Page |1

THE LAW ON OBLIGATIONS AND CONTRACTS

I. OBLIGATIONS through mistake to another who has no
right to demand it.
OBLIGATION
 A juridical necessity to give, to do, QUASI-DELICTS
or not to do (Article 1156), one  An act or omission by a person
impressed with the character of (tortfeasor) which causes damage to
enforceability. another giving rise to an obligation
to pay for the damage done, there
 Requisites: being fault or negligence but there is
a. juridical or legal tie or efficient no pre-existing contractual relation
cause between the parties (Article 2176).
b. active subject (obligee or
creditor)  Requisites:
c. passive subject (obligor or 1. There must be an act or
debtor) omission;
d. fact, prestation or service 2. There must be fault or
constituting the object of the negligence;
obligation 3. There must be damage caused to
 Requisites: the plaintiff;
i) it must be licit 4. There must be a direct relation
ii) it must be possible, of cause and effect between the
physically & juridically act or omission and the damage;
iii) it must be determinate or and
determinable 5. There is no pre-existing
iv) it must have a possible contractual relation between the
equivalent in money parties.

NOTES:
1. Law  The same negligent act or omission
2. Contracts causing damage may produce civil
3. Quasi-contracts liability arising from crime under
4. Delicts Art. 100 of the RPC or create an
5. Quasi-delicts action for quasi-delict under Article
2176.
QUASI-CONTRACTS  While it is true that in order that a
 Those juridical relations arising from person may be liable for quasi-
lawful, voluntary and unilateral acts, delicts, there must be no pre-
by virtue of which the parties existing contractual relationship
become bound to each other, based between the parties, yet, “the act
on the principle that no one shall be that breaks the contract may also
unjustly enriched or benefited at the be a tort.” (Air France vs.
expense of another. Carrascoso, 18 SCRA 155).

Principal Kinds of Quasi-contracts: Nature of Obligations

1. Negotiorum gestio - arises whenever 1. Personal Obligations - obligations to
a person voluntarily takes charge of do
the agency or management of the a. Positive – obligation to do
business or property of another b. Negative – obligation not to do
without any power or authority from 2. Real Obligations - obligations to give
the latter. a. Determinate or specific – object
2. Solutio indebiti - arises whenever a is particularly designated or
person unduly delivers a thing
 Page |2

physically segregated from all if, under the circumstances of the

other of the same class case, the result of the specific
b. Generic – object is designated performance of the contract would
merely by its class or genus be harsh, inequitable, oppressive or
c. Limited generic thing – when the result in an unconscionable
generic objects are confined to a advantage to the plaintiff. The
particular class, e.g. an courts may adjust the rights of the
obligation to deliver one of my parties in accordance with the
horses (Tolentino, Volume IV, p. circumstances obtaining at the time
91). of rendition of judgment, when
these are significantly different from
PERSONAL vs. REAL RIGHT those existing at the time of
Personal Real generation of those rights. (Agcaoili
1. jus ad rem, a 1. jus in re, a right vs. GSIS, G.R. No. 30056, August 30,
right enforceable enforceable 1988)
only against a against the whole
definite person or world OBLIGATIONS OF THE DEBTOR
group of persons
Determinate Generic
2. right pertaining 2. right pertaining
1. deliver the thing 1. deliver the thing
to the person to to a person over a
which he has which is neither of
demand from specific thing,
obligated himself to superior nor inferior
another, as a without a passive
give quality
definite passive subject individually
2. take care of the 2. pay damages in
subject, the determined against
thing with the case of breach of
fulfillment of a whom such right
proper diligence of the obligation by
prestation to give, may be personally
a good father of a reason of delay,
to do or not to do. enforced
family fraud, negligence or
3. deliver all contravention of the
RIGHTS OF A CREDITOR accessions and tenor thereof
Determinate Generic accessories of the
1. compel specific 1. ask for thing even though
performance performance of the they may not have
obligation been mentioned
2. recover 2. ask that the 4. pay damages in
damages in case of obligation be case of breach of
breach of the complied with at the obligation by
obligation, the expense of the reason of delay,
exclusive or in debtor fraud, negligence or
addition to contravention of the
specific tenor thereof
performance
3. entitlement to 3. recover EFFECTS OF BREACH
fruits, interests damages in case of Positive Personal Negative Personal
from the time the breach of the
Obligations Obligations
obligation to obligation
The creditor can: If the obligor does
deliver arises.
1. ave the obligation
h what has been
performed or forbidden him, the
Principle of Balancing of Equities as executed at the creditor can:
Applied in Actions for Specific expense of the 1. have it undone at
Performance obligor (except in the expense of the
 In decreeing specific performance, cases where the obligor; and
equity requires not only that the personal 2. ask for damages
contract be just and equitable in its qualifications of the
provisions, but that the debtor are taken into
account in which
consequences of specific
case the only remedy
performance likewise be equitable is an action for
and just. The general rule is that this damages)
equitable relief will not be granted 2. ask that what has
 Page |3

been poorly done be  3 Kinds:

undone 1. Mora solvendi - delay of the debtor
3. recover damages to perform his obligation. It may be:
because of breach of a. Ex re – obligation is to give
the obligation b. Ex persona – obligation is to do
2. Mora accipiendi - delay of the
Cases where the remedy granted under
creditor to accept the delivery of
Article 1168 is not available:
the thing w/c is the object of the
1. Where the effects of the act which is
obligation
forbidden, are definite in character,
3. Compensatio morae - delay of the
in which case, even if it is possible
parties or obligors in reciprocal
for the obligee to ask that the act be
obligation
undone at the expense of the
obligor, consequences contrary to
the object of the obligation will have
There must be a demand
been produced which are permanent
(judicial or extra-judicial) before delay
in character
may be incurred.
2. Where it would be physically or
legally impossible to undo what has
1. obligation or law expressly so
been undone because of the very
declares
nature of the act itself or because of
2. time is of the essence of the
a provision of law, or because of
contract
conflicting rights of 3rd persons
3. demand is useless as when
NOTE: In either case, the remedy is to
obligor has rendered beyond his
ask for damages.
power to perform
4. there is acknowledgment of
BREACH OF OBLIGATIONS
default
1. Voluntary - debtor, in the
performance of the obligation, is
NOTES:
guilty of:
a. default (mora)
 There can be delay only in positive
obligations (to give/to do). There
b. fraud (dolo)
can be no delay in negative
c. negligence (culpa)
obligations (not to give/not to do).
d. contravention of the tenor of
the obligation  In reciprocal obligations one party
NOTE: debtor is liable for damages incurs in delay from the moment the
other party fulfills his obligation,
2. Involuntary - debtor is unable to while he himself does not comply or
comply with his obligation because is not ready to comply in a proper
of fortuitous event manner with what is incumbent upon
NOTE: debtor is not liable for him. The general rule is that
damages fulfillment by both parties should be
simultaneous except when different
DEFAULT or DELAY dates for the performance of
 Non-fulfillment of the obligation obligation is fixed by the parties.
with respect to time  Demand is still necessary if their
 Requisites: respective obligations are to be
1. Obligation is demandable and performed on separate dates
already liquidated
2. The debtor delays performance FRAUD
3. The creditor requires performance  Deliberate and intentional evasion of
judicially or extra-judicially the fulfillment of an obligation
 Page |4

NOTE: Future fraud cannot be waived Test of Negligence

because it would result to illusory  The test of negligence can be
obligation. determined by this standard: If the
defendant, in committing or causing
Incidental Causal Fraud/dolo the negligent act, had used
Fraud/dolo causante reasonable care and vigilance which
incidente (Article 1338) a man of ordinary prudence would
(Article 1170) have employed under the same
situation, he is not guilty of
1. Present during 1. Present during the
negligence. Otherwise, he is guilty.
the performance time of birth or
of a pre-existing perfection of the
obligation obligation Doctrine of Res Ipsa Loquitur as
Applied in Negligence Cases
2. Purpose is to 2. Purpose is to  The thing or transaction speaks for
evade the normal secure the consent of
itself
fulfillment of the the other to enter
obligation into a contract  When the thing which caused injury,
without fault of the injured person,
3. Results in the 3. Results in the is under the exclusive control of the
non-fulfillment or vitiation of consent defendant and the injury is such as
breach of the in the ordinary course of things does
obligation not occur if he having such control
use proper care, it affords
4. Gives rise to a 4. Gives rise to a
reasonable evidence, in the absence
right of the creditor right of an innocent
to recover damages party to annul the
of explanation from the defendant,
from the debtor contract that the injury arose from
defendant’s want of care (Africa vs.
Caltex, 16 SCRA 448 and Republic vs.
NEGLIGENCE Luzon Stevedoring, 21 SCRA 279).
 Omission of that diligence which is
required by the nature of the FORTUITOUS EVENT
obligation and corresponds with the  An event which could not be
circumstances of the persons, of the foreseen or which though foreseen
time and of the place was inevitable.
NOTE: Negligence can be waived unless
the nature of the obligation or public  Requisites:
policy requires extraordinary diligence as 1. cause is independent of the will of
in common carrier. the debtor
2. the event must be unforeseeable or
Diligence Required unavoidable
1. That agreed upon by the parties 3. occurrence must be such as to
2. In the absence of stipulation, that render it impossible for the debtor
required by law in the particular to fulfill his obligation in a normal
case manner
3. If both the contract and law are 4. debtor must be free from any
silent, diligence of a good father of a participation in
family 5. the aggravation of the injury
resulting to the creditor (Lasam vs.
Concept of Diligence of Good Father of Smith, 45 Phil. 657)
a Family
NOTE: It must not only be the
 That reasonable diligence which an proximate cause but it must be the
ordinary prudent person would have
ONLY and SOLE CAUSE.
done under the same circumstances
 Page |5

GENERAL RULE: No liability in case of

fortuitous event. 1. When they are not transmissible
EXCEPTIONS: by their very nature e.g. purely
1 When expressly declared by law personal right
NOTE: e.g. Article 552(2), 2. When there is a stipulation of
1165(3), 1268, 1942, 2147, 2148 the parties that they are not
and 2159 of the Civil Code. transmissible
2 When expressly declared by 3. Not transmissible by operation of
stipulation or contract law
3 When the nature of the
obligation requires the PURE OBLIGATION
assumption of risk  One whose effectivity or
4 When the obligor is in default or extinguishment does not depend
has promised to deliver the same upon the fulfillment or non-
thing to 2 or more persons who fulfillment of a condition or upon the
do not have the same interest expiration of a term or period and is
[Article 1165(3)]. demandable at once.

EFFECT OF FORTUITOUS EVENT CONDITIONAL OBLIGATION

Determinate Generic  One whose effectivity is
Obligation Obligation subordinated to the fulfillment or
obligation is obligation is not non-fulfillment of a future AND
extinguished extinguished based uncertain fact or event
on the rule that a
genus never perishes Kinds of conditions:
(genus nunquam
peruit)
1. Suspensive - fulfillment of the
condition results in the acquisition of
rights arising out of the obligation
2. Resolutory - fulfillment of the
condition results in the
PRINCIPLE UNDER ARTICLE 1176
extinguishments of rights arising out
 Before the presumption that a prior of the obligation
installment had been paid may arise,
3. Potestative - fulfillment of the
the receipt must specify the
condition depends upon the will of a
installment for which payment is
party to the obligation
made.
4. Casual - fulfillment of the condition
depends upon chance and/or upon
 REMEDIES OF CREDITOR TO the will of a third person
PROTECT CREDIT: 5. Mixed - fulfillment of the condition
1. Exhaustion of debtor’s property depends partly upon chance and/or
2. Accion subrogatoria - to be the will of a third person
subrogated to all the rights and 6. Possible - condition is capable of
actions of the debtor save those realization according to nature, law,
which are inherent in his person. public policy and good customs
3. Accion pauliana - impugn all the acts 7. Impossible - condition is not capable
w/c the debtor may have done to of realization according to nature,
defraud them. law, public policy and good customs
NOTE: 2nd & 3rd remedies are 8. Positive - condition involves the
subsidiary to the first performance of an act
9. Negative - condition involves the
Rights acquired by omission of an act
virtue of an obligation are transmissible 10. Divisible - condition is susceptible of
in character partial realization
11. Indivisible - condition is not
susceptible of partial realization
 Page |6

12. Conjunctive - where there are be deemed to have been mutually

several conditions, all of which must compensated
be realized 5. If the obligation is unilateral, the
13. Alternative - where there are several debtor shall appropriate the fruits &
conditions but only one must be interests received, unless from the
realized nature & circumstances it should be
inferred that the intention of the
Rule in Potestative Conditions persons constituting the same was
a. If the fulfillment of the different
potestative condition depends 6. In obligations to do or not to do, the
upon the sole will of the debtor, court shall determine the retroactive
the condition as well as the effect or the conditions that has
obligation itself is void. It renders been complied with
the obligation illusory.
(Applicable only to a suspensive Constructive fulfillment of Suspensive
condition and to an obligation Condition
which depends for its perfection
 The condition shall be deemed
upon the fulfillment of the
fulfilled when the obligor actually
potestative condition and not to a
prevented the obligee from
pre-existing obligation.)
complying with the condition and
b. If the fulfillment depends
such prevention must have been
exclusively upon the will of the
voluntary and willful in character.
creditor, both the condition and
obligation is valid.
Effects of Resolutory Condition
NOTE: In case of simple potestative
1. Before the fulfillment of the
condition, e.g. right of first refusal,
condition, the right which the
such condition is valid.
creditor has already acquired by
virtue of the obligation is subject to
Rule in Impossible Conditions
a threat of extinction.
They shall annul the
2. If condition is not fulfilled, rights are
obligation which depends upon them.
consolidated; they become absolute.
3. Upon fulfillment of the condition,
1. pre-existing obligation
the parties shall return to each other
2. if obligation is divisible
what they received including the
3. in simple or renumeratory donations
fruits
4. in testamentary dispositions
5. in case of conditions not to do an
SUMMARY:
impossible thing
SUSPENSIVE RESOLUTORY
CONDITION CONDITION
Effects of Suspensive Condition
1. if fulfilled, 1. if fulfilled,
1. Before fulfillment of the condition, obligation arises obligation is
the demandability as well as the or becomes extinguished
acquisition or effectivity of the effective
rights arising from the obligation is 2. if not fulfilled, no 2. if not fulfilled,
suspended juridical relation juridical
2. After the fulfillment of the is created relation is
condition, the obligation arises or 3. rights are not yet consolidated
becomes effective acquired, but 3. rights are
3. The effects of a conditional there is hope or already
expectancy that acquired, but
obligation to give, once the they will soon be subject to the
condition has been fulfilled, shall acquired threat or danger
retroact to the day of the of extinction
constitution of the obligation
4. When the obligation imposes
reciprocal prestations upon the
parties, the fruits & interests shall
 Page |7

Effects of Loss, Deterioration and RIGHT TO RESCIND (ART 1191)

Improvement in real obligations (during The right to rescind
the pendency of the condition) needs judicial approval.

1. Loss 1. If there is an express stipulation

a. without debtor’s fault - of automatic rescission
obligation is extinguished 2. When the debtor voluntarily
b. with debtor’s fault - debtor pays returned the thing
damages
NOTES:
2. Deterioration  Article 1191 refers to judicial
a. without debtor’s fault - rescission. It does not apply if there
impairment to be borne by the is an express stipulation to rescind,
creditor in which case such stipulation must
b. with debtor’s fault - creditor prevail. There is nothing in the law
may choose between the which prohibits the parties from
rescission of the obligation and entering into an agreement that
its fulfillment with indemnity for violation of the terms of the
damages in either case contract would cause its cancellation
without court intervention. Said
3. Improvement stipulation is in the nature of
a. by the thing’s nature or by time facultative resolutory condition
- improvement shall inure to the (Angeles vs. Calasanz, 135 SCRA
benefit of the creditor 323).
b. at the debtor’s expense - debtor  Rescission will be ordered only
shall have no other right than where the breach is substantial as to
that granted to a usufructuary defeat the object of the parties in
entering into the agreement.
NOTE: Applies only to determinate
 The injured party may choose
things
between fulfillment and rescission of
the obligations, with the payment of
A Thing is Lost when it: damages in either case. These
1. perishes remedies are alternative, not
2. goes out of commerce
cumulative. However, should
3. disappears in such a way that its
fulfillment become impossible, the
existence is unknown or it cannot be
injured party may also seek
recovered
rescission.
RECIPROCAL OBLIGATIONS  The right to rescind belongs
exclusively to the injured party.
Those which are created or established
at the same time, out of the same
OBLIGATION WITH A PERIOD
cause, and which result in mutual
 Those whose demandability or
relationships of creditor & debtor
extinguishment is subject to the
between the parties
expiration of a term or period
TACIT RESOLUTORY CONDITION  Requisites:
1. future
with what is incumbent upon him, there 2. certain
is a right on the part of the other to 3. possible, legally and physically
rescind the obligation.
CLASSIFICATION OF TERM OR PERIOD
1. a. suspensive (ex die) – obligation
becomes demandable only upon
arrival of a day certain
 Page |8

b. resolutory (in diem) – arrival of 3. If the debtor binds himself when his
day certain terminates the obligation means permit him to do so (Article
2. a. legal – granted by law 1180)
b. conventional – stipulated by
parties NOTE: The only action that can be
c. judicial – fixed by courts maintained is an action to ask the court
3. a. definite – date/time is know to fix the duration of the term or period.
beforehand The fulfillment of the obligation itself
b. indefinite – the date/time of day cannot be demanded until after the
certain is unknown court has fixed the period for
compliance therewith, and such period
TERM CONDITION has arrived. However, such technicality
1. interval of time 1. fact or event w/c need not be adhered to when a prior and
w/c is future & is future and separate action would be a mere
certain uncertain formality and would serve no other
2. interval of time 2. future and purpose than to delay (Borromeo vs. CA,
w/c must uncertain fact or 47 SCRA 65).
necessarily come, event w/c may or
although it may may not happen
not be known when Reason for Fixing the Period (ART 1197)
3.exerts an 3. exerts an  There can be no possibility of any
influence upon the influence upon the breach of contract or failure to
time of very existence of the perform the obligation unless the
demandability or obligation itself period is fixed by courts.
extinguishment of
an obligation When debtor loses right to make use of
4. does not have 4. has retroactive period: (IGIVA)
any retroactive effect 1. when after the obligation has been
effect unless there
contracted, he becomes insolvent,
is an agreement to
the contrary
unless he gives guaranties or
5. when it is left 5. when it is left securities for the debt (the
exclusively to the exclusively to the insolvency need not be judicially
will of the debtor, will of the debtor, declared)
the existence of the very existence of 2. when he does not furnish to the
the obligation is the obligation is creditor the guaranties or securities
not affected affected he promised
3. when by his own act he has
impaired said guaranties or
When a period is securities after their establishment,
designated for the performance or and when through fortuitous event
fulfillment of an obligation, it is they disappear, unless he gives new
presumed to have been established for ones equally satisfactory when
the benefit of both creditor and debtor. debtor violates any undertaking, in
When it appears from the consideration of which the creditor
tenor of the obligation or other agreed to the period or
circumstances that the period has been 4. when debtor attempts to abscond
established in favor of one or of the
other. FACULTATIVE ALTERNATIVE
Obligations Obligations
When court may fix period:
1. if the obligation does not fix a 1. comprehends 1. comprehends
period, but from its nature and only one object or several objects or
circumstances it can be inferred that prestation which is prestations which are
a period was intended by the parties due, but it may be due but may be
2. if the duration of the period depends complied with by complied with by the
upon the will of the debtor; and the delivery of delivery or
another object or performance of only
performance of one of them
 Page |9

another prestation b. If the loss of 1 of the things

in substitution occurs through the fault of the
debtor, the creditor may claim
2. fortuitous loss 2. fortuitous loss of any of those subsisting, or the
extinguishes the all prestations will
price of that which, through the
obligation extinguish the
obligation
fault of the former, has
disappeared with a right to
3. culpable loss 3. culpable loss of any damages
obliges the debtor object due will give c. If all the things are lost through
to deliver rise to liability to the fault of the debtor, the
substitute debtor choice by the creditor shall fall
prestation without upon the price of any 1 of them,
liability to debtor also with indemnity for damages

JOINT AND SOLIDARY OBLIGATIONS

4. choice pertains 4. choice may pertain
only to debtor to creditor or even
Obligation is presumed
third person joint if there is concurrence of two or
more debtors and/or creditors.

NOTES: 1. when expressly stated that

there is solidarity
 In alternative obligations, choice 2. when the law requires solidarity
takes effect only upon 3. when the nature of the
communication of the choice to the obligation requires solidarity
other party and from such time the
obligation ceases to be alternative. JOINT DIVISIBLE OBLIGATIONS
 The debtor cannot choose those  Each creditor can demand for the
prestations or undertakings which payment of his proportionate share
are impossible, unlawful or w/c of the credit, while each debtor can
could not have been the object of be held liable only for the payment
the obligation. of his proportionate share of the
debt.
EFFECT OF LOSS OF OBJECT OF  A joint creditor cannot act in
OBLIGATION: representation of the other creditors
1. If right of choice belongs to debtor while a joint debtor cannot be
a. If through a fortuitous event - compelled to answer for the acts or
debtor cannot be held liable for liability of the other debtors.
damages
b. If 1 or more but not all of the JOINT INDIVISIBLE OBLIGATIONS
things are lost or one or some 1. If there are 2 or more debtors, the
but not all of the prestations fulfillment of or compliance with the
cannot be performed due to the obligation requires the concurrence
fault of the debtor, creditor of all the debtors, although each for
cannot hold the debtor liable for his own share. Consequently, the
damages because the debtor can obligation can be enforced only by
still comply with his obligation. proceeding against all of the
2. If right of choice belongs to the debtors.
creditor 2. If there are 2 or more creditors, the
a. If 1 of the things is lost through concurrence or collective act of all
a fortuitous event, the debtor the creditors, although each for his
shall perform the obligation by own share, is also necessary for the
delivering that which the enforcement of the obligation.
creditor should choose from
among the remainder, or that Effect of breach – If one of the joint
which remains if only 1 subsists debtors fails to comply with his
undertaking, the obligation can no
 P a g e | 10

longer be fulfilled or performed. Effect of Assignment by Solidary

Consequently, it is converted into one of Creditor Without Consent of Others
indemnity for damages. Innocent joint 1. assignee is co-creditor – no violation
debtors shall not contribute to the of Article 1213 because there can be
indemnity beyond their corresponding no invasion of the personal or
share of the obligation. confidential relationship
2. assignee is third person – co-
Effect of insolvency of a debtor – If one creditors and debtors are not bound
of the joint debtors should be insolvent, by the assignment
the others shall not be liable for his
share. Effect of Novation upon Solidary
Obligation
INDIVISIBILITY SOLIDARITY 1. If the novation is prejudicial, the
1. refers to the 1. refers to the solidary creditor who effected the
prestation which legal tie or vinculum novation shall reimburse the others
constitutes the juris & consequently for damages incurred by them
object of the to the subjects or 2. If it is beneficial and the creditor
obligation parties of the
who effected the novation is able to
obligation
secure performance of the
2. plurality of 2. plurality of
subjects is not subjects is
obligation, such creditor shall be
required indispensable liable to the others for the share
3. in case of breach, 3. when there is which corresponds to them, not only
obligation is liability on the part in the obligation, but also in the
converted into 1 of of the debtors benefits
indemnity for because of the 3. If the novation is effected by
damages because of breach, the substituting another person in place
breach, indivisibility solidarity among the of the debtor, the solidary creditor
of the obligation is debtors remains who effected the novation is liable
terminated
for the acts of the new debtor in
case the is deficiency in
performance or in case damages are
KINDS OF SOLIDARITY
incurred by the other solidary
1. Active solidarity
creditors as a result of the
 solidarity of creditors
substitution.
 each creditor is empowered to
4. If the novation is effected by
exercise against the debtor not only
subrogating a third person in the
the rights which correspond to him,
rights of the solidary creditor
but also all the rights which
responsible for the novation, the
correspond to the other creditors,
relation between the other creditors
with the consequent obligation to
not substituted and the debtor or
render an accounting of his acts to
debtors is maintained.
such creditors
 creates a relationship of mutual
Effect of Compensation and Confusion
agency among solidary creditors
upon Solidary Obligation
2. Passive solidarity
1. If the confusion or compensation is
 solidarity of debtors
partial, the rules regarding
 liability of each debtor for the
application of payment shall apply.
payment of the entire obligation,
This is without prejudice to the
with the consequent right to demand
right of other creditors who have
reimbursement from the others for
not caused the confusion or
their corresponding shares once
compensation to be reimbursed to
payment has been made
the extent that their rights are
3. Mixed solidarity
diminished or affected.
 solidarity among creditors and
2. If the confusion or compensation is
debtors
total, the obligation is extinguished,
what is left is the ensuing liability
 P a g e | 11

for reimbursement within each Defenses available to a Solidary Debtor

group: 1. Defenses derived from the very
a. The creditor causing the nature of the obligation
confusion or compensation is 2. Defenses personal to him or
obliged to reimburse the other pertaining to his own share
creditors 3. Defenses personal to the others, but
b. The debtors benefited by the only as regards that part of the debt
extinguishments of the for w/c the latter are responsible
obligation are obliged to
reimburse the debtor who made DIVISIBLE OBLIGATIONS
the confusion or compensation  Those which have as their object a
possible. prestation which is susceptible of
partial performance without the
Effect of Remission upon Solidary essence of obligation changed.
Obligation
1. If the remission covers the entire INDIVISIBLE OBLIGATIONS
obligation, the obligation is totally  Prestation is not susceptible of
extinguished and the entire juridical partial performance, otherwise, the
relation among the debtors is essence of the obligation will be
extinguished all together. changed
2. If the remission is for the benefit of
one of the debtors and it covers his NOTES:
entire share in the obligation, he is  Divisibility or indivisibility of the
completely released from the obligation refers to the performance
creditors but is still bound to his co- of the prestation and not to the
debtors. thing which is the object thereof.
3. If the remission is for the benefit of  Intention of parties should be taken
one of the debtors and it covers only into account to determine whether
a part of his share in the obligation, obligation is divisible or not.
his character as a solidary debtor is
not affected. The creditor cannot be
compelled partially to receive the
Effect of Payment by Solidary Debtor prestation in which the obligation
1. Whole or partial extinguishment of consists; neither may the debtor be
debt required to make partial payments.
2. Right to recover against co-debtor
3. Right to recover interest from time 1. When the obligation expressly
the obligation becomes due stipulates the contrary;
2. When the different prestations
Effect of Loss or Impossibility of constituting the objects of the
Performance obligation are subject to
1. If it is not due to the fault of the different terms and conditions;
solidary debtors, the obligation is and
extinguished. 3. When the obligation is in part
2. If the loss or impossibility is due to liquidated and in part
the fault of one of the solidary unliquidated.
debtors or due to a fortuitous event
after one of the solidary debtors had OBLIGATIONS WITH A PENAL CLAUSE
already incurred in delay, the  One to which an accessory
obligation is converted into an undertaking is attached for the
obligation of indemnity for damages purpose of insuring its performance
but the solidary character of the by virtue of which the obligor is
obligation remains. bound to pay a stipulated indemnity
or perform a stipulated prestation in
case of breach.
 P a g e | 12

 Purpose of Penalty: 4. condonation or remission of the debt

1. To insure the performance of the 5. confusion or merger of rights of the
obligation; creditor and debtor
2. to liquidate the amount of 6. novation
damages to be awarded to the 7. annulment
injured party in case of breach 8. rescission
of the principal obligation 9. prescription
(compensatory); and 10. payment or performance
3. in certain exceptional cases, to
punish the obligor in case of Payment or Performance
breach of the principal  Means not only the delivery of
obligation (punitive). money but also the performance, in
any other manner, of an obligation.
ULE: The penalty fixed by
the parties is a compensation or Integrity of Payment
substitute for damages in case of breach. A debt shall not
be understood to have been paid unless
1. when there is a stipulation to the thing or service in which the
the contrary; obligation consists has been completely
2. when the debtor is sued for delivered or rendered, as the case may
refusal to pay the agreed be.
penalty; and
3. when debtor is guilty of fraud 1. When the obligation has been
substantially performed in good
NOTE: Article 1228 does not apply to faith;
these exceptions; there must be 2. When the obligee accepts
proof of actual damages. performance, knowing its
incompleteness or irregularity &
NOTES: w/out expressing any protest or
 The debtor cannot exempt himself objection;
from the performance of the 3. When there is an express stipulation;
principal obligation by paying the and
stipulated penalty unless when the 4. When the debt is in part liquidated
right has been expressly reserved for and in part unliquidated.
him.
 The creditor cannot demand the Identity of Payment
fulfillment of the principal obligation  requires that the very thing, service
and the satisfaction of the stipulated or forbearance, as the object of the
penalty at the same time unless the prestation, must be performed or
right has been clearly granted him. observed

When penalty may be reduced Persons who may pay the obligation:
1. If the principal obligation has been 1. the debtor himself or his legal
partly complied with; representative
2. If the principal obligation has been 2. any third person
irregularly complied with; and
3. If the penalty is iniquitous or Creditor is not bound to
unconscionable even if there has been accept payment or performance by a
no performance. third person.

1. when made by a third person

MODES OF EXTINGUISHMENT OF who has an interest in the
OBLIGATIONS (LFC3NARP2) fulfillment of the obligation;
1. loss of the thing due 2. when there is a stipulation to
2. fulfillment of resolutory condition the contrary.
3. compensation
 P a g e | 13

Rights of 3rd person who paid the Rules in Monetary Obligations:

obligation: 1. Payment in cash - must be made in
the currency stipulated; if it is not
1. If payment was made with
possible to deliver such currency,
knowledge and consent of the
then in the currency which is legal
debtor:
tender in the Philippines.
a. can recover entire
2. Payment in check or other
amount paid
negotiable instrument - not
b. can be subrogated to all
considered payment; not considered
the rights of the
legal tender and may be refused by
creditor.
the creditor. It shall only produce
2. If payment was made without
the effect of payment:
knowledge or against the will of
a. when it has been cashed or
the debtor, he can recover only
b. when it has been impaired
insofar as the payment has been
through the fault of the creditor.
beneficial to the debtor.
LEGAL TENDER
To whom payment must be made:
 Such currency which may be used for
1. The person in whose favor the
the payment of all debts, whether
obligation has been constituted;
private or public. The kind of
2. His successor in interest; or
currency which a debtor can legally
3. Any person authorized to receive it.
compel a creditor to accept in
payment of a debt in money when
If payment is made to a
tendered by the debtor in the right
person other than those enumerated, it
amount.
shall not be valid.
 Legal tender of the Philippines would
be all notes and coins issued by the
1. Payment made to a 3rd person,
Central Bank.
provided that it has redounded
 Section 52, R.A. No. 7653
to the benefit of the creditor.
1. 25c and above, legal tender up
Such benefit to the creditor is
to P50
presumed in the following cases:
2. 10c and below, legal tender up
 If after the payment, the to P20
third person acquires the
creditor’s rights; Extraordinary inflation or deflation
 If the creditor ratifies the  unusual or beyond the common
payment to the third fluctuation in the value of currency,
person; which the parties could not have
 If by the creditor’s conduct, reasonably foreseen or which was
the debtor has been led to manifestly beyond their
believe that the third contemplation at the time the
person had authority to obligation was established.
receive the payment.  Applies only to contractual
2. Payment made to the possessor obligations
of the credit, provided that it  Requisites:
was made in good faith. a. The decrease in the value of the
currency could not have been
Obligation to Deliver a Generic Thing reasonably foreseen by the
 If the quality and circumstances parties or beyond their
have not been stated, the creditor contemplation at the time the
cannot demand a thing of superior obligation was established ;
quality; neither can the debtor b. There must be a declaration of
deliver a thing of inferior quality. such extraordinary inflation or
 P a g e | 14

deflation by the Bangko Sentral. Legal Application of Payment (ART1254)

Without such declaration, the 1. If neither the debtor nor the creditor
creditors cannot demand an makes any application of payment,
increase, and debtors a or if it cannot be inferred from other
decrease, of what is due to or circumstances, the debt which is
from them. (Ramos vs. CA, 275 most onerous to the debtor, among
SCRA 167 and Mobil Oil Phils. vs. those which are due, shall be
CA, 180 SCRA 651) deemed to have been satisfied.
2. If the debts due are of the same
Place of payment nature and burden, payment shall be
1. Place stipulated by the parties. applied to all of them
2. No stipulation and the obligation is proportionately.
to deliver a determinate thing,
payment shall be made at the place b. Dation in Payment (DACION EN
where the thing might be at the time PAGO)
the obligation was constituted.  Delivery and transmission of
3. In any other case, the payment shall ownership of a thing by the debtor
be made at the domicile of the to the creditor as an accepted
debtor. equivalent of the performance of the
obligation.
Special Forms of Payment:  Requisites:
a. Application of payment a. existence of a money obligation
b. Dation in Payment b. alienation to the creditor of a
c. Payment by Cession property by the debtor with the
d. Tender of payment and consent of the former
Consignation c. satisfaction of the money
obligation of the debtor
a. Application of Payment
 Designation of the debt to which the c. Payment by Cession
payment must be applied when the  Debtor abandons all of his property
debtor has several obligations of the for the benefit of his creditors in
same kind in favor of the same order that from the proceeds
creditor. thereof, the latter may obtain
 Requisites: payment of their credits.
a. there must be only 1 debtor &  Requisites:
only 1 creditor; a. plurality of debts
b. there must be 2 or more debts of b. partial or relative insolvency of
the same kind; the debtor
c. all of the debts must be due; c. acceptance of the cession by the
except: if there’s stipulation to creditors
the contrary; or application of
payment is made by the party DATION IN PAYMENT BY
for whose benefit the term has PAYMENT CESSION
been constituted; and
1. one creditor 1. plurality of
d. amount paid by the debtor must
creditors
not be sufficient to cover the
total amount of all the debts. 2. not necessarily 2. debtor must be
in state of financial partially or
The right to designate difficulty relatively insolvent
the debt to which the payment shall be
applied primarily belongs to the debtor. 3. thing delivered 3. universality of
If the debtor does not avail is considered as property of debtor is
of such right and he accepts from the equivalent of what is ceded
creditor a receipt in which the performance
application is made.
 P a g e | 15

efficacy of the consignation, the

4. payment 4. merely releases obligation is extinguished.
extinguishes debtor for net 2. If the creditor contests the
obligation to the proceeds of things validity or efficacy of the
extent of the value ceded or assigned,
consignation or if the creditor is
of the thing unless there is
delivered as agreed contrary intention not interested or unknown or is
upon, proved or absent, the result is a litigation.
implied from the If the debtor complied with all
conduct of the the requisites, the obligation is
creditor extinguished.

d. Tender of Payment and Consignation Consignation shall

Tender of Payment produce effects of payment only if there
 Manifestation of he debtor to the is a valid tender of payment.
creditor of his decision to comply
immediately with his obligation. 1. creditor is absent or unknown, or
 It is the preparatory act and does not appear at the place of
extrajudicial in character. payment
2. creditor incapacitated to receive
Consignation payment at the time it is due
 Deposit of the object of the 3. when two or more persons claim the
obligation in a competent court in right to collect
accordance with the rules prescribed 4. when the title of the obligation has
by law, after the tender of payment been lost
has been refused or because of 5. when without just cause creditor
circumstances which render direct refuses to give a receipt
payment to the creditor impossible
or inadvisable. NOTES:
 It is the principal act and judicial in
character.  It is the consignation which
constitutes a form of payment and
 Special Requisites: must follow, supplement or
a. The debt sought to be paid must complete the tender of payment in
be due; order to discharge the obligation.
b. There must be a valid and  A valid tender of payment has the
unconditional tender of payment effect of exempting the debtor from
or any of the causes stated by payment of interest and/or
law for effective consignation damages.
without previous tender of  If tender is made by means of a
payment exists; check, such tender is valid because
c. The consignation of the thing it is an exercise of a right. Article
due must first be announced to 1249 is not applicable.
the persons interested in the
fulfillment of the obligation; LOSS OF THE THING DUE
d. Consignation shall be made by In Determinate Obligations to Give
depositing the things due at the
disposal of judicial authority; Obligation is
and extinguished.
e. The consignation having been  Requisites:
made, the interested parties 1. The thing which is lost is
shall also be notified thereof. determinate;
2. The thing is lost without the
 Effects of consignation: fault of the debtor; and
1. If the creditor accepts the thing 3. The thing is lost before the
or amount deposited without debtor has incurred in delay.
contesting the validity or
 P a g e | 16

4. The contract is for a future

1. when by law, obligor is liable prestation.
even for fortuitous event;
2. when by stipulation, obligor is Principle of Subjective Impossibility
liable even for fortuitous event;  When there is no physical or legal
3. when the nature of the loss but the thing object of the
obligation requires the obligation belongs to another, the
assumption of risk; performance by the debtor of the
4. when the loss of the thing is due obligation undoubtedly becomes
partly to the fault of the debtor; impossible. Failure of performance is
5. when the loss of the thing occurs imputable to the debtor. Thus, the
after the debtor incurred in debtor must indemnify the creditor
delay; for the damages suffered by the
6. when the debtor promised to latter. (Tolentino, Volume IV, p.
deliver the same thing to two or 336)
more persons who do not have
the same interest; and Effect of Loss on Reciprocal Obligations
7. when the debt of a certain and  First view (Tolentino, Volume IV, pp.
determinate thing proceeds from 337-338) – If an obligation is
a criminal offense extinguished by the loss of the thing
or impossibility of performance
In Generic Obligations to Give through fortuitous events, the
counter-prestation is also
Obligation is not extinguished. The debtor is released
extinguished because the genus of a from liability but he cannot demand
thing cannot perish. the prestation which has been
In case of generic stipulated for his benefit. He who
obligations whose object is a particular gives nothing has no reason to
class or group with specific or demand anything.
determinate qualities (Limited Generic
Obligations)  Second View (JBL Reyes) – The loss
or impossibility of performance must
In Obligations to Do be due to the fault of the debtor. In
this case, the injured party may ask
Obligation is extinguished when for rescission under Article 1191 plus
prestation becomes legally or physically damages. If the loss or impossibility
impossible. was due to a fortuitous event, the
other party is still obliged to give the
Effect of Relative Impossibility or prestation due to the other.
Doctrine of Unforeseen Events (ART
1267) CONDONATION OR REMISSION OF THE
 When the service has become DEBT
difficult as to be manifestly beyond  An act of pure liberality by virtue of
the contemplation of the parties, which the obligee, without receiving
the obligor may also be released any price or equivalent, renounces
therefrom, in whole or in part. the enforcement of the obligation,
 Requisites: as a result of which it is extinguished
1. The event or change in in its entirety or in that part or
circumstances could not have aspect of the same to which the
been foreseen at the time of the remission refers.
execution of the contract;  It is the gratuitous abandonment by
2. It makes the performance of the the creditor of his right.
contract extremely difficult but  Requisites:
not impossible; a. It must be gratuitous
3. The event must not be due to b. It must be accepted by the
the act of any of the parties; and debtor
 P a g e | 17

c. The obligation must be 2. there must be 2. only one

demandable at least two obligation
obligations
NOTE: Express condonation or remission
must comply with the formalities of Compensation Payment
donation. 1. The requisites prescribe by law for
compensation are different from those
CONFUSION OR MERGER OF RIGHTS prescribed by law for payment.
 Merger of the characters of the 2. Takes effect by 2. Takes effect by
creditor and the debtor in one and operation of law act of the parties
the same person by virtue of which 3. Capacity to 3. Capacity to give
give and to and to acquire is
the obligation is extinguished.
acquire is not essential
 Requisites: necessary
a. that the characters of creditor & 4. As a rule, it is 4. As a rule,
debtor must be in the same partial complete and
person; indivisible
b. that it must take place in the
person of either the principal
creditor or the principal debtor; Compensation Counterclaim
and
c. it must be complete & definite 1. Requires 2 1. Not necessary
debts must consist
COMPENSATION in money or if
fungibles, same
 Extinguishment in the concurrent kind and quality
amount of the obligation of those
persons who are reciprocally debtors 2. Both debts 2. Does not require
and creditors of each other. must be that debts be
 Requisites: liquidated liquidated
a. there must be 2 parties, who, in
their own right, are principal 3. Need not be 3. Must be pleaded
pleaded to be effectual
creditors & principal debtors of
each other (except in case of
guarantor, Article 1280);
Kinds of Compensation
b. both debts must consist in
1. Legal – takes effect by operation
money, or if the things due are
of law
fungibles, they must be of the
2. Voluntary – agreed upon by the
same kind & quality;
parties
c. both debts must be due;
3. Judicial – takes effect by judicial
d. both debts must be liquidated &
decree
demandable;
4. Facultative – when it can be
e. there must be no retention or
claimed by one of the parties
controversy commenced by 3rd
who, however, has the right to
persons over either of the debts
object to it
& communicated in due time to
the debtor; and
Debts not subject to Compensation:
f. compensation must not be
1. debts arising from contracts of
prohibited by law.
deposit
2. debts arising from contracts of
Compensation Confusion commodatum
1. two persons 1. one person 3. claims for support due by
who are mutual where qualities of
gratuitous title
debtors and debtor and creditor
are merged
4. obligations arising from criminal
creditors of each
other offenses
5. certain obligations in favor of
government
 P a g e | 18

NOTE: Taxes are not subject to set-off b. Implied - when the old & new
or legal compensation because the obligation are incompatible w/
government & taxpayers are not each other on every point.
mutually creditors & debtors of each
other (Francia vs. IAC, 162 SCRA 753). Test of Incompatibility
 Whether or not the old and new
Facultative Compensation obligations can stand together, each
 This is compensation which can be having its own independent
set up only at the option of a existence. If they can stand
creditor, when legal compensation together, there is no incompatibility;
cannot take place because of want consequently, there is no novation.
of some legal requisites for the If they cannot stand together, there
benefit of the creditor. The latter is incompatibility; consequently,
can renounce his right to oppose the there is novation.
compensation and he himself can set
it up. It differs from conventional Forms of Substitution of Debtors:
compensation because it is unilateral 1. Expromision - effected with the
while the latter depends upon the consent of the creditor at the
agreement of both parties. instance of the new debtor even
(Tolentino, Volume IV, p. 367) without the consent or even
against the will of the old
NOVATION debtor.
 Substitution or change of an Requisites:
obligation by another, resulting in its a. Initiative for substitution must
extinguishment or modification, emanate from the new debtor
either by changing its object or b. Consent of the creditor to the
principal conditions, or by substitution
substituting another in place of the 2. Delegacion - effected with the
debtor, or by subrogating a third consent of the creditor at the
person in the rights of the creditor. instance of the old debtor, with
 Requisites: the concurrence of the new
a. a previous valid obligation; debtor.
b. agreement of the parties to the Requisites:
new obligation; a. Initiative for substitution must
c. extinguishment of the old emanate from the old debtor
obligation; and b. Consent of the new debtor
d. validity of the new obligation. c. Acceptance by the creditor

Kinds: Effect of insolvency of new debtor

1. As to its essence 1. Expromision – the new debtor’s
a. Objective/Real - refers to the insolvency or nonfulfillment of
change either in the cause, the obligation shall not revive
object or principal conditions of the original debtor’s liability to
the obligations the creditor whether the
b. Subjective/Personal - refers to substitution is effected with or
the substitution of the person of without the knowledge or
the debtor or to the subrogation against the will of the original
of a 3rd person in the rights of debtor.
the creditor 2. Delegacion – the creditor can sue the
c. Mixed old debtor only when the
2. As to its form/constitution insolvency was prior to the
a. Express - when it is declared in delegation and publicly known or
unequivocal terms that the old when the old debtor knew of
obligation is extinguished by a such insolvency at the time he
new one w/c substitutes the delegated the obligation.
same.
 P a g e | 19

NOTE: A change in the incidental II. CONTRACTS

elements of, or an addition of such
elements to an obligation, unless CONTRACT
otherwise expressed by the parties, will  A contract is a meeting of minds
not result in its extinguishment. between two persons whereby one
binds himself, with respect to the
CONVENTIONAL ASSIGNMENT OF other, to give something or to render
SUBROGATION RIGHTS some service (Article 1305).

1. governed by Arts. 1. governed by Arts.  Elements

1300 to 1304 1624 to 1627 1. Essential – those without which
there can be no contract.
2. debtor’s consent 2. debtor’s consent
is required is not required a. Consent
b. Object or Subject Matter
3. extinguishes the 3. transmission of c. Cause or Consideration
obligation and gives right of the creditor 2. Natural – those derived from the
rise to a new one to third person nature of the contract and ordinarily
without modifying or accompany the same.
extinguishing the 3. Accidental – those which exist only
obligation when the parties expressly provide
for them for the purpose of limiting
4. defects and 4. defects and vices
or modifying the normal effects of
vices in the old in the old obligation
obligation are cured are not cured the contract.
5. takes effect 5. as far as the
upon moment of debtor is concerned, Nominate contracts
novation or takes effect upon  Those which have their own
subrogation notification distinctive individuality and are
regulated by special provisions of
 Kinds of Subrogation law.
1. Conventional – takes place by Innominate contracts
agreement of the parties; this kind  Those which lack individuality and
of subrogation requires the are not regulated by special
intervention and consent of 3 provisions of law.
persons: the original creditor, the  Regulated by the stipulations of the
new creditor and the debtor. parties, by the general provisions of
2. Legal – takes place without the Civil Code on obligations and
agreement but by operation of law contracts, by rule governing the
because of certain acts (Article most analogous nominate contracts
1302). and by the customs of the place.
 Kinds:
Legal subrogation a. Do ut des - I give that you give
cannot be presumed. b. Do ut facias - I give that you do
c. Facio ut des - I do that you give
1. Creditor pays another creditor who is d. Facio ut facias - I do that you do
preferred, without debtor’s NOTE: According to some
knowledge; authorities. do ut des in no longer an
2. A third person not interested in the innominate contract. It has already
obligation pays with the express or been given a name of its own, i.e.
tacit approval of the debtor; or barter or exchange (Article 1638).
3. Even without debtor’s knowledge, a
person interested in the fulfillment Characteristics of Contracts: (ROMA)
of the obligation pays without 1. Relativity (ART 1311)
prejudice to the effects of confusion 2. Obligatory Force and Consensuality
as to the latter’s share. (ART 1315)
3. Mutuality (ART 1308)
4. Autonomy (ART 1306)
 P a g e | 20

Relativity c. interference by third person

Contracts take effect without legal justification or
only between parties, their assigns and excuse.
heirs. 3. Third persons who come into
possession of the object of the
1. Stipulation pour atrui - contract creating real rights
stipulation in favor of a third 4. Contracts entered into in fraud
person. of creditors
 Requisites:
a. the stipulation must be a Mutuality
part, not the whole of  The contract must bind both parties;
the contract; its validity or compliance must not
b. the contracting parties be left to the will of one of them.
must have clearly and (ART 1308)
deliberately conferred a  The contract cannot have any
favor upon a third stipulation authorizing one of the
person, not a mere contracting parties (a) to determine
incidental benefit or whether or not the contract shall be
interest; valid, or (b) to determine whether
c. the third person must or not the contract shall be fulfilled.
have communicated his
acceptance to the Autonomy
obligor before its  The parties are free to stipulate
revocation; anything they deem convenient
d. the favorable stipulation provided that they are not contrary
should not be to law, morals, good customs, public
conditioned or order and public policy. (ART 1306)
compensated by any kind
of obligation whatever; Consensuality
and  Contracts are perfected by mere
e. neither of the consent and from that moment, the
contracting parties bears parties are bound not only to the
the legal representative fulfillment of what has been
or authorization of the expressly stipulated but also to all
third person. consequences which, according to
their nature may be in keeping with
Test of Beneficial Stipulation – the good faith, usage and law.
fairest test to determine whether the
interest of a 3rd person in a contract is a CONSENT
stipulation pour atrui or merely an  Manifested by the concurrence of
incidental interest is to rely upon the the offer and acceptance upon the
intention of the parties as disclosed by thing and the cause which are to
their contract. Determine whether the constitute the contract.
contracting parties desired to tender him  Requisites:
such an interest (Uy Tam vs. Leonard, 30 a. Legal capacity of the contracting
Phil. 471). parties
b. Manifestation of the conformity
2. When a third person induces a of the contracting parties
party to violate contract c. The parties’ conformity to the
(ART1314) object, cause, the terms and
 Requisites: conditions of the contract must
a. Existence of a valid contract; be intelligent, spontaneous and
b. knowledge of contract by free from all vices of consent
third person; and d. The said conformity must be real
and not simulated or fictitious
 P a g e | 21

Offer parties intended that there should

 A proposal made by one party to be an express acceptance, the
another to enter into a contract. contract will be perfected only upon
 It must be certain or definite, knowledge by the offeror of the
complete and intentional. express acceptance by the offeree of
the offer. An acceptance which is
NOTE: Offer/proposal may be withdrawn not made in the manner prescribed
so long as the offeror has no knowledge by the offeror is NOT EFFECTIVE BUT
of acceptance by offeree. A COUNTER-OFFER which the offeror
Acceptance may accept or reject. (Malbarosa vs.
 Manifestation by the offeree of his CA, et al., G.R. # 125761, April 30,
assent to the terms of the offer. 2003)
 It must me absolute.  Contracts under the Civil Code
 A qualified acceptance constitutes generally adhere to the Cognition
counter-offer. Theory (contract is perfected from
the moment the acceptance comes
NOTE: Acceptance may be revoked to the knowledge of the offeror),
before it comes to the knowledge of the while transactions under the Code of
offeror. Commerce use the Manifestation
Theory (it is perfected from the
Amplified Acceptance
moment the acceptance is declared
 Under certain circumstances, a mere
or made).
amplification on the offer must be
understood as an acceptance of the
PERSONS INCAPACITATED TO GIVE
original offer, plus a new offer which
CONSENT:
is contained in the amplification.
1. Minors
(Tolentino, Volume IV, p. 452)
EXCEPTIONS:
Rule on Complex offers
 Contracts where the minor is
1. Offers are interrelated – contract is
estopped to raise minority as a
perfected if all the offers are
defense through his own
accepted.
misrepresentation
2. Offers are not interrelated – single
acceptance of each offer results in a  Contracts for necessaries
perfected contract unless the offeror  Contracts by guardians or legal
has made it clear that one is representatives
dependent upon the other and  Voluntary fulfillment of a natural
acceptance of both is necessary. obligation provided that the
minor is between 18-21 years of
NOTES: age
 Contracts of life, health or
 Consensual contracts are perfected accident insurance taken on the
from the moment there is a life of the minor
manifestation of concurrence 2. Insane or demented persons, unless
between the offer and the the contract was entered into during
acceptance regarding the object and a lucid interval
the cause. 3. Deaf-mutes who do not know how to
 Real contracts like deposit, pledge read and write
and commodatum requires delivery
of object for perfection. Effect of Misrepresentation of Age by
 Solemn contracts are those which the Minor
requires compliance with certain  Misrepresentation by minors with
formalities prescribed by law, such regard to their age when entering
prescribed form being an essential into a contract shall bind them in
element (i.e., donation of real the sense that they are estopped
property). subsequently from impugning the
 An offer made inter praesentes must validity of the contract on the
be accepted IMMEDIATELY. If the ground of minority. It is necessary
 P a g e | 22

that the misrepresentation must be Simulation of Contracts

active (e.g. when minors specifically 1. Absolute – when the contracting
stated in a contract that they were parties do not intend to be bound by
of age), not merely constructive. the contract at all. Thus, an
absolutely simulated contract is
VICES OF CONSENT (VIMFU) VOID.
1. Violence - when in order to wrest 2. Relative – when the contracting
consent, serious or irresistible force parties conceal their true
is employed. agreement. A relatively simulate
2. Intimidation - when 1 of the contract binds the parties to their
contracting parties is compelled by real agreement, when it does not
a reasonable & well-grounded fear prejudice a 3rd person and is not
of an imminent & grave evil upon his intended for any purpose contrary to
person or property, or upon the law, morals, good customs, public
person or property of his spouse, order or public policy.
descendants or ascendants, to give
his consent. OBJECT
3. Mistake - should refer to the  The thing, right or service which is
substance of the thing which is the the subject matter of the obligation
object of the contract, or to those arising from the contract.
conditions which have principally  Requisites:
moved one or both parties to enter a. It must be w/in the commerce of
into the contact. man
 Must be mistake of fact and not of b. It must be licit or not contrary
law, except under Article 1334. law, morals, good customs,
 Requisites under Article 1334: public order or public policy
a. Mistake must be with respect c. It must be possible
to the legal effect of an d. It must be determinate as to its
agreement kind
b. Mistake must be mutual
c. Real purpose of the parties Things which Cannot be the Object of
must have been frustrated. Contract
4. Fraud - when, through insidious 1. Things which are outside the
words or machinations of 1 of the commerce of men
contracting parties, the other is 2. Intransmissible rights
induced to enter into a contract 3. Future inheritance, except in
which, without them, he would not cases expressly authorized by
have agreed to. law
5. Undue influence - when a person 4. Services which are contrary to
takes improper advantage of his law, morals, good customs,
power over the will of another, public order or public policy
depriving the latter of a reasonable 5. Impossible things or services
freedom of choice. 6. Objects which are not possible of
determination as to their kind
Reluctant Consent
CAUSE
 A contract is valid even though one
 The immediate, direct and most
of the parties entered into it against
proximate reason which explains and
his wishes and desires or even
justifies the creation of obligation.
against his better judgment.
Contracts are also valid even though  Requisites
a. Cause should be in existence at
they are entered into by one of the
the time of the celebration of
parties without hope of advantage or
the contract
profit. (Martinez vs. Hongkong and
Shanghai Bank, 15 Phil. 252) b. Cause should be licit or lawful
c. Cause should be true
 P a g e | 23

 Rules: 2. When the law requires that a

1. In onerous contracts, the cause is contract be in some form in order
understood to be, for each that it may be enforceable
contracting party, the prestation of
promise of a thing or service by the NOTES:
other.
2. In remuneratory contracts, the  Parties may compel each other to
service or benefit w/c is comply with the form required once
remunerated. the contract has been perfected.
3. In contracts of pure beneficence, (Article 1357)
the mere liberality of the donor or  Contracts under Art 1358 which are
benefactor. required to be in some specific form
4. In accessory contracts (mortgage or is only for the convenience of parties
pledge), the cause is identical with and does not affect its validity and
the cause of the principal contract, enforceability as between them.
that is, the loan from which it
derives its life and existence. RA 8792 (E- COMMERCE ACT) provides
that the formal requirements to make
CAUSE EFFECT contracts effective as against third
the contract confers persons and to establish the existence of
1. Absence of cause no right and produces a contract are deemed complied with
no legal effect provided that the electronic document is
does not render the unaltered and can be authenticated as
2. Failure of cause contract void to be usable for future reference.
the contract is null
3. Illegality of cause and void
REFORMATION OF INSTRUMENTS
the contract is void,
4. Falsity of cause unless the parties
 Requisites:
show that there is a. meeting of the minds to the
another cause which contract
is true and lawful b. true intention is not expressed in
does not invalidate the instrument by reason of
5. Lesion the contract, unless mistake, accident, relative
(a) there is fraud, simulation, fraud, or inequitable
mistake or undue conduct
influence; or (b) c. clear and convincing proof of
when the parties
mistake, accident, relative
intended a donation
or some other
simulation, fraud, or inequitable
contract conduct

Instances when there can be no

FORM OF CONTRACTS reformation:
Contracts shall be 1. Simple unconditional donations
obligatory, in whatever form they may inter vivos;
have been entered into, provided all the 2. Wills;
essential requisites for their validity are 3. When the agreement is void;
present.
When one of the parties has brought an
1. When the law requires that a action to enforce the instrument, no
contract be in some form in order subsequent reformation can be asked.
that it may be valid
 P a g e | 24

COMPARATIVE TABLE OF DEFECTIVE CONTRACTS

VOID VOIDABLE RESCISSIBLE UNENFORCEABLE

1. Defect is caused Defect is caused by vice Defect is caused by Defect is caused by

by lack of essential of consent injury/ damage either lack of form,
elements or illegality to one of the parties of authority, or capacity
to a 3rd person of both parties not
cured by prescription

2. Do not, as a Valid and enforceable Valid and enforceable Cannot be enforced

general rule produce until they are annulled until they are rescinded by a proper action in
any legal effect by a competent court by a competent court court

3. Action for the Action for annulment or Action for rescission Corresponding action
declaration or nullity defense of annulability may prescribe for recovery, if there
or inexistence or may prescribe was total or partial
defense of nullity or performance of the
inexistence does not unenforceable
prescribe contract under No. 1
or 3 of Article 1403
may prescribe

4. Not cured by Cured by prescription Cured by prescription Not cured by

prescription prescription

5. Cannot be ratified Can be ratified Need not be ratified Can be ratified

6. Assailed not only Assailed only by a Assailed not only by a Assailed only by a
by a contracting contracting party contracting party but contracting party
party but even by a even by a third person
third person whose who is prejudiced or
interest is directly damaged by the
affected contract

7. Assailed directly Assailed directly or Assailed directly only Assailed directly or

or collaterally collaterally collaterally

RESCISSIBLE CONTRACTS 4. those which refer to things under

 Contracts validly agreed upon but, litigation if they have been entered
by reason of lesion or economic into by the defendant without the
prejudice may be rescinded in cases knowledge and approval of the
established by law. litigants and the court;
5. all other contracts especially
What contracts are rescissible declared by law to be subject to
1. those entered into by guardians rescission; and
where the ward suffers lesion of 6. payments made in a state of
more than ¼ of the value of the insolvency on account of obligations
things which are objects thereof; not yet enforceable
2. those agreed upon in representation
of absentees, if the latter suffer  Requisites:
lesion by more than ¼ of the value a. the contract must be rescissible
of the things which are subject b. the party asking for rescission
thereof; must have no other legal means
3. those undertaken in fraud of c. to obtain reparation for the
creditors when the latter cannot in damages suffered by him
any manner claim what are due d. the person demanding rescission
them; must be able to return whatever
 P a g e | 25

he may be obliged to restore if

rescission is granted 6. Its purpose is to 6. Its purpose is to
e. the things w/c are the object of cancel the contract. seek reparation for
the contract must not have the damage or injury
caused, thus allowing
passed legally to the possession
partial rescission of
of a 3rd person acting in good the contract.
faith
f. the action for rescission must be VOIDABLE CONTRACTS
brought w/in the prescriptive  Those in which all of the essential
period of 4 years elements for validity are present,
although the element of consent is
vitiated either by lack of capacity of
BADGES OF FRAUD: one of the contracting parties or by
1. Consideration of the conveyance VIMFU.
is inadequate or fictitious;
2. Transfer was made by a debtor What contracts are voidable
after a suit has been begun and
while it is pending against him; 1. Those where one of the parties is
3. Sale upon credit by an insolvent incapable of giving consent to a
debtor; contract
4. Evidence of indebtedness or 2. Those where the consent is vitiated
complete insolvency by mistake, violence, intimidation,
5. Transfer of all his property by a undue influence or fraud
debtor when he is financially
embarrassed or insolvent; Causes of extinction of action to annul:
6. Transfer made between father & 1. PRESCRIPTION
son, where there is present any  the action must be commenced
of the above circumstances within 4 years from:
7. Failure of the vendee to take a. the time the incapacity
exclusive possession of all the ends;
property b. the time the violence,
intimidation or undue
Rescission in Rescission Proper influence ends; or
Article 1191 in Article 1381 c. the time the mistake or
1. It is a principal 1. It is a subsidiary fraud is discovered.
action retaliatory in remedy. NOTE: Discovery of fraud must be
character. reckoned to have taken place from
2. The only ground is 2. There are 5
the time the document was
non-performance of grounds to rescind.
one’s obligation/s or Non-performance by registered in the office of the
what is incumbent the other party is not register of deeds. Registration
upon him. important. constitutes constructive notice to
3. It applies only to 3. It applies to both the whole world. (Carantes vs. CA,
reciprocal obligation unilateral and 76 SCRA 514)
reciprocal
obligations. 2. RATIFICATION
4. Only a party to the 4. Even a 3rd person  Requisites:
contract may demand who is prejudiced by a. there must be knowledge of
fulfillment or seek the contract may
the reason which renders
the rescission of the demand the
contract. rescission of the
the contract voidable
contract. b. such reason must have
5. Court may fix a 5. Court cannot grant ceased and
period or grant extension of time for c. the injured party must have
extension of time for fulfillment of the executed an act which
the fulfillment of the obligation. expressly or impliedly
obligation. conveys an intention to
waive his right
 P a g e | 26

3. By loss of the thing which is the by the party charged or by his agent,
object of the contract through fraud otherwise, the said contracts shall
or fault of the person who is entitled be unenforceable.
to annul the contract.  The statute of frauds applies only to
executory contracts, not to those
NOTE: If the object is lost through that are partially or completely
fortuitous event, the contract can still fulfilled.
be annulled, but the person obliged to
return the same can be held liable only Ratification of contracts in violation of
for the value of the thing at the time of the Statute of Frauds
the loss, but without interest thereon. 1. Failure to object to the presentation
of oral evidence to prove such
UNENFORCEABLE CONTRACTS contracts
 Those which cannot be enforced by 2. Acceptance of benefits under these
proper action in court unless they contracts
are ratified
VOID CONTRACTS
What contracts are unenforceable  Those where all of the requisites of a
1. those entered into in the name of contract are present but the cause,
another by one without or acting in object or purpose is contrary to law,
excess of authority; morals, good customs, public order
2. those where both parties are or public policy, or contract itself is
incapable of giving consent; and prohibited or declared void by law.
3. those which do not comply with the
Statute of Frauds What contracts are void
1. Those whose cause, object or
Agreements within the scope of the purpose is contrary to law, morals
Statute of Frauds (EXCLUSIVE LIST): good customs, public order or public
1. Agreements not to be performed policy;
within one year from the making 2. Those whose object is outside the
thereof; commerce of men;
2. Special promise to answer for the 3. Those which contemplate an
debt, default or miscarriage of impossible service;
another; 4. Those where the intention of the
NOTE: This does not refer to the original parties relative to the principal
or independent promise of the object of the contract cannot be
debtor to his own creditor. It refers ascertained; and
rather to a collateral promise. 5. Those expressly prohibited or
3. Agreement in consideration of declared void by law.
marriage other than a mutual
promise to marry; INEXISTENT CONTRACTS
4. Agreement for the sale of goods,  Those where one or some or all of
etc. at a price not less than P500.00; the requisites essential for the
5. Contracts of lease for a period validity of a contract are absolutely
longer than one year; lacking.
6. Agreements for the sale of real
property or interest therein; and What contracts are inexistent
7. Representation as to the credit of a 1. Those which are absolutely
third person. simulated or fictitious; and
2. Those whose cause or object did not
NOTES: exist at the time of the transaction.
 The contracts/agreements under the
Statute of Frauds require that the NOTE: The principle of In Pari Delicto is
same be evidenced by some note, applicable only to void contracts and not
memorandum or writing, subscribed as to inexistent contracts.
 P a g e | 27

Principle of In Pari Delicto 2. Executory Contracts - Neither of the

RAL RULE: When the defect of a contracting parties can demand for
void contract consists in the illegality of the fulfillment of any obligation
the cause or object of the contract and from the contract nor may be
both of the parties are at fault or in pari compelled to comply with such
delicto, the law refuses them every obligation
remedy and leaves them where they are.
NATURAL OBLIGATIONS
1. Payment of usurious interest  They are real obligations to which
2. Payment of money or delivery of the law denies an action, but which
property for an illegal purpose, the debtor may perform voluntarily.
where the party who paid or  It is patrimonial, and presupposes a
delivered repudiates the prestation.
contract before the purpose has  The binding tie of these obligations
been accomplished, or before is in the conscience of man, for
any damage has been caused to under the law, they do not have the
a 3rd person. necessary efficacy to give rise to an
3. Payment of money or delivery of action.
property made by an
incapacitated person Examples of natural obligations
4. Agreement or contract which is enumerated under the Civil Code:
not illegal per se & the 1. Performance after the civil
prohibition is designed for the obligation has prescribed;
protection of the plaintiff 2. Reimbursement of a third person for
5. Payment of any amount in excess a debt that has prescribed;
of the maximum price of any 3. Restitution by minor after annulment
article or commodity fixed by of contract;
law or regulation by competent 4. Delivery by minor of money or
authority. fungible thing in fulfillment of
6. Contract whereby a laborer obligation;
undertakes to work longer than 5. Performance after action to enforce
the maximum # of hours fixed by civil obligation has failed;
law. 6. Payment by heir of debt exceeding
7. Contract whereby a laborer value of property inherited; and
accepts a wage lower than the 7. Payment of legacy after will have
minimum wage fixed by law. been declared void.
8. One who lost in gambling
because of fraudulent schemes ESTOPPEL
practiced on him is allowed to  A condition or state by virtue of
recover his losses [(Art. 315, 3 which an admission or representation
(b), RPC] even if gambling is a is rendered conclusive upon the
prohibited one. person making it and cannot be
denied or disproved as against the
Rules when only one of the parties is at person relying thereon.
fault:  Kinds:
1. Executed Contracts: 1. Estoppel in Pais (by conduct)
a. Guilty party is barred from a. Estoppel by silence
recovering what he has given to b. Estoppel by acceptance of
the other party is barred from benefits
recovering what he has given to 2. Technical Estoppel
the other party by reason of the a. Estoppel by deed
contract. b. Estoppel by record
b. Innocent party may demand for c. Estoppel by judgment
the return for the return of d. Estoppel by laches
what he has given.
 P a g e | 28

LACHES or “STALE DEMANDS”

 Failure or neglect, for an unreasonable and unexplained
length of time, to do that which, by exercising due
diligence, could or should have been done earlier; it is
negligence or omission to assert a right within
reasonable time, warranting a presumption that the
party entitled to assert it either has abandoned it or
declined to assert it.

 Elements:
a. Conduct on part of the defendant, or of one under
whom he claims, giving rise to the situation of which
complaint is made and for which the complaint
seeks a remedy
b. Delay in asserting the complainant’s rights, the
complainant having knowledge or notice, of the
defendant’s conduct and having been afforded the
opportunity to institute a suit
c. Lack of knowledge or notice on the part of the
defendant that the complainant would assert the
right on which he bases his suit
d. Injury to the defendant in the event relief is
accorded to the complainant, or the suit in not held
to be barred

LACHES PRESCRIPTION

1. concerned with 1. concerned with

effect of delay fact of delay

2. question of 2. question or
inequity of matter of time
permitting the claim
to be enforced

3. not statutory 3. statutory

4. applies in equity 4. applies at law

5. not based on a 5. based on a fixed

fixed time time