurality of debts - if consignation is disapproved, it is deemed
2. plurality of creditors ineffective
3. partial or relative insolvency of the debtor
4. abandonment of the totality of the debtor’s
properties for the benefit of the creditors Procedure in Consignation
5. acceptance by the creditors 1. Tender of payment and unjustified
rejection
- liberates the debtor up to the 2. First notice to the interested parties to
amount of the net proceeds of the give creditors a chance to reconsider
sale of his assets and accept payment thereby avoiding
- assignment does not vest title to the litigation
property in the creditors, who are only 3. Filing the complaint against the creditor
authorized to sell it 4. Judicial deposit of the thing due with
proof of tender and notice
Dation in Payment [1245] 5. Second notice to interested parties
- Datio in Solutum 6. Trial and judgment
- property of the debtor is alienated to 7. Incidents of consignation
the creditor in satisfaction of a debt in
money
Loss or Impossibility
Cession Dacion
Loss of the thing due [1189]
Only entitles creditors to Transfers ownership of the
sell the thing and apply the substituted thing to the - perishes
price to the credit creditor - goes out of commerce
Extinguishes only to the Extinguishes totally the credit - disappears in such as way that its
extent of the price existence is unknown
obtained - cannot be recovered
Two or more creditors Can only be one creditor - hence, a generic thing never
perishes
Presupposes insolvency of Debtor does not have to be
debtor insolvent 1. obligation is to deliver a specific thing
Does not novate the Novatory 2. loss of the thing occurs without the fault of
contract the debtor
3. debtor is not guilty of delay

- presumption of fault whenever the

Tender of Payment thing to be delivered is lost in the
- declaration of intention by the possession of the debtor [1265]
debtor manifesting his firm decision to pay - presumption of fault does not apply
- coupled with a demand upon a in case of natural calamities
- effects of loss:
 - to give specific thing, it extinguishes
obligation [1262]
- to give generic thing, it does not
extinguish the obligation [1263]
- in case of partial loss, the court shall
determine if the loss is important as
to the extinguishment of the
obligation [2164]
- creditor has all the rights of action
which the debtor may have against
third persons [1269]
Impossibility of performance [1266, 1267]
- not only legal or physical
impossibility but also impracticability
because of extreme difficulty,
manifestly beyond the contemplation
of the parties
- impossibility releases the obligor
1. without fault of the debtor
2. before the debtor incurs delay
3. after the obligation is constituted
Physical impossibility
– obligor dies or becomes physically
incapacitated to perform the obligation
Legal impossibility
– obligation cannot be performed because it is
rendered impossible by provision of law
Condonation or Remission
-gratuitous abandonment by a creditor of his
right
1. it must be gratuitous
2. accepted by the obligor
3. parties must have capacity
4. must not be inofficious
5. made expressly and comply with the forms of donation
- whenever private document in which debt
appears is found in the possession of the
debtor, it is presumed that the creditor
delivered it voluntarily [1272]
- voluntary delivery of a private document
evidencing a credit implies renunciation of the
creditor’s action against the debtor [1271]
- accessory obligation of pledge has been
remitted when the thing pledged after delivery
is found in the possession of the debtor or a
third person who owns the thing [1274]
- creditor’s omission of a debt or of the name
of a debtor from an inventory does not imply
remission
Inter vivos – during the lifetime of the donor
Mortis causa – upon the death of the donor
- oral donation requires the simultaneous
delivery of the thing or of the document
Rules in Condonation
1. subject to the rules that govern
inofficious donations
2. remission in advance of future
obligation is void
3. renunciation of the principal debt
extinguishes accessory obligation, but
waiver of the latter shall leave the
former in force
Confusion or Merger
- meeting in one person of the qualities of
creditor and debtor with respect to the same
obligation
1. must take place between the principal debtor and
creditor
2. must be complete and definite
- obligation is extinguished from the moment
the characters of debtor and creditor are
totally merged in the same person [1275]
- does not extinguish a joint obligation except
as regards the share corresponding the
merged creditor and debtor [1277]
- merger benefits the guarantors [1276]
Compensation
- extinguishment to the concurrent amount of
the debts of two persons who, in their own
right, are debtors and creditors of each other
Compensation Confusion
Two persons involved Only one person is involved
Two obligations Only one obligation
There is indirect payment There is impossibility of
payment
As to EXTENT
Total
- both obligations are of the same amount and
are entirely extinguished [1281]
Partial
- when two obligations are of different amounts
and a balance remains
As to ORIGIN
Legal
- by operation of law even without the
knowledge of the parties
Conventional
- by agreement of the parties
Judicial
- effected by decision of the Court
Facultative
- one of the parties have the option to claim
compensation or to object to it
Legal Compensation
1. each one of the obligors be bound principally
2. both debts consist in a sum of money, or of
consumable things of the same kinds and quality
3. two debts are due and demandable
4. two debts are liquidated
5. no retention or controversy commenced by a
third person
6. compensation not prohibited
Prohibitions:
 - deposit or obligations of a depositary
- commodatum or obligation of the bailee
- future support due by gratuitous title
- civil liability arising from a penal offense
- damage to the partnership by a partner
- compensation takes place by - novation is VOID if original is void [1298]
operation of law though the debts - voidable obligations may be novated before
may be in different places but there is they are annulled, or after they are ratified
indemnity for expenses of exchange - obligations under the Statutes of Fraud and
or transportation [1286] Natural Obligations are not void; hence, they
- when one or both debts are can be novated
rescissible or voidable, they may be - if the new obligation is void, the original one
compensated against each other shall SUBSIST unless the parties intended that
before they are judicially rescinded or the former relation be extinguished in any
avoided [1284] event [1297]
- compensation shall take place before - if the original obligation was subject to a
the assignment of rights of the suspensive or resolutory condition, the new
creditor [1285] obligation shall be under the same condition
e.g. Katz owes Yen 20 pesos due [1299]
yesterday. Yen also owes Katz 10
pesos due yesterday. Hence, Katz
- a prescribed obligation may be novated
now only owes Yen 10 pesos. If Yen - accessory obligations are also extinguished
assigns her rights to Cuayo, Cuayo but may subsist insofar as they may benefit
can collect the 10 pesos from Katz. third persons who did not give their consent
However, if Katz allowed the
assignment of creditor before the
[1296]
e.g. Katz owes Yen 10 pesos at 2% interest.
compensation, she cannot assert such
Yen owes Cuayo 2 pesos. They agreed that the
defense. She can only collect the 10
2 peso interest will be paid by Katz directly to
pesos that Yen owes her but she shall
Cuayo. If Katz and Yen novate the obligation in
pay the 20 pesos to the new creditor,
such a way that Katz is only to make a digest
Cuayo.
for Yen, the 2 peso interest subsists.
- there are three possible cases of
compensation after an assignment of
Objective Novation
rights:
1. change on the nature or quality of the
1. with consent of the debtor
subject matter
2. with the knowledge but
2. change of causa or consideration
without the consent of the
3. change of the principal conditions or
debtor
terms
3. without the knowledge of
the debtor
Subjective Novation
- only in the first case is compensation
1. substitution or by change of debtor
not allowed to be set up as defense
Expromision
Novation
- extinction of an obligation through the 1. consent of two parties: creditor and new
creation of a new one which substitutes it debtor
2. knowledge or consent of old debtor not
As to FORM required
Express 3. old debtor is released
- declared in unequivocal terms 4. insolvency of the new debtor does not
Implied revive the old obligation
- old and new obligations are essentially
incompatible with each other
Delegacion
As to ORIGIN
1. consent of the old debtor, new debtor
Legal
and the creditor
- operation of law
2. insolvency of the new debtor revives the
Conventional
obligation of the old debtor
- by agreement of the parties

2. subrogation or by change of creditor

As to OBJECT
Subjective or Personal
- person of the debtor is substituted and/or Conventional Subrogation
when a third person is subrogated in the
rights of the creditor 1. must be clearly established
Objective or Real 2. consent of all is required
- object or principal conditions are changed
1. not presumed except:
Legal Subrogation- creditor pays another
1. previous valid obligation creditor who is preferred
2. new valid obligation - not interested third
3. substantial difference between the old and new person pays with approval of debtor
4. capacity of the parties - person interested pays
5. intention to extinguish or modify the old one without approval of debtor
 2. contrary to morals
Contract - norms of good and right conduct
[1305] – a meeting of minds between two persons evolved in a community
whereby one binds himself with respect to the other to 3. contrary to good customs
give something or render some service - habits and practices which through
long usage have been followed and
enforced by society
4. contrary to public order
Elements - public safety or public weal
1. Essential 5. contrary to public policy
– without which there is no contract - for the common good

1. Consent
2. Object
3. Cause
2. Natural
– presumed to exists unless the contrary is stipulated
3. Accidental
– exists only when stipulated
Characteristics
1. Obligatory force [1308]
- obligations arising from contract have the
force of law between the contracting parties
- compliance in good faith is the observance of
the standards of loyalty, fairness and diligence
required by society
2. Mutuality [1308-1310]
- must bind both contracting parties and the
performance shall not be left to the will of one
3. Relativity
- contracts take effect only between the parties,
their assigns and heirs [1311]
- no one may contract in the name of another
[1317]
Parties
1. Auto-contracts
- one contracts with himself
- valid because the existence of a contract
is not determined by the number of persons
who intervene but by the number of parties
2. Freedom to contract
- the right to enter into contracts
Special disqualifications:
- spouses are disqualified to donate or sell to each
other [1490]
- guardian; property of his ward
- agents; property entrusted to them unless there is
consent of the principal
- executors and administrators; property under
administration
- public officers and employees; property of the state
- justices, judges, prosecuting attorneys, clerks or
superior and inferior courts and other officers and
employees connected with the administration of
justice; property in litigation
Limitations:
1. contrary to law
Pactum commissorium [2088]
- appropriate things given by way of
pledge or mortgage – VOID!
Pactum leonina [1799]
- stipulation which excludes one or more
partners from any share in the profits or
losses – VOID!
Classification
1. Subject matter
Things
Services
2. Name
Nominate – law gives the contract a special name
Innominate [1307] – no special name
Do ut des – I give so that you may give
Do ut facias – I give so that you may do
Facio ut facias – I do so that you may do
Facio ut des – I do so that you may give
3. Perfection
Consensual [1315] – consent is sufficient
Real [1316] – delivery is required
4. Degree of Dependence
Preparatory – contract based on future transaction
Principal – contract may exist alone
Accessory – depends upon some other contract
5. Form
Common/Informal - loan
Special/Formal – law requires formalities
6. Purpose
Transfer of Ownership
Conveyance of Use
Rendition of Services
7. Parties obligated
Unilateral – only one party is bound
Bilateral – both parties are bound to reciprocal ones
8. Cause
Onerous – exchange of correlative values
Gratuitous – no correlative prestation
9. Risk
Commutative – fulfillment is predetermined
Aleatory – fulfillment is dependent upon chances
Stages
1. Preparation
- negotiations are in progress
2. Perfection
- parties come to an agreement

Pactum de non alienado [2130]

- forbidding owner from selling
immovable mortgaged – VOID!
 3. Consummation or Death
- contract is fully executed
Promise
Perfect Promise
- tends only to assure and pave the way for the
celebration of a contract in the future
- rights and obligation not yet determined
Imperfect Promise (policitacion)
- a mere unaccepted offer
Third Persons
1. Stipulations pour autrui [1311]
- stipulation in a contract clearly and deliberately
conferring a favor upon a third person who has a
right to demand its fulfillment provided he
communicates his acceptance to the obligor before
its revocation
e.g. Katz owes Yen 10 pesos at 2%
interest. Yen owes Cuayo 2 pesos. They
agreed that the 2 peso interest will be paid
by Katz directly to Cuayo. Cuayo shall
communicate his acceptance before Yen
revokes the stipulation por autri.
2. Contracts creating real rights [1312]
- third persons who came into possession of the
object of a contract over which there is a real
right are bound thereby even if they were not
parties to the contract
- real right is binding against the whole world and
attaches to the property over which it is
exercised wherever it goes
e.g. Katz owes Yen 1M pesos and she
mortgaged a parcel of land as a security.
Katz then sold the same land to Cuayo.
Cuayo is then bound by the contract
between Katz and Yen since the mortgage
followed the parcel of land.
3. Entered into to defraud creditors [1313]
- creditor has the rights to impugn contracts of his
debtor intended to defraud them
e.g. Katz owes Yen 1M. Katz’ only
remaining property is a house. She then
sold the house to Cuayo in order that Yen
may not attach the house to the payment
of her debt. Yen, who is a stranger to the
contract between Katz and Yen, may ask
the rescission of the sale.
4. Violated at the inducement of a third person
[1314]
- stranger can be sued for damages for his
unwarranted interference with the contract
e.g. Katz agreed to sell her laptop to Yen.
If Katz sells her laptop to Cuayo instead
because of his inducement, Yen can sue
for damages.
Essential Requisites of Contracts
[1319] (Consent, Object, Cause)
Consent
- conformity of wills (offer and acceptance)
or
1. plurality of parties
2. parties be capable of formulating a desire or intent
Incapacity – VOIDABLE
Prohibition – VOIDABLE
Against public policy - VOID
3. no vice or defect in their wills; consent not vitiated
4. intent be expressed in due time and in proper form
5. no conflict between intent and expression or
declaration
Offer
- proposal made by one party to
another to enter into a contract
- a promise to act or to refrain from
acting on condition that the terms
thereof are accepted
- must be certain [1319]
- may fix time, place and manner of
acceptance [1321]
- offer made through an agent is
accepted from the time acceptance is
communicated [1322]
- offer becomes ineffective upon
death, civil interdiction, insanity,
insolvency before acceptance is
conveyed [1323]
- business advertisement of things for
sale are not definite offers but mere
invitations to make an offer [1325]
- advertisement for bidders are mere
invitations to make proposals [1326]
Acceptance
- must be absolute [1319]
Express
- oral or written acceptance
Implied
- inferred by the conduct of the offeree
Qualified
- constitutes a counter-offer
- if acceptance is made by letter or
telegram, it does not bind the offerer
except from the time it came to his
knowledge
- 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 [1324]
Contract of option [1324]
- one giving a person a certain period within
which to accept the offer of the offerer
- separate and distinct from the contract which
will be perfected upon the acceptance
Legal Capacity
- unemancipated minors and insane
demented persons as well as deaf-
mutes who do not know how to read
and write cannot give consent [1327]
Vices of Consent
 - consent given through mistake,
violence, intimidation, undue influence
or fraud is VOIDABLE [1330]
1. Mistake or Error
1. not intentional or reckless
2. excusable without failure to take
advantage of the opportunity to ascertain
the truth
3. mistake of fact, not of law
4. past or present mistake; non-realization of
the party’s expectation is not an error
5. material mistake; must refer to factors
inducing consent
- substance of the thing
- principal qualities of the object
- quantity
- identity of the party
- the general rule for error of law is
“ignorance of the law excuses no one”
- except: mutual error of law [1334]
- doubtful question, construction or
application of law, analogous to a
mistake of fact
e.g. Katz loaned 10 pesos
from Yen. As a security, she
mortgaged her phone. They
then signed a deed of sale
thinking that it has the
same effect as a mortgage.
- if one of the parties is unable to
read, the party enforcing the contract
shall prove that the said contract was
read and explained to the other party
[1332]
- there is no mistake when the party
alleging it knew the doubt,
contingency or risk affecting the
object of the contract [1333]
2. Violence and Intimidation [1335]
violence - serious or irresistible force
intimidation - reasonable and well-
grounded fear of an imminent and grave evil
upon his person or property, or person or
property of his spouse, descendants,
ascendants
3. Undue Influence [1337]
- improper advantage of his power
over the will of another, depriving the
latter of a reasonable freedom of
choice
1. confidential, family, spiritual and other
relations between parties
2. mental weakness
3. ignorance
4. financial distress
4. Fraud or Dolo [1338]
- insidious words or machinations
Dolo causante
– fraud committed before or at the
time of the celebration of the
contract; used to induce the other to
enter into a contract without which
the latter would not have agreed to
1. misrepresentation or concealment
2. serious
3. employed by only one of the parties
- failure4.toindisclose facts
bad faith or withwhen there
intent to deceive
5. reveal
induced them
the consent of the other
is a duty to constitutes
fraud (concealment) [1339]
- if it would have been unintentional,
is mistake not fraud
- usual exaggerations in trade when
the other party had an opportunity to
know the facts are not fraudulent
[1340]
- 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
[1341]
5. Misrepresentation
- misrepresentation by a third person
does not vitiate consent unless such
misrepresentation has created
substantial mistake and the same is
mutual [1342]
e.g. Katz plans to sell her land to
Yen. The market value of the land is
50 pesos. However, Cuayo told Katz
that the value is only 25 pesos.
Hence, Katz sold the land to Yen for
25 pesos. The contract is valid unless
it is proven that Yen also deceived
Katz.
e.g. Katz had a bought a laptop for
her own use in class. Cuayo said that
laptops are not allowed in law school.
Hence, Katz sold her laptop to Yen.
Katz and Cuayo later found out that
laptops are actually allowed. The sale
to Yen is annullable since there was
mutual mistake.
- misrepresentation made in good
faith is not fraudulent but may
constitute error [1343]
6. Simulation of Contracts [1345]
- declaration of a non-existent will
made deliberately and by agreement
of the parties for the purpose of
producing the appearance of a
transaction that does not exist or
which is different from the one that
actually arose
1. declaration deliberately different from
true will of the parties
2. agreement to create the appearance
of a valid act
3. purpose of deceiving third persons
 Absolute – contract does not really exist and
the parties do not intend to be bound at all –
VOID! [1346]
Relative – contract entered into by the
parties is different from their true agreement
3. lesion or inadequacy of cause [1355]
- apparent contract is VOID but hidden contract
is VALID
2. statement of a false cause, unless
there is another true and valid cause
[1353]
- parties bound by the true and valid
cause if there is any
- any damage cause by the fact that
the price is unjust or inadequate
- lesion does not invalidate a contract

Object [1347] Form of Contracts

- subject matter or the obligation created General Rule and Exception [1356]
- all things which are not outside the
commerce of men, including future things may General Rule:
be the object of a contract Contracts shall be obligatory, in whatever
- all rights not intransmissible form they may have been entered into,
- all services not contrary to law, morals, good provided all the essential requisites for their
customs, public order or public policy validity is present.
1. can legally be the subject of commercial transaction
2. must not be impossible, legally or physically Exception:
3. must be in existence or capable of coming to existence When the law requires that a contract be in
4. must be determinate or determinable without the need
of a new contract between the parties
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
- future inheritance may not be the object of a indispensable.
contract unless it is authorized by law
- impossible things or services cannot be Kinds of Formalities
objects of contracts [1348] 1. For the validity of contracts
e.g. opium, illicit acts, etc.
- oral donation of a movable requires the
simultaneous delivery of the thing or of the
Cause [1350] document representing the right donated; if the
- essential or more proximate purpose which value of the personal property donated exceeds
the contracting parties have in view at the five thousand pesos, donation and acceptance
shall be made in writing; otherwise, donation is
time of entering into the contract
VOID! [748]
- consideration - donation of an immovable must be in a public
document; acceptance may be in the same or
In ONEROUS contracts separate public document but must be done
- cause for each contracting party is the prestation or during the lifetime of the donor [749]
promise of a thing or service by the other - the authority of the agent shall be in writing
- reciprocal obligation when the sale is of a piece of land or any
interest therein; otherwise, sale shall be VOID!
In REMUNERATORY contracts [1874]
- cause is the service or benefit which is remunerated - amount of principal and interest must be
- purpose is to reward the service that had been specified in writing; otherwise, contract of
previously rendered antichresis shall be VOID! [2134]
- partnership may be constituted in any form,
In GRATUITOUS contracts except where immovable property or real rights
- cause of which is the mere liberality of the benefactor are contributed thereto, in which case a public
instrument is necessary [1771]
- when there is an immovable property which
Motive – purely personal reason why a party enters into an inventory is not made, contract of
a contract partnership is VOID! [1773]
2. For the effectivity against third persons
- public document is required for the
Cause Motive convenience of the parties in order that the
Immediate or direct reason Remote or indirect reason contract may be registered in the property
registry to make effective as against third
Always known to the other May be unknown persons [1357]
contracting party - must be in public instrument: [1358]
1. creation of real rights over immovable
Essential element of a Not an essential element
property
contract
2. renunciation of hereditary rights or of
Illegality of cause affects Illegality of motive does not those conjugal partnership of gains
the validity of the contract render the contract void 3. power to administer property
4. transfer of actions or rights
3. For the proving the existence of a contract
- Statute of Frauds [1403]
Defective causes
1. Absence of cause and unlawful case
[1352] Formal Real Unenforceabl Others
 Contracts Contracts e 1. contains stipulations that admit several meanings
Statute of Frauds - understood as bearing that import which is
most adequate to render it effectual [1373]
Not binding Not binding until Binding even if Binding 2. contains various stipulations that are doubtful
unless thing is made orally even if - interpreted together with others, and given in
formality is delivered made orally the sense that may result from making all of
observed them jointly [1374]
Not Not enforceable Not enforceable Enforceable 3. contains words with different significations
enforceable by if there is no without by action as - understood in that most in keeping with the
action if delivery memorandum in between nature and object of the contract [1375]
formality is writing parties
not observed
Reformation of Instruments 4. contains ambiguities and omissions of stipulations
- interpreted according to the usage or custom
of the place, that shall fill the omission of
- remedy in equity by means of which a stipulations ordinarily established [1375]
written instrument is made or construed so as 5. with respect to the party who cause the obscurity
to express or conform to the real intention of - interpretation must not favor the party
the parties when some error or mistake has causing the obscurity [1377]
been committed 6. absolutely impossible to settle doubts by the rules
- when doubts refer to incidental circumstances
of gratuitous contracts, doubts are resolved in
1. meeting of the minds upon the contract favor of the least transmission of interests
2. true intention of the parties is not expressed - when doubts refer to incidental circumstances
3. failure of the instrument to express the true intent is of onerous contracts, doubts are resolved in the
due to mistake, fraud, inequitable conduct, accident or favor of greatest reciprocity
relative simulation - when doubts refer to the principal
consideration and the intent cannot be
ascertained, the contract is VOID! [1378]
When is reformation not allowed?
1. simple donations inter vivos wherein
no condition is imposed Defective Contracts
2. wills Rescissible, Voidable or Annullable, Unenforceable, Void or
3. real agreement is void Inexistent

Implied Ratification Rescissible Contracts

- when one of the parties has brought an action - those contracts validly agreed upon because
to enforce the instrument, he subsequently ask the essential elements exist but due to injury
for its reformation [1367]
or damage, the remedy of rescission is
granted in interest of equity
Who may ask for reformation?
1. injured party
Rescission – remedy granted by law to the contracting parties
- person mistaken
and sometimes even to third persons in order to
- person defrauded
secure reparation of damages caused them by a
- victim of the inequity
contract even if the contract be valid, by means of
- victim of the accident
the restoration of the things to their condition prior
- persons whose rights are prejudiced
to the celebration of said contract
by the relative simulation
2. heirs and assigns
Kinds [1381]
1. entered into by guardians whenever the wards
Interpretation of Contracts whom they represent suffer lesion by more than
one-fourth of the value of the thing
2. agreed upon in representation of absentees, if the
absentee suffers lesion by more than one-fourth
Intention
of the value of the thing
- deduced from the language employed by the 3. undertaken in fraud of creditors
parties and the terms of the contract, where 4. things under litigation if they have been entered
unambiguous, are conclusive in the absence of into by the defendant without the knowledge and
approval of the litigants or of competent judicial
averment and proof of mistake
authority
- the question being not what the intention 5. all other contracts specially declared by law
was but what is express in the language used
- if the words appear to be contrary to the Characteristics
evident intention of the parties, the intention 1. their defect consists in injury or damage either to
one of the contracting parties or to third persons
shall prevail [1370] 2. they are valid before rescission
- contemporaneous and subsequent acts of 3. they can be attacked directly only and not
the parties shall be principally considered collaterally
[1371] 4. they can be attacked only either by a contracting
party or by a third person who is injured or
defrauded
5. they can be convalidated only by prescription and
Interpreting not by ratification

Rescission in 1191 – Breach - principal action
Rescission in 1381 – Lesion - subsidiary action
1. contract is rescissible
2. party asking for rescission has no other legal
means
3. able to restore whatever he may be obliged to
restore
4. object of the contract is not in the possession of
a third person acting in good faith
5. actionshall
is brought
- rescission only within
be tothetheprescriptive
extent toperiod
of four years
cover the damages caused [1384]
Presumptions of fraud [1387]
1. Alienation by gratuitous title with the
remaining property not sufficient to
cover existing debts
2. Alienation by onerous title when a
judgement has already been rendered
or writ of attachment has been issued
Badges of Fraud
1. consideration of the conveyance is inadequate
2. transfer made by debtor after suit has begun
and is still pending
3. sale upon credit by an insolvent debtor
4. evidence of large indebtedness or complete
insolvency
5. transfer of all or nearly all of his property
6. transfer is made between father and son
7. failure of vendee to take exclusive possession of
all the property
- purchaser in bad faith who acquired the
object alienated in fraud of creditor must
return the same if the sale is rescinded [1388]
- the action to claim rescission must
commence within four years from the fate the
contract was entered into, except:
1. for persons under guardianship, period shall
begin from the termination of incapacity
2. for absentees, from the time the domicile is
known
Voidable Contracts
- those contracts which possess all the
essential requisites of a valid contract but one
of the parties is incapable of giving consent,
or consent is vitiated by mistake, violence,
intimidation, undue influence or fraud
- these are valid and binding unless annulled
by proper action in court
- once ratified, they become absolutely valid
[1390]
Annulment – remedy granted by law for reason of public
interest for the declaration of the inefficacy of a
contract based on a defect or vice in the consent
of one of the contracting parties in order to
restore them to their original position before the
contract was executed
Kinds [1390]
1. one of the parties is incapable of giving consent
2. consent is vitiated by mistake, violence,
intimidation, undue influence or fraud
Characteristics
1. their defect consists in the vitiation of consent of
one of the contracting parties
2. they are binding until they are annulled by a
competent court
3. they are susceptible of convalidation by ratification
or by prescription
Who may ask for annulment?
- the party whose consent was vitiated but not the other
- action for annulment shall be brought within
four years [1391]:
- from the time the intimidation,
violence or undue influence ceases
- from the discovery of the fraud or
false cause
- from majority of minors or removal
of disability of incapacitated persons
- contracting parties shall restore to each
other the things which have been the subject
matter of the contract with the fruits and the
price with its interest [1398]
- when the defect consists in the incapacity of
one of the parties, he is not obliged to make
any restitution except insofar as he has been
benefited by the thing or price [1399]
- when the thing was lost through the fault of
the party obliged to return the same, he shall
return the fruits received and the value of the
thing at the time of the loss [1400]
- action to annul is extinguished upon
ratification [1392]
- action to annul is extinguished when the
thing is lost by the person who has the right
to file the action due to his fault [1401]
Ratification of a voidable contract
- cures the contracts entered into
1. contract is voidable
2. ratification is made with the knowledge of
the cause for nullity
3. at the time of the ratification, the cause of
the nullity already ceased to exist
Express
- waiver of the right of annulment by the
party or his guardian
Implied
- an act which necessarily implies the
intention to waive nullity, which is
incompatible with the intention to annul
- done with knowledge of the ground or
cause of nullity
- ratification retroacts to the time that
the contract was entered into [1396]
Unenforceable Contracts
- those that cannot be enforced in court or
sued upon by reason of defects provided by
law until and unless they are ratified
according to law
1. those entered into in the name of another
by one without or acting in excess of
authority
 2. those that do not comply with the Statute
of Frauds
3. those where both parties are incapable of
giving consent
Statute of Frauds
1. agreement not to be performed within
one year from the making
e.g. Katz and Yen are freshies. Katz promised
Yen that she will make all her digests for her
come third year. If it is not done in writing, it is
unenforceable.
2. promise to answer for the debt, default
or miscarriage of another
e.g. Katz owes Yen 10 pesos. Cuayo promised
to pay Yen in case Katz fails to pay for the
same. The promise is unenforceable if not made
in writing. However, Katz’ obligation to pay Yen
is in enforceable even if it is not in writing.
3. agreement in consideration of marriage
other than mutual promise to marry
e.g. Mico purchased a house in consideration of
Katz’ promise to marry him after doing so. For
the promise to be enforceable, it must be made
in writing.
4. agreement for sale of goods at a price
not less than 500 pesos
e.g. Katz and Yen mutually promised to buy and
sell the former’s laptop for 1,000 pesos. This
contract must be in writing to be enforceable
unless there is delivery and partial or full
payment.
5. agreement for leasing for a longer
period than one year
e.g. Katz leased her house to Yen for 2 years. It
must be in writing to be enforceable.
6. agreement for the sale of real property
or of an interest therein
e.g. Katz promised to sell a parcel of land to
Yen. This must be in writing to be enforceable.
However, if Katz has partially or fully paid the
price, it is already enforceable.
7. representation as to the credit of a third
person
e.g. Katz seeks a loan from Yen. Cuayo told Yen
that Katz is capable of paying her debts when in
fact she is insolvent. Due to Cuayo’s
representation, Yen agreed to extend a loan to
Katz. Cuayo’s representation of Katz’ solvency
must be in writing to be enforceable.
Ratification of an unenforceable contract
1. by failure to object to the presentation
of oral evidence to prove the contract;
this amounts to a waiver
2. by acceptance of benefits under the
contract
- when a public document is necessary for
registration, the contract must first be ratified
to be enforceable [1406]
e.g. Katz bought a land from Yen. The sale was
made orally. Katz cannot compel Yen to transfer
title to her as the contract is unenforceable.
- in a contract where both parties are
incapable of giving consent, the contract is
unenforceable [1407]
- if the parent or guardian of one party ratifies
the contract, the contract becomes voidable
- if the parents or guardians of both parties
ratify the contract, the contract becomes valid
from inception
Void Contracts
- those which, because of certain defects
produce no effect at all
- considered inexistent from the very
beginning
Characteristics
1. it cannot be ratified
2. right to set up the defense of illegality cannot be
waived
3. action or defense for declaration of nullity does
not prescribe
4. defense of illegality is available to third persons
whose interests are directly affected
5. cannot give rise to a valid contract
Void Contracts [1409]
1. those whose cause, object or purpose
is contrary to law, morals, good customs,
public order or public policy
- act constitutes a criminal offense
- act is unlawful but does not constitute a
criminal offense
- purpose is illegal and money is paid or
property is delivered
- contract is illegal and one of the parties is
incapable of giving consent
- agreement is not illegal per se but is
prohibited
- amount paid exceeds the maximum fixed by
law
- by virtue of a contract a laborer undertakes
to work longer than the maximum number of
hours of work fixed by law
- laborer agrees to accept a lower wage than
that set by law
- illegal parts of a divisible contracts
- when contract is the direct result of a
previous illegal contract
2. those whose object is outside the
commerce of men
3. those which contemplate an impossible
service
4. those where the intention of the parties
relative to the principal object of the
contract cannot be ascertained
5. those expressly prohibited or declared
void by law
Inexistent Contracts
1 those which are absolutely simulated or
fictitious
2. those whose cause or object did not
exist at the time of the transaction
Void Voidable Rescissible Unenforceabl
e
 Lack of Vitiated Lesion or Lack of formal which he received by will or by law of
essential consent or prejudice authority or intestacy, payment is deemed valid [1429]
elements or incapacity of capacity of both - when even after a will is declared void, an
illegality one party parties
heir pays a legacy in compliance with a clause
Not cured by Cured by Cured by Not cured by in the defective will, payment is effective and
prescription prescription prescription prescription
irrevocable [1430]
Cannot be Can be No need to be Can be ratified Legacy – reward to friends, servants, etc
ratified ratified ratified
Not binding Binding until Binding unless Binding unless
annulled rescinded the defect used
as a defense

Natural Obligations
- based on equity and natural law, not positive
law, and do not grant right of action to
enforce their performance [1423]
Natural Obligations Civil Obligations
Based not on positive law but on Arise from law, contracts, quasi-
equity and natural law contracts, delicts and quasi
delicts
Do not grant right of action to Give a right of action to compel
enforce performance their performance
- when right to sue upon a civil obligation has
lapsed by extinctive prescription, the obligor
who voluntarily performs the contract cannot
recover what he has delivered or the value of
the service he has rendered [1424]
e.g. Katz owes Yen 10 pesos. After 10 years,
the debt prescribed for failure of Yen to file the
necessary action to recover the same. If Katz,
even if she knew that the debt has already
prescribed, paid Yen 10 pesos, she cannot
recover it anymore.
- when a third person pays the prescribed
debt of the debtor, without the latter’s knowledge
or against his will, he is not obliged to
reimburse the former [1425]
- when a minor between 18 and 21 years old
entered a contract without the consent of the
parent or guardian, and the contract was later
on annulled, and the minor voluntarily returns
the whole thing or price received, there is no
right to demand the thing or price returned
[1426]
- when a minor between 18 and 21 years old
entered a contract without the consent of the
parent or guardian, voluntarily pays a sum of
money or delivers a fungible thing in
fulfillment of the obligation, there shall be no
right to recover the same from the obligee
who has spent or consumed it in good faith
[1427]
- if after the action to enforce a civil obligation
has failed, the debtor still voluntarily paid the
creditor, the former cannot demand the return
of what he has delivered [1428]
- when the heir voluntarily pays a debt of the
decedent exceeding the value of the property
Estoppel
- an admission or representation is rendered
conclusive upon the person making it, and
cannot be denied or disproved by him as
against the person relying thereon [1431]
Technical Estoppel
1. by record or judgement (res
judicata)
2. by deed, mortgage or bond
Equitable Estoppel
1. by express representation
2. by silence
3. by laches
- estoppel is effective only as between the
parties thereto or their successors in interest
even if one party is a minor [1439]
On the party estopped:
1. conduct amounting to false representation or
concealment of material facts
2. intent or expectation that this conduct shall be acted
upon by the other party
3. knowledge of the truth
On the party invoking estoppel:
1. lack of knowledge and means to ascertain the truth
2. reliance upon the conduct of the party estopped
3. action or failure to act so as to change his position
prejudicially
4. prejudice unless estoppel is applied
- when a person who is not the owner of a
thing sells and delivers it, and later the seller
acquires title thereto, the title by operation of
law passes to the buyer [1434]
- when a person in representation of another
sells a thing, the former cannot set up his
own title against the buyer [1435]
- the lessee or bailee is estopped from
asserting title to the thing leased or received
[1436]
- when in a contract between third persons
concerning immovable property, one of them
is misled by a person with respect to the
ownership or real right over the real estate,
the person who misrepresented cannot assert
his legal title or interest [1437]
 - one who has allowed another to assume
apparent ownership of personal property for
purpose of making any transfer of it cannot, if
he received a pledge, set up his own title to
defeat the pledge [1438]
Trusts
- a fiduciary relationship with respect to
property, subjecting the person holding the
same to the obligation of dealing with the
property for the benefit of another person
- separation of the legal title from the
beneficial title
- differs from a stipulation pour autrui in that a
trust refers to a specific property
- differs from a condition in that
accomplishment of the latter is not
enforceable, but performance of a trust is
enforceable
- differs from guardianship in that the trustee
has legal title to the property
Parties [1440]
1. Trustee
- one who hold the property in trust
2. Trustor
- one who establishes or created a trust
3. Beneficiary
- person for whose benefit property is held for
by the trustee
Express Trust
- created by assent of the parties
Implied Trust
- created by law
1. Resulting trust
- imposed by law to carry out the
actual or presumed intent of the
parties, where express trust fails
2. Constructive trust
- established by law regardless of
intention, in order to prevent fraud,
oppression or unjust enrichment
Express trusts
- cannot be proved by parol evidence
[1443]
- no particular words required as long
as a trust is clearly intended [1444]
Implied trusts
- may be proved by oral evidence
[1457]
- when property is sold, and the legal
estate is granted to one party but the
price is paid by another for the
purpose of having the beneficial
interest of the property; if the person
to whom the title is conveyed is a
child, legitimate or illegitimate, of the
one paying the price of the sale, no
trust is implied by law, it being
disputably presumed that there is a
gift in favor of the child [1448]
- when a donation is made to a
person but it appears that although the legal
estate is transmitted to the donee, he
nevertheless is either to have no
beneficial interest or only a part
thereof [1449]
- price of a sale of property is loaned
or paid by one person for the benefit
of another and the conveyance is
made to the lender or payor to secure
the payment of the debt, a trust
arises by operation of law in favor of
the person to whom the money is
loaned or for whom its is paid [1450]
- when land passes by succession to
any person and he causes the legal
title to be put in the name of another,
a trust is established by implication of
law for the benefit of the true owner
[1451]
- if two or more persons agree to
purchase property and by common
consent the legal title is taken in the
name of one of them for the benefit
of all, a trust is created by force of
law in favor of the others in
proportion to the interest of each
[1452]
- when property is conveyed to a
person in reliance upon his declared
intention to hold it for, or transfer it
to another or the grantor, there is an
implied trust in favor of the person
whose benefit is contemplated [1453]
- absolute conveyance of property is
made in order to secure the
performance of an obligation of the
grantor toward the grantee, a trust by
virtue of law is established [1454]
- when any trustee, guardian or other
person holding a fiduciary relationship
uses trust funds for the purchase of
property and causes the conveyance
to be made to him or to a third
person, a trust is established by
operation of law in favor of the
person to whom the funds belong [1455]
- if property is acquired through
mistake or fraud, the person
obtaining it is, by force of law,
considered a trustee of an implied trust for
the benefit of the person from whom the
property comes [1456]