LAW11

Ch. 1 General Provisions

Art. 1156
Meaning of obligation
• Obligation is derived from the latin word obligatio which means tying or binding
• It is a tie or bond recognized by the law by virtue of which one is bound in favor of another to render
something

Civil Code definition

Meaning of juridical necessity

• Obligation is a juridical necessity because in case of (READ OLD BOOK)

Essential requisites of an obligation

1. An passive subject (debtor) – the person who is bound to the fulfillment of the obligation
2. An active subject (creditor) – the person who is entitled to demand the fulfillment of the obligation
3. Object of prestation (subject matter of the obligation)
• Thing that must be given
• Thing that must not be given
• Service or act must be done
• Service or act that must not be done
4. A juridical or legal tie - the reason that causes the obligation to arise

Form of obligations

Obligation, right, and wrong distinguished

Kinds of obligation according to the subject matter

1. Real Obligation (obligation to give) – the subject matter is a thing which the obligor must deliver to the
obligee
2. Personal obligation (obligation to do/not to do) – the subject matter is an act to be done
• Positive personal obligation: obligation to do or to render service
• Negative personal obligation: obligation no to do

Art. 1157
Sources of obligations
1. Law
• Family Code
• When they are imposed by the law itself
2. Contracts
• Meeting of minds whereby one binds oneself with respect to the other
• When they arise from the stipulation of the parties
3. Quasi-contracts
• No person may unjustly enrich herself or benefit at the expense of another
• Ex. The obligation to return money paid by mistake or which is not due.
4. Acts or omissions pusnished by law (delicts or crimes)
• Lack of malice
• Make amends, compensate
5. Quasi-delicts or torts
• Consist of voluntary but negligent acts not punishable under criminal law b/w parties who have
no pre-existing contractual relationship.
Art. 1158
• Rights which are clearly spelled out in the law may be demanded while those which are merely the
fruits of derivation or inference from existing law are not
Legal obligations
• Obligations rising from law

Special Laws
• All other laws not contained in the Civil Code
• Coproration Code, Negotiale Instruments Law, Insurance Code

Art. 1159
Contractual Obligations
1. Binding Force – They have the force of law between the contracting parties
• This does not mean however, that contract is superior to the law
• Contracts must still be valid
2. Requirement of a valid contract
• If the contract is not contrary to the law, morals, good customs, public order, and public policy,
IT IS INVALID or VOID
• A void contract does not exist

Compliance in good faith

• Compliance or performance in accordance with the stipulation of terms of the contract or agreement
• honest must be observed
• requires that parties fulfill their obligation according to the terms and conditions of the contract
(NEW BOOK)

Art. 1160
Quasi-contract: is the juridical relation resulting from lawful, voluntary and unilateral acts by virtue of which the
parties become bound to each other to the end that no one will by unjustly enriched or benefited at the
expense of another.
**there is technically no contract, but the term “quasi” signifies that it is as if there is a contract
Kinds of Quasi-contracts
1. Negotiorum gestio: voluntary management of the property of affairs of another without the knowledge
or consent of the latter
• A person voluntarily takes in charge of the business of another w/o any power from the latter
• This does not arise if the business or property was not in fac abandoned

Sam went to Baguio Vanessa, the neighbor

without leaving anybody FIRE! saved the house from
to look after the house getting burned

• Sam has to pay Vanessa (the officious manager) if necessary

2. Solutio indebiti: this is created when something is received when there is no right to demand it and it
was unduly delivered through mistake
• The recipient has the obligation to return it (cause it’s not hers)

Art. 1161
Restitution: the restoration or return of the thing which is the object of the crime
Indemnification: shall include not only those caused the injured party, but also those suffered by his family or
by a third personl by reason of the crime
Scope of civil liability (liability for damages)
1. Restitution return stoden car
2. Reparation for the damage caused pay for damages caused to the car
3. Indemnification for the consequential damages pay such other damages suffered by the victim as a
consequence of the crime

Damages
• Sum of money which the law awards or imposed as pecuniary compensation
• Are the amounts recoverable or that which can be awarded
• Different from “damage” which is the actionable loss, hurt or harm
• Actual or conpensatory damages:
o Must be proved
o Peso money from flight
• Moral Damages
o Include physical suffering, mental anguish
o Incapable of pecuniary computation. May be recovered

Art. 1162
Quasi-delicts: someone causing damages to the others property, or rights giving rose toan obligation to pay for
the damages done. Fault of negligence and no contractual relation between them before due to negligence
(lack of care)
• Voluntary but negligent act not punishable under criminal law that makes the offending party liable for
damages
Ex. Sleepy person driving a car will be liable for injuries suffered by the person who got hit
• Negligence: failure of a person to observe for the protection of the interests of another

Requisites of quasi-delict
1. There must be an act or omission
2. There must be fault of negligence
3. There must be damage caused
4. There must be direct relation or connection if cause and effect between the act or omission and the
damage
5. There is no pre-existing contractual relation between the parties

2 Types of Negligence
1. Culpa aquiliana: negligence as a source of obligation (applicable to quasi-delicts)
2. Culpa contractual: negligence in the performance of a contract

Ch. 2 Nature and Effect of Obliation

Art. 1163
**Take care of the object like a good father
Meaning of specific or determinate thing
• A thing is said to be specific or determinate particularly designated or physically segregated others of
the same class
• Ex. Toyota car with plate no. AAV 316

Meaning of generic or indeterminate thing

• A thing is generic or indeterminate when it refers only to a class or a genus to which it pertains and
cannot be pointed out with particularity
• Ex. A 1995 toyota car
Specific thing and generic thing distinguished
• A determinate thing – is identified by its individuality
o The debtor cannot substitute it with another
• A generic thing – it is identified by its own specie
o The debtor can give any of the same class as long as it is of the same kind

Duties of debtor in obligation to give a determinate thing

1. Preserve the thing – the obligor has the incidental duty to take care of the thing due with the diligence
of a good father of a family
a. Diligence of a good father of a family – has been indicated with ordinary care
b. Another standard of care - if the law of the stipulation of the parties provides for another
standard of care
c. Factors to be considered –
d. Reason’s for debtor’s obligation
2. Deliver the fruits of the thing
3. Deliver the accessions and accessories
4. Deliver the thing itself
5. Answer for damages in case of non-fulfillment or breach

Duties of debtor in obligation to deliver a generic thing

• They are to deliver the thing which is of the quality intended
• To be liable for the damages in case of fraud, negligence, or delay

Art. 1164
** Creditor has the rights to the fruits of the thing from the time the obligation to deliver arises

Different kinds of fruits

1. Natural fruits: spontaneous (you didn’t plant it) products of the soil
• Ex. Grass, plants (produced w/o the intervantion of human labor)
2. Industrial Fruits: produced by lands of any kind through cultivation or labor
• Sugar cane, vegetables, rice, (brought about by reason of human labor)
3. Civil fruits: derived by virtue of a juridical relation (result of contract)
• Rents of buildings
• Product of relationships and has profit

* The creditor is entitled to the fruits of the thing to be delivered from the time the obligation to make the
delivery arises
* The intention for the law is to protect the interest of the obligee should the obligor commit delay

When obligation to deliver fruits arises

Ch.2 Nature and Effect of Obligation

Art. 1173
Meaning of fault or negligence
• Fault of Negligence is the failure to observe for the protection of the interests of another person
OR failure to keep proper care of something
• Gross Negligence is a legal concept which means serious carelessness

2 kinds of negligence
1. Culpa contractual or contractual negligence
• Existes when there is a pre-existing obligation and the debtor is negligent in the performance of the
obligation
2. Culpa aquiliana or civil negligence
• Wrongful or negligent act or omission which creates a vinculum juris and gives rise to an obligation
between two persons not formally bound by any other obligation
EX:
ACCIDENT!!
Truck Car

Truck driver contractual Because there was a pre-

negligence existing contract
Truck owner
Car driver civil negligence They are liable for the damages
too. (gives rise to an obligation)
Liability for employee’s negligence
• A person can also be liable for the negligence of his own employees.
• The employer can be made liable to the 3rd party

Contributory Negligence

Art. 1174
** Explanation: no person is reponsible to fortitous events. Even if it is forseen but inevitable
**What is a fortitous event?
• A fortitous event is any event which cannot be forseen, or which, though forseen, is inevitable. Either
impossible to forsee or to avoid.
• This makes the normal fulfillment of the obligation impossible

Fortitous event distinguished from force majeure

1. Acts of man: independent of the will of the obligor but not of other human wills
• Ex. War, fire, robbery, murder
2. Acts of God (majuere): totally independent will of every human being
• Ex. Earthquake, flood, rain, lightning
***BOTH are independent of the will of the obligor
Kinds of fortuitous events
1. Ordinary fortuitous events: events which are common and which the contracting parties could
reasonably forsee (ex. Rain)
2. Extra-ordinary frtuitous events: events which are uncommon and which the contracting parties could
not have reasonably forseen (ex. Earthquake, fire, war)
Requisites of a fortuitous event (elements of a foruitous event)
1. Event must be independent of the human will or at least of the debtor’s will
2. It must be impossible to forsee, or if forseen, is inevitable
3. The event must be impossible for the debtor to comply with his obligation in a normal manner
4. The obligor must be free from any participation in the aggravation of the injury resulting to the creditor

Exceptions
** Times when obligor will still be liable even if the performance of the obligation is made impossible by the
fortuitous event
1. As provided for by law
a. The debtor is guilty of fraud, negligence, or delay, or contravention of the tenor of the obligation
• Art. 1165 – obligor is liable for fortuitous event if the obligation is in delay
b. The debtor has promised to deliver the same (specific) thing to two or more persons who do not
have the same interest
c. The obligation to deliver a specific thing arises from a crime
• Art. 1268 – not excuse the obligor is the obligation to deliver arises from a crime
d. The thing to be delivered is generic
2. When declared by stipulation
3. Assumption of risk
4. Delivery of Genetic thing

Art. 1175
** What is Usury?
• Usury - Lending money at an unreasonably high rate of interest

Meaning of simple loan or mutuum

• Simple loan or mutuum: contract whereby one of the parties delivers to another, money or other
consumable thing, upon the condition that the same amount of the same kind and quality shall be paid.
Requisites for recovery of interest (in order for requisites to be recovered, these must be present)
1. The payment of interest must be expressly stipulated
2. The agreement must be in writing
3. The interest must be lawful

** Interest rate cannot be “iniquitous or unconscionable”

Art. 1176
** What is presumption?
• Presumption is meant the interference of a fact not actually known arising from its usual connection
with another which is known or proved

(continue reading old book)

Art. 1177
** Creditors can sue/question. Do everything to defraud

If the debtor doesn’t comply with his obligation the creditor can:
1. Exhaust the properties of the debtor through levy (tax) and execution, except those who are legally
excempt from execution
 2. Exercise all the rights and actions of the debtor
3. Seek rescission (revocation) of the contracts executed by the debtor in fraud of the creditor

Art. 1178
** Transmissible – can be assigned

Ch. 3 Different Kinds of Obligations

Section 1 – Pure and Conditional Obligations

Art. 1179
Pure Obligation (not subject to any condition)
• Doesn’t depend on future events
• Not subject to any condition and no specific date is mentioned for its fulfillment and is, therefore,
immediately demandable
• When can obligation is demandable immediately:
o When the obligation is pure
o Obligation is subject to resolutory condition
o Obligation is subject to resolutory period

Conditional Obligation (consequences are subject to the fulfillment of a condition)

**What is a condition?
• Condition is a future and uncertain event, upon the happenings of which, the effectivity or
extinguishment of an obligation (or right) subject to it depends.
• To be valid a condition must not be impossible or illegal
** Characteristics of a Condition
1. Future and uncertain
• Future and uncertain (ex. Student graduate from a university)
o There are many factors that could determine if the Future or uncertain – or is
student will graduate of not used to destinguish pure
o Obligation is conditional obligation from both the
• Future and certain (ex. Death) conditional obligation and one
o Death will surely occur with a period
o Obligation is not conditional. It has a period
2. Past but unknown
• Cannot be let to a condition

2 Principal kinds of condition

1. Suspensive Condition (condition precendent/condition antecedent)
• Conditions the fulfillment of which will give rise to an obligation (or right)
• The demandability of the obligation is suspended until the happening of the uncertain
• Ex. A will sell his car to B if Ateneo becomes the Champion uncertain
2. Resolutory Condition (condition subsequent)
• Conditions the filfillment of which will extinguish an obligation (or right) already existing
• Ex. D will pay C monthly allowance until C graduates from college

Distinction between suspensive and resolutory conditions

Fulfill suspensive condition Next obligation arises

n Next obligation is extinguished

SC does not take place The tie of the law does not appear Lastly,

RC does not take place The tie of the law is consolidated is strengthened
…
• Until the first lawtakes place, the existence of the obligation is mere hope
• Its effects flow, but over it hovers the possibility of termination

Art. 1180
When the duration of period depends upon the will of debtor
** What is a period?
• Period is a future and certain event upon the arrival of which the obligation subject to it either arises or
is extinguished.
** BASICALLY… this is an obligation that is certain to arise because it is based on a period
Let’s break it down a bit more:
1. The debtor promises to pay when his means permit him to do so
• Depends only on the duration of the period he will for sure pay
2. Other cases
• Little by little, as soon as possible, from time to time, etc.

Art. 1181
Effect of happening of condition
1. Acquisition of rights – the acquisitio of rigts by the creditor depends upon the happenings of the event
which constitutes the condition
2. Loss of rights already acquired – the happening of the event which constitutes the condition produces
the extinguishment or loss of rights already acquired

Art. 1182
Potestative condition
• A condition suspensive in nature and which depends upon the sole will of one of the contracting parties

Where suspensive condition depends upon will of debtor (this will result in a void obligation)
1. Conditional obligation void
• when the potestative condition depends upon solely upon the will of the debtor
• cannot be easily demanded
• Ex. “I will pay you if I want”, “I will pay you after I recover what X owes”
• BASICALLY… he would do the obligation when and if he wants!
2. Only the condition void
• Only the condition is void leaving unaffected the obligation itself
• Ex. D promises to pay C when D sells his car.

Where suspensive condition depends upon will of creditor (does not lead to contract’s invalidity) valid
• If the condition depends exclusively upon the will of the creditor, the obligation is valid

Where resolutory condition depends upon will of debtor

• The condition of th debtor when the condition is resolutory is exactly the same as that of the creditor
when the condition is suspensive

Casual Condition
• If the suspensive condition depends upon chance OR upon the will of a third person, the obligation is
valid
• Ex. Where S binds himself to sell his land to B if he wins a case which is pending before the Supreme
Court (third person)
• Once the 3rd party completed the condition

Mixed Condition
 • The obligation is valid if the suspensive condition depends partly upon chance AND partly upon the will
of a third person
• Ex. EARTHQUAKE X will pay IF the arbitrators found that the construction of X contributed to the
damages
• Both damages must take place in order that X’s obligation will arise

Impossible and illegal Conditions (read in pp. 54-56 new book)

** 2 kinds of impossible conditions
1. Physically impossible conditions
• Cannot exist and cannot be done
• Ex. I will pay you P10,000 if it will not rain for 1 yr in the Phil.
2. Legally impossible conditions
• Contrary (opposing) to laws, morals, good customs, public order, or public policy
• Ex. X will give Y P1,000 if Y will kill Z

Effects of impossible conditions

1. Conditional obligation void
• Impossible condition annul the obligation
• Both the obligation and condition are void
2. Conditional obligation valid
• If the condition is negative, that is, not to do an impossible thing, obligation is pure and valid
• The condition is always fulfilled
• Ex. I will send you my land if you do not give me a dog that talks.
3. Only the affected obligation void
• If the obligation is divisible, the part thereof not affected by the impossible condition shall be
valid
• Ex. “I will give you P10,000 if you sell my land, and a car, if you kill Pedro.”

Sell land valid Kill pedro impossible

obligation condition (become void)

4. Only the condition void

• If obligation is a pre-existing obligation, this does not depend upon the fulfillment of the
condition which is impossible, for its existence, onlu the consition is void

Art. 1184
Positive Condition (positive suspensive condition)
• The happening of an event at a determinate time
• The obligation is distinguished:
a. As soon as the time expires without the event taking place
b. As soon as it has become indubitable (unquestionable) that the event will not take place
although the time specified has not expired
***Read example p. 92 of old book

Art. 1185
Negative Condition (negative suspensive condition)
• The event will not happen at a determinate time
• The obligation shall become effective and binding:
a. From the moment the time indicated has elapsed without the event taking place
b. From the moment it has become evident that the event cannot occur, although the time
indicated has not yet elapsed
Art. 1186
Constructive fulfillment
• Debtor fails to deal with the obligation in good faith
• The consequence of this voluntary act is that the condition is considered fulfilled, and the obligee will
have the right to demand for the performance of the obligation
• 2 requisites for constructive fulfillment:
a. the intent of the obligor to prevent the fulfillment of the condition
b. the actual prevention of the fulfillment
**Constructive fulfillment of suspensive condition
• the obligor actually prevents the fulfillment of the condition
**Constructive fulfillment of resolutory condition
• debtor who is bound to return what he has received upon the fulfillment of the condition
• **Y must still vacate the house even if Y voluntarily prevented X from going to Manila. The condition
has already been made despite the voluntary change.

Art. 1187
**If there’s a condition and it was fulfilled, it’s as if you got it same day it was made

Retroactive effects of fulfillment of suspensive condition

1. In obligation to give
• This obligation becomes damandable only upon the fulfillment of the condition.
• However, once the condition is fulfilled, its effects shall retroact (taking effect from a date in the
past) to the day when the obligation was constituted
• BECAUSE… the condition is an accidental element of contract an obligation can exist w/o a
condition
• BASICALLY--- the obligation should be considered from the time it is constituted and NOT from
the time the condition is fulfilled
• Ex. If condition is fulfilled, it’s as if B was entitled to the land since the beginning.
2. In obligation to do or not to do
• No fixed rule is provided
• The courts are empowered by the use of sound discretion and bearing in mind the intent of the
parties
• Includes the power to decide that the fulfillment of the condition shall have no retroactive effect
or from what date such retroactive effect shall take effect.

Retroactive effects as to fruits and interests in obligation to give

1. In reciprocal obligation
• Fruits and interests are deemed mutually compensated so the 2 parties don’t have to give
any (seller, fruit --- buyer, interest)
2. In unilateral obligation (one party gives to the other out of gratuity like a donation)
• The debtor receives nothing from the creditor
• So… fruits and interests belong to the debtor unless otherwise stipulated
• **Fruits that arise from the moment of the condition’s fulfillment must be delivered in
accordance with Art.1164

Art. 1188
Rights pending fulfillment of suspensive condition
1. Rights of creditor
• Creditor may take measures to preserve their rights even before the condition is fulfilled
• Creditor can preserve his right, as the debtor may render nugatory (useless) the obligation upon
the happening of the condition
2. Rights of debtor
 • Debtor has the right to recover what he has paid of by mistake prior to the happening of the
suspensive condition
• This is done because the creditor may not be able to fulfill the condition imposed
• This case is called solutio indebiti which is based on the principle that no one shall enrich
himself at the expense of another
• **Note: payment before the fulfillment of the condition must be “by mistake”, otherwise, debtor is
implied to have waived the condition

***Use the example in the new book

Art. 1189 (read book)

Requisiites for application of Art. 1189
Art. 1189 applies only if:
1. The obligation is a real obligation
2. The object is specific or determinate thing
3. The obligation is subject to a suspensive condition
4. The condition is fulfilled
5. There is loss, deterioration, or improvement of the thing during pendency of the condition

**For Letter C
• Ex. Car got hit by another car. Not fault of the debtor (A). So A can deliver the deteriorated car to the
B. B cannot require A to fix the car before delivery.
**For Letter F
• Ex. If A improved the car at his expense, A will have usufructuary rights (right to enjoy the use and
advantages). A can use the car and the improvements

Kinds of loss
1. Physical loss: when a thing perishes as when a house is burned and reduced to ashes
2. Legal loss: whan a thing goes out of commerce (the activity of buying and selling), or then the thing
becomes illegal
3. Civil loss: when a thing disappears in such a way that its existence is unknown (ex. Dog has been
missing), or even if known, it cannot be recovered (ex. Ring is dropped in the sea)

Rules in case of loss, deterioration, or improvement of thing during pendency or suspensive condition
(Read in old book p.101)

Art. 1190 (only for resolutory) [Read in old book, a bit similar with Art.1187]
Effects of fulfillment of resolutory condition
1. In obligation to give
• When the resolutory condition in an obligation to give is fulfilled, the obligation is extinguished
• And the parties are obliged to return to each other what they have received under the obligation
2. In obligation to do or not to do

Art. 1191
Kinds of obligation according to the person obliged
They are:
1. Unilateral: when one party is obliged cto comply with a prestation
2. Bilateral: when both parties are mutually bound to each other. Both parties are debtors and creditors of
each other. *Bilateral obligations may be reciprocal or non-reciprocal
a. Reciprocal obligations
o Those which arise from the same cause and in which each party is a debtor and a
creditor of the other
o The obligation of one is dependent upon the obligation of the other
 b. Non-reciprocal obligation
o Which do not impose correlative performance (having a mutual relationship) on both
parties
o The performance of one party is not dependent upon the simultaneous performance by
the other

Remedies in reciprocal obligations (old)

1. Choice of remedies – in case the obligors does not comply with what is incumbent upon him, the
aggrieved party may choose between 2 remedies:
a. Action for specific performance (fulfillment) of the obligation with damages
b. Action for rescission of the obligation also with damages
2. Remedy of rescission for non-compliance

Good faith as the basis of the right to rescind (new)

• If one party does not comply with her obligation then the other party may rescind the obligation
• Rescission: “unmaking of a contract, or its undoing from the beginning, and not merely its termination”
o It does not merely terminate the contract and release the parties from further obligations to
each other, but abrogates (do away) it from the beginning and restores the parties to their
relative positions as if no contract has been made

Remedies are alternative (old)

• The remedies of the injured party are alternative and not cumulative
o Rescission must be done judicially
• Privileged to choose only one of the remedies


Extent of the breach of the obligation to allow rescission (new)
• The general rule is that rescission of a contract will not be permitted for a slight or casual breach (an
act of breaking or failing)
• Much less is allowed when there is no breach
• Rescission does not also apply to conditional obligations where the condition has not yet been fulfilled

Limitations on the right to demand rescission (old)

1. Resort to the courts – the injured party has to resort to the courts to assert his rights judicially
2. Power of court to fix period
3. Right of a third person – if the subject matter of the obligation is in the hand of a 3rd person who acted
in good faith, rescission is not available as a remedy
4. Substantial violation – rescission will not be granted for slight breaches of contract
5. Waiver right – the right to rescind may be waived

Rescission without previous judicial decree

1. Where automatic rescission expressly stipulated
• Parties can enter into an agreement that violation of the terms of the contract would cause
cancellation
2. Where contract still executory
• No performance yet by both parties, but one is ready and willing to comply with what is
incumbent (necessary) upon him and the other is not, the willing party may, by his own
declaration, rescind the contract without a previous decree of rescission

Art. 1192
New book
• If the 2nd party suffers a loss because of the breach of the 1st party, she should go to the court to seek a
remedy
 • 2nd infractor will not be liable for damages because the damages for the 2nd breach would be offset by
the mitigation of the 1st infractor’s liability for damages
• If the court can’t determine which party first violated then contract is considered extinguished, and
the parties will bear their respective damages
• The court shall not provide remedy to either of the parties, who must suffer the damages allegedly
sustained by them
Old book
1. First infractor known – the liability of the first infractor should be equitably reduced
2. First infractor cannot be determined – deemed extinguished and each shall bear his own damages
Section 2 – Obligaions with a period

Art. 1193
An obligation with a period is one whose effects or conseuqences are subjected in one way or another to the
expiration or arrival of said period or term

Differences of a Period and Condition

1. As to fulfillment
• A period is a certain event which must happen sooner or later at a date known beforehand, or at
a time which cannot be determined,
• While a condition is an uncertain event
2. As to time
• A period only refers to the future
• Condition may refer also to a past event unknown to the parties
3. A to influence on the obligation DON’T GET IT
• Period merely fixes the time for the efficiousness of the oligation
•
4. As to effect, when left to debtor’s will DON’T GET IT
• Period depends upon the will of the debtor empowers the court to duration thereof
• Condition depends upon the sole will of the debtor invalidates the obligation
5. As to retroactivity of effects
• The arrival of a period does not have any retroactive effect
• Happening of a condition has retroactive effect
• What is a retroactive effect

** Like a condition, a period must be possible. If the period is impossible (ex. Feb 30 because it will never
come), the obligation is VOID

Kinds of period or term

1. According to effect:
a. Suspensive period
• If arrival of the period gives rise to demandability of an obligation
• Ex. I will pay you 30 days from today.
I will pay you when my means permit me to do so.
• It (typhoon) is inevitable but the date cannot be determined with certainty.
b. Resolutory period
• If the arrival of the period results in the termination of an obligation
• Ex. I will give you P500 a month until the end of the yr.
I will support you until you die.
2. According to source: *not it new book
a. Legal period
b. Conventional or voluntary period
c. Judicial period
3. According to definiteness:
a. Definite period: when it is fixed of it is known when it will come
b. Indefinite period: when it is not fixed or it is not known when it will come

Art. 1194
** With obligations with a period:
since the period is definite to take place, loss or deterioration of the object by the debtor will make
her liable for damages when the period arrives
Art. 1195
** if you don’t know na hindi due, you paid, you can get it again
Payment before arrival of period
• Allows the recovery of what has been paid by mistake before the fulfillment of a suspensive condition
• The creditor cannot unjustly enrich himself by retaining the thing or money received before the arrival
of the period

Debtor presumed aware of period

• Debtor who makes a delivery before the period, on the mistaken belief that the period has arrived, may
recover what was paid or delivered by mistake. And the recovery includes fruits and interests.
• When the mistake in payment was realized only after the period had already passed, the debtor is
entitled to recover only the fruits and interest up to the due date.

Art. 1196
• The period is presumed to have been established for the benefit of both the creditor and debtor
• SO before the expiration of the period, the debtor may not fulfill the obligation and neither may the
creditor demand its fulfillment

Exeptions to the general rule

1. Term is for the benefit of the debtor alone
• He cannot be compelled to pay prematurely, but he can, if he desires to do so
2. Term is for the benefit of the creditor
• he may demand fulfillment even before the arrival of the term but the debtor cannot require him
to accept payment before the expiration of the stipulated period (old book)
• the creditor cannot be compelled to receive payment before the due date but has the option to
ask for performance of the obligation before the due date. (new book)

Computation of term or period

1. The administrative Code of 1987, however, provides:
Legal Periods:
• Year = 12 calendar months of 30 days unless it refers to a specific calendar month
• Day = 24 hrs.
• Night = from sunset to sunrise
2. Calendar Month
• Ex. One calendar month from Jan 31, 2011 Feb 1, 2011 until Feb 28, 2011

Art. 1197
** The court can fix the period
• If the obligation does not state period and no period is intended, the court is not authorized to fix a
period

Exceptions to the general rule

2 cases: (it merely enforces or carries out the intentuon of the parties)
1. No period is fixed but a period was intended
2. Duration of the period depends upon the will of the debtor

Period fixed cannot be changed by the courts

1. If there is a period agreed upon and it has already lapsed, the court cannot fix another period
2. From the very moment the parties gave their acceptance consent to the period fixed by the court, said
period acquires the nature of a contract.
** However, the parties may modify the term by a new agreement

Art. 1198
** if any of the cases mentioned in Art. 1198 happen, the debtor shall lose every right to make use of the period
obligation becomes pure and, therefore, immediately demandable

When obligation can be demanded before lapse of period

1. When debtor becomes insolvent (unable to pay debts)
** Note that insolvency of D must occur after the obligation has been contracted
2. When the debtor does not furnish guaranties or securities promised
3. Has impaired (harm) the guaranties or securities, unless new ones, equally satisfactory, are given
4. When fortuitous event the guaranties or securities disappear, unless new ones, equally satisfatory, are
given
5. When debtor violates an undertaking
6. When debtor attempts to abscond (flee)

Section 3 – Alternative Obligations

Art. 1199
Kinds of obligation according to object (old book)
1. Simple Obligation: one where there is only one prestation
• Ex. D obliged himself to deliver to C a piano.
2. Compound Obligation: one where there are two or more prestations
a. Conjunctive obligation – one where there are several prestations and all of them are due
b. Distributive obligation – one where one two or more of the prestations is due
1. Alternative obligation – various prestations are due but the performance of one of them
is sufficient
2. Facultative obligation

Art. 1200
** The right to choose the prestation belongs to the debtor
Check book

Art. 1201

Art. 1202

Art. 1203
 Section 4 – Joint and Solidary Obligations

Art. 1207, Art. 1208

Kinds of obligations according to the number of parties
1. Individual Obligation: one where there is only 1 obligor or 1 obligee
2. Collective Obligation: one where there are 2 or more debtors and/or 2 or more creditors. It may be joint
or solidary (coincidence of interest)

Meaning of Joint and Solidary obligations

1. Joint obligation: one where the whole obligation is to be paid or fulfilled proportionaly by the different
debtors and/or is to be demanded proportionately by the different creditors
** the proportionate shared in the debt of the debtors, or in the credit of the creditirs, are determined by
contract or agreement
** if no agreement has been made, then presumed ad EQUALLY obligated
** if the nature of the debt or of the credit is not indicated presume that it is JOINT
- “It necessarily follows that a joint creditor cannot act in representation of the others. Neither
can a joint debtor be compelled to answer for the liability of the others”
a. Joint divisible obligations: obligation can be performed partially, like payment of money
Ex.
D1 and D2 borrowed P1,000,000 from C1 presumed JOINT because not stated how they are
bound
D1 and D2 each pay P500,000 to C1
If D1 is insolvent (unable t pay debts), C1 cannot compel D2 to pay for D1’s share.
Art. 1209 b.Joint indivisible obligations: indivisible object (car) cannot be performed partially
• If one of the parties fails to comply with his part of the obligation, only the debtor who
does not comply is liable for damages
2. Solidary obligation: one where weach one of the debtors is bound to render, and/or each one of the
creditors has a right to demand from any of the debtors, entire compliance with the prestation
• Solidary creditors: shall have the obligation to remit or give the respective the respective shares
of the other solidary creditors
• Solidary debtors: obliged to pay or fulfill the whole obligation
o The solidary debtor who pays the entire obligation has the right to seek reimbursement
from the other solidarily bound debtors

Collective obligation presumed to be joint

** follow the “proportionaly” and dapat fair
** READ OLD BOOK

Presumption subject to rules on multiplicity of suits

Words used to indicate joint liability

• Manocomuada; manocomunadamente;pro rata
• “We promise to pay”

When obligation solidary (how to determine whether the obligation is solidary)

There is solidary liability only when:
1. the obligation expressly so states
2. the law requires solidaritysolidarity (unity or agreement of feeling or action)
3. the nature of the obligation requires solidarity

Words used to indicate solidary liability “I promise to pay”

Other words used to indicate solidarity are:
 • jointly
• solidario
**Check in Book
Kinds of solidarity (Solidary relationships)
According to the parties bound:
1. Passive Solidarity – there is solidarity on the part of the debtor, each debtor can be made liable for the
fulfillment of the entire obligation (mutual guaranty)
2. Active Solidarity – there is solidarity on the part of the creditors, any one of the creditors can demand
the fulfillment of the entire obligation
3. Mixed Solidarity – solidarity on the part of the debtors and creditors, each one of the debtors is liable to
render, each one of the creditors has a right to demand

According to the source:

1. Conventional solidarity:
• Solidarity is agreed upon by the parties
• If nothing is mentioned in the contract relating to solidarity, the obligation is JOINT
2. Legal Solidarity: where solidarity is imposed by the law
• Read Book for examples

Solidarity not presumed: presumption where there are two or more persons in the same obligation is that it is
joint
• This is because solidarity obligation is very burdensome for they create unusual rights and liabilities.
• Solidarity between debtors inc their responsibility while solidarity between creditors inc the right of each
creditor.
• The law tends to favor the DEBTORS in presuming that they are bound jointly and not solidarily.

Art. 1210
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply
indivisibility
1st sentence: liability in an indivisible obligation may be either joint or solidary
2nd sentence: the subject matter may be divisible or indivisible
Indivisibility and Solidarity distinguished
Differences are:
1. Indivisibility: refers to the prestation
Solidarity: refers to the juridical or legal tie that bind ties (nature of the obligation)
2. Indivisible obligation: only the debtor guilty of breach of obligation is liable for damages
Solidary obligation: all of the debtors are liable for the breach of the obligation committed by a debtor
3. Indivisibility: only 1 debtor and 1 creditor
Solidarity: must be at least 2 debtors or 2 creditors
4. Indivisible obligation: the others are not liable in case of insolvency of 1 debtor
Solidary obligation: other debtors are proportionately liable

Art. 1211
Kinds of Solidary obligation according to the legal tie
1. Uniform: when the parties are bound by the same stipulation
2. Non-uniform or varied – when the parties are not subject to the same stipulation

Solidarity not affected by diverse stipulations

Read until Art. 1222


 Section 5 – Divisible and Indivisible Obligations

Art. 1223
Meaning of divisile and indivisible obligations
1. Divisible Obligation: is one the object of which, in its delivery or performance, is capable of partial
fulfillment
2. Indivisibleobligation: cannot be performed partially
•The whole sum should be paid in due
Art. 1224 •If the obligation is joint and involves an indivisible object, such as a CAR, then all the joint debtors
must perform the obligation together (continue reading in new book)
Art. 1225
** Even though the object or service may be physically divisible, an obligation is indivisible if so provided by
law or intended by the parties.
**HOWEVER, if the object is not physically divisible/is not likely of partial performance: (CAR)
• The obligation is always indivisible (full)

Read Old book for more details

Section 6 – Obligations with a Penal Clause

Art 1226
Meaning of principal and accessory obligations
1. Principal Obligation: one which can stand by itself and does not depend for its validity and existence
upon another obligation
2. Accessory Obligation: one which is attached to a principal obligation and, therefore, cannot stand alone

Meaning of obligation with a penal clause

• One whch contains an accessory undertaking to pay a previously stipulated indemnity in case of
breach (violation, breaking) of the principal prestation

Meaning of penal clause

• An accessory undertaking attached to an obligation to assume greater liability in case of breach
(ex. The obligation is not fulfilled)
• Purpose:
a. Ensure the performance of the principal obligation, REPARATION – make up for wrong doing
o Making the consequense of such breach as onerous (burdensome) as possible
b. To substitute for damages, PUNISHMENT
o To punish the debtor for th non-fulfillment or violation of his obligation

Penal Clause and condition distinguished

Kinds of penal clause

Kind of the same with Art. 1228

Penalty substituted for damages and interests
• The penalty takes the place of the indemnity for damages and the payment of interests in case of non-
compliance
• NO NEED for proof of actual damages suffered by the creditor for the penalty to be enforced

When creditor may recover damages

• The creditor may recover damages:
o When so stipulated by the parties
 o When the debtor refuses to pay for the penalty, which case the creditor may recover legal
interest
o When the debtor is guilty of fraud in the fulfillment of the obligation

When penalty may be enforced

• The penalty is demandable only if there is a BREACH of the obligation and it I not contrary to the law,
morals, etc.
• IF the obligation cannot be fulfilled due to a fortitious event, the penalty is NOT demandable
• A penalty can e reduced if it is iniquitous (morally wrong) or inconscionable (not right or reasonable)

Art. 1227
Penalty not substitute for performance
• The debtor cannot just pay the penalty instead of performing the obligation

Penal clause presumed subsidiary

• The creditor CANNOT demand the fulfillment of the obligation and the satisfaction of the penalty at the
same time UNLESS this right is granted to her (purpose is to urge the debtor to perform the main
obligation)
• Where there is no performance (S did not comply with his obligation to B)
a. B selected fulfillment he cannot demand for the penalty unless the fulfillment become
impossible
b. B chose penalty he cannot require the fullfilment of the obligation. HOWEVER, he may still
demand fulfillment should S not pay the penalty
c. S committed fraud Both fulfillment and penalty can be demanded by B

When penal clause joint

Read old book p. 185-186

Art 1228
Penalty demandable without proof of actual damages
• All that the creditor has to prove is the violation of the obligation by the debtor
• No need to show evidence to prove losses and damages
• The creditor may enforce penalty whether he suffered damages of not BUT he cannot recover more
than the stipulated penalty even if he proves that the amount of his damages exceeds the penalty

Damages recoverable in addition to penalty must be proved

• When damages can be recovered: the creditor must prove the amount of such damages which he
suffered

Art. 1229
When penalty may be reduced by the courts
1. When there is partial or irregular performance
2. If the penalty is inquitous or unconscionable although there is no performance

Art 1230
Effect of nullity of the penal clause
• The accessory follows the principal
• The voiding of the penal clause will not affect the principal obligation. If the principal is void, the penal
clause is necessarily extinguished
START OF LAW11 FINALS
Ch. 4 Extinguishment of Obligation

Art. 1231
Obligations are extinguished:
(1) By payment or Performance
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation: the substitution of a new contract in place of an old one

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment or a resolutory condition, and prescription, are governed
elsewhere in the Code (1156a)

Novation: replacing the contract with another one

Causes of extinguishment of obligations
In addition:
• Death of a party in case the obligation is a personal one
• Mutual desistance/withdrawal. Where after the approval of his loan, the borrower, instead of insisting for its release,
… BASICALLY the action is taken by both parties called Mutual desistance: mode of extinguishing
obligations
o Comes from the concept since mutual agreement can create a contract, mutual disagreement by the
parties can cause its extinguishment
• Arrival of resolutory period
• Compromise
• Imposisibility of fulfillment
• Happening of a fortuitous event

Section 1 – Payment or Performance

Art. 1232
Payment means not only the delivery of money but also the performance, in any other manner, of an obliation.

Meaning of payment
1. In ordinary term, payment only refers to the delivery of money
2. As a legal mode of extinguishing an obligation. Payment may consist of not only in the delivery of money but also
the giving of the thing, the doing of an act, or not doing of an act
3. When a debtor pays damages or penalty- there is also payment in a sense

* PAYMENT AND PERFORMANCE IS SYNONYMOUS

Art. 1233
A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered,
as the case may be.

NEW BOOK
When debt is considered paid
1. Integrity of prestation – a debt to deliver a thing is not understood to have been paid unless the thing or service has been
completely delivered or rendered.
**Partial or irregular performance WILL NOT produce the extinguishment of an obligation as a general rule
**Basically the payment must be complete or full. Incomplete delivery or performance is not considered payment
Ex. Sam is obliged to deliver 100 sacks of rice to Kim.
Sam only delivered 90 sacks, therefore, Kim is not obliged to pay for the 90 sacks of rice since Sam didn’t deliver
the others.
 2. Identity of the prestation – must be delivered or performed

OLD BOOK
There must be complete delivery and complete performance para ma extinguish yung obligation

READ NEW BOOK!

^^INTEGRITY: payment must be complete
1. Complete delivery
a. Determinate thing
o The obligor cannot give another thing (since it’s determinate) (Ex. If you give a car with plate number
(XKJ 495 – hi ace) then dapat, you give THAT car --- if you decide to give another car (ex. BMW)
the obligee has the right to refuse even if the alternative car is more expensive than the hi-ace
b. Indeterminate thing
o If indeterminate, you can deliver something as long as in the same genus
c. Money
o The full amount due must be given, not in parts
2. Complete Performance
o Obligation to do: the service must be performed, obligor cannot insist on another act
o Exception: if there is a fortuitous event
3. Complete non-performance

Exception: Sometimes partial delivert or performance may suffice to extinguish the entire obligation

Art. 1234
If the obligation has been substantually performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment,
less damages suffered by the obligee.

**Substantial performance is one of the exceptions to the rule of integrity or completeness in the performance of an
obligation

Recovery allowed in case of substantial performance in good faith

Requisites for the application of Art. 1234

1. There must have been an attempt in good faith to perform the obligation, w/o any willful or intentional deviation
from said obligation
2. The deviation from the obligation must be slight
3. The omission defect must be technical and unimportant, …

Art. 1235
When the obligee accepts the performance, knowing its incompleteness or irregularity, and w.o expressing any protest or objection, the obligation is
deemed fully complied with

Recovery allowed when incomplete or irregular performance is waived

• If payment is incomplete, the creditor may reject
• In case of acceptance, the law considers that he waives his right. The obligation is extinguished

BASICALLY… if the creditor accepts the partial payment w/o rejecting it, then he doesn’t have the right to demand na
The obligation is now extinguished

Requisites for the application of Art. 1235

Requisites are…
1. The obligee knows that the performance is incomplete
2. He accepts the performance w/o expressing any protest or objection

NEW BOOK
Partial Payment agreed upon
• If they agreed upon the partial payment --- the obligee has to accept partial payment
 • Obligor can pay partially

Debt is partly liquidated and unliquidated

• A can already pay for the 1st debt (P1,000,000) w/o waiting for the liquidation of the 2nd debt (ex. Piano)

Art. 1236
The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a
stipulation to the contrary
Whoever pays for another may demand from the debtor what he has paid, except that if he paid w/o the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been beneficial to the debtor.

Persons from whom the creditor must accept payment

1. The debtor
2. Any person who has interest in the obligation --- REQUIRED TO ACCEPT
3. A 3rd person who has no interest in the obligation when there is stipulation that he can make payment --- NOT
REQUIRED TO ACCEPT

** A person who has an interest in the obligation (ex. Guarantor/surety – someone who taked responsibility for another’s
performance)
**Surety: insurer of the debt
Guarantor: person who assures the solvency of the debtor
**A person without interest – such offer can be turned down by the creditor
The creditor is not required to accept the 3rd person’s payment unless if there’s an agreement
Once the creditor accepts the 3rd persons payment, the debtor’s obligation is extinguished

Creditor may refuse payment by a 3rd person

• The creditor should not be compelled to accept payment from a 3rd person whom he may dislike or distrust

Effect of payment by 3rd person

1. If made without the knowledge or against the will of the debtor: the payer can recover from the debtor ONLY if the payment
has been beneficial to the debtor
o D owes C P1,000. If S paid the P1,000 W/O the onsent of D, but D already paid P400, S can only ask for
P600 (yung benefit of D)
o S can ask for the reimbursement of P600 from C.
2. If made with the knowledge of the debtor: the payer shall have the rights of reimbursement and subrogation; recover what
he paid for

Art. 1237
Whoever pays on behalf of the debtor w/o the knowledge or against the will of the latter cannot compel the creditir to subrogate (give your rights to
him) him in his rights, such as those arising from a mortgage, guaranty, or penalty

Right of 3rd person to subrogation

** Subrogation: is the right of a 3rd person to acquire all the rights of the creditor

OLD:
Right of 3rd person to subrogation
• Whoever pays on behalf of the debtor is entitled to subrogation if the payment is with the consent of the latter
• If the debtor doesn’t know, the 3rd person cannot compel the creditor to subrogate him in the latter’s accessory rights
etc.
• **Subrogation can only take place with the debtors consent

Subrogation and reimbursemnet distinguished

• 3rd person who pays for the debtor will have the rights of 1st creditor
o Rights: reimbursement, rights of creditor

BASICALLY
(1) If with the consent of the debtor: 3rd person gets (i) rights of creditor, (ii) reimbursement
(2) w/o consent of the debtor : 3rd person gets (i) reimbursement benefit only

NEW:
3rd person
With interest
• Can compel the creditor to subrogate into the latter’s rights EVEN if the payment is made w/o the debtor’s
knowledge
Without interest
• 3rd person can also demand subrogation from the creditor
• BUT if w/o the debtor’s knowledge, the 3rd person cannot ask for subrogation

Art. 1238
Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which requires the debtor’s consent.
But the payment is in any case valid as to the creditor who has accepted it.

Payment by a 3rd person who does not intend to be reimbursed

• If the 3rd person does not intend to be paid—considered a donor

Art 1239
In obligation to give, payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid, w/o
prejudice to the provisions of article 1427 under the Title on “Natural Obligations”

OLD:
Meaning of “free disposal of thing due” and “capacity to alienate” (will pake payment invalid)
1. Free disposal of the thing due: means the thing to be delivered must not be subject to any claim of a 3rd person (the
person making payment does not have the right to dispose it)
2. Capacity to alienate: means that the person is not incapacitated (deprived of strength) **basically is not capable to enter
into contracts (is incapacitated like a minor or an insane person)

Art. 1240
Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive
it.

Payment to whom payment shall be made

1. The creditor
2. His successor in interest
3. Any person authorized to receive it (if a person is subrogated to the right of the creditor, payment should be made to
the new credtor)
**Agents: authorized on behalf of the creditor
**Guardians: authorized by law

Meaning of “any person authorized to receive it”

• Means not only a person authorized by the creditor, but also a person authorized by law to receive the payment, such
as a guardian, administrator of a deceased, etc.

Start reading in Bea’s notes na ___________________________________________________________________

Art. 1241
Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered, or insofar as the payment has
been beneficial to him. Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such benefit to the
creditor need not be proved in the following cases:
(1) If after the payment, the third person acquires the creditor’s rights
(2) If the creditor ratified the payment to the third person;
(3) If by the creditor’s conduct, the debtor has been led to believe that the third person had authority to receive the payment.

Effect of payment to an incapacitated person

 • Payment to a person incapacitated to manage his property is not valid UNLESS the incapacitated person kept the
thing paid or delivered
• In the absence of this benfit, the debtor may be made to pay again by the creditor’s guardian or by the incapacitated
person himself when he recovers

EXAMPLE:
A delivers P1,000 to B (minor) B gambled and lost P700. so P300 was left: therefore this P300 is the only one that is
valid then A needs to pay additional P700 again ☹ that’s why you should payto minors or incapacitated (RISK!)

Effect of payment to a 3rd person

• Payment to a 3rd person or wrong party is not valid and will not extinguish the obligation
• Exception: when payment benefits the creditor

When benefit to creditor need not be proved by debtor

1. Third person acquires creditor’s rights
• Payment made to a 3rd person instead of the creditor will also become valid if the 3rd person subsequently
acquires the rights of the creditor
2. Payment to a 3rd person is ratified by the creditor
• Ratification: the approval of confirmation of the act of payment
• Where creditor tells the debtor that payment to the 3rd party is accepted
3. Estoppel
• Read p. 121!

Art. 1242
Payment made in good faith to any person in possession of the credit shall release the debtor

Payment to 3rd person in possession of credit

• if payment is made in good faith to the person in possession of the credit, the debtor is released
a. a payment must have been in good faith
b. payment must be made in possession of the credit
• person in posession of the credit is not the creditor but is someone authorized by the creditor to collect the debt

Art. 1243
When payment to creditor not valid
• If there is a court order addressed to the debtor to retain the debt – such order must be followed by the debtor
• If the debtor insists on paying the creditor in violation of the court order, such payment does not extinguish the
debtor’s obligation. And the debtor could be made to pay again.

Art. 1244
Very prestation due must be complied with
1. A thing different from the due cannot be offered or demanded against the will of the creditor or debtor
2. The act performed or the act prohibited cannot be substituted against the obligee’s will

Art. 1245
Special forms of payment

Dation in payment
• Dation in payment is the conveyence of ownership
Section 6 – Novation
• Make new
• Change obligation
• Discard old, make new

Art. 1291
Obligation may be modified by:
1. Changing their object or principal conditions
2. Substituting the person of the debtor
3. Subrogating (the substitution of one person or group) a thrid person in the rights of the creditor

Meaning of novation
• A contract containing 2 stipulations
• 1. to extinguish of modify an existing obligation
2. to substitute a new one in its place
• extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which
extinguishes or modifies the 1st though the 3 things ^
• If novation is done through:
A. Change of the object or principal condition objective (real) novation
B. Change of the person of the debtor/creditor subjective (perconal)

Kinds of novation
1. According to origin:
a. Legal
b. Conventional
2. According to how it is constituted
a. Express:
b. Implied: when old and new obligation are essentially incompatible
3. According to extent or effect
a. Total or extinctive: when old obligation is completely extinguished by the creation of a new one that takes
the place of the former
b. Partial or modificatory: when the old obligation is merely modified (survives to the extent that it remains
compatible with the amendatory agreement)
4. According to the subject
a. Real or objective
o Ex. S Give car then change to give 10 aircons
b. Personal or subjective
o Both parties that C will substitute for S (C is the new debtor)
c. Mixed: when the object and/or principal conditions if the obligation and the debtor/creditor are changed
(combination of real and personal)

Art. 1292
Requisites of novation
1. A previous valid obligation
2. Capacity and intention of the parties to modify of extinguish the obligation
3. The modification or extinguishment of the obligation
4. The creation of a new valid obligation

Novation is not presumed

• (OLD BOOK) It must be clearly and unmistakably established either by the express agreement of the parties or acts
of equivalent import or by the incompatibility of the two obligations with each other in every material respect
• (NEW BOOK)
o Novation is expressly done when the parties clearly state that the old obligation is extinguished
o If the new obligation is incompatible with the old one on every point
o The test of incompatibility is whether the two obligations can stand together, each one with its own
independent existence if they cannot stand together, then they are incompatible SO, the subsequent
novates (substitutes) the first
 * BASICALLY.. if they can stand on it’s own NO NOVATION
* EX. Car and truck no novation
Apartment and house in the same lot with novation

Art. 1293
Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of
the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in articles 1236 and 1237

Kinds of personal novation

1. Substitution: when the person of the debtor is substituted
a. Expromision: 3rd person of his own initiative and w/o the knowledge or against the will of the original
debtor assumes the latter’s obligation with the consent of the creditor
b. Delegacion: a 3rd person who consents to the substitution and assumes the obligation (the consent of all
parties is necessary)
2. Subrogation: when a third person is subrogated in the rights of the creditor
* DIFFERENCES: (Right of new debtor who pays)
Expromision: upon payment, the new debtor can reimburse from the old debtor (to the amount the old debtor was
benefited)
Delegacion: the new debtor can demand full reimburement from the old debtor

Art. 1294
If the substitution is without the knowledge or against the will of the debtor, the new debtor’s insolvency or non-fulfillment of the obligation shall not
give rise to any liability on the part of the original debtor

Effect of new debtor’s insolvency or non-fulfillment of the obligation in expromision

• If expromision the insolvency or inability of the new debtor to fulfill the obligation will not revive the old debtor’s
liability

Art. 1295
Effect of new debtor’s insolvency or non-fulfillment of the obligation in delegacion
• If delegacion the insovency of the new debtor will not make the old debtor liable
o EXCEPTION! the old debtor will be liable if the reason for the new debtor’s inability to fulfill the
obligation is because of the new debtor’s insolvency, and:
i. The insolvency was existing at the time of the substitution ans was of public knowledge (although
not known by the old debtor)
ii. The insolvency was existing at the time of the substitution, and known by the old debtor (although
not of public knowledge)

Art. 1296
When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist (maintain and support oneself) only
insofar as they may benefit third persons who did not give their consent

• Art. 1296 is an exception to the general rule that an accessory obligation cannot exist without a principal obligation
• The accessory obligation will survive the extinguishment of the principal obligation to which it is attached if the
accessory obligation is of benefit to 3rd persons who did not consent (permission for something to happen) to the
novation

Effect of novation on accessory obligation

• Ex. A (singer) borrowed P1M from B, with 2% interest per month. They also agreed that A will pay interest to C, to
whom B was indebted to.
• A and B novated their agreement that A will sing in B party instead of paying P1M
• Even if the obligation is novated, A will still pay the interest to C, IF C does not agree to the novation

Art. 1297
If the new obligation is void, the original one shall subsist (maintain), unless the parties intended that the former relation should be extinguished in
any event
 • Basically… the original obligation remains valid and unaffected if the new obligation is void, unless it is shown that
the parties want to really do away with the original one
• If the new obligation is only voidable, novation can take place. BUT the moment it is annulled, the novation must be
considered as not having taken place, and the original one can be enforced

Art. 1298
The novation is void if the original obligation was void, except when annulment may be claimed only by the debtor, or when ratification validates acts
which are voidable

Effect where the old obligation void or voidable

• If the old obligation is null and void, then no new obligation can arise because there is nothing to novate

Voidable Obligations
• If the old obligation is voidable then the new obligation will also be voidable, except that if the old one is not
annulled (invalid), then the new obligation will be permanently valid
• If the original obligation, which is voidable, is ratified then the new one is also permanently valid
• If the new obligation is voidable, and is not annulled, then it remains permanently valid
• Should the new obligation be annulled, then the previous rule will apply

Art. 1299
If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is
otherwise stipulated

• Reason: the efficacy (the ability to produce the intended result) of the new obligation depends upon whether the
condition which affects the old obligation is complied with or not

Art. 1300
Meaning of Subrogation
• Substitution of one person in the place of a creditor with reference to a lawful claim or right
• Transferring all the rights of the creditor to a third person, who substitutes the former

Kinds of subrogation
1. Conventional: all parties consent to the subrogation
2. Legal: when it takes place without agreement but by operation of law

Art. 1301
Conventional subrogation of a third person requires the consent of the original parties and of the 3rd person

Consent of all the parties

1. The Debtor: because he becomes liable under the new obligation to a new creditor
2. The old creditor: because his right against the debtor is extinguished
3. The new creditor: because he may dislike or distrust the debtor

Art. 1302
CONTRACTS

Chapter 1 General Provision

Art. 1305

Meaning of Contract
• Offer by one party is accepted by the other
• At least 2 persons or parties, because it is impossible for one to contract with himself

Contract and obligation distinguished

• Contract: one of the sources of obligations
• Obligation: legal tie or relation itself that exists after a contract has been entered into
* There can be no contract if there is no obligation
* But an obligation may exist w/o a contract

Contact and agreement distinguished

* Contracts are agreements enforceable through legal proceedings
* Those agreements which cannot be enforced by action in the courts of justice are not contracts but merely moral or
social agreements
a. All contracts are agreements but not all agreements are contracts

Distinct Statges of a contract

A. Preparation/Negotiation: when the would be contracting parties express their interest in the contract and ends at the
moment of their agreement
B. Perfection: ocurs when the parties agree upon the essential elements of the contract
C. Consummation: Where the terms agreed upon in the contract are fulfilled or performed resulting to its
extinguishment

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

Freedom to contract guaranteed

Limitations on contractual stipulations

• Law
• Police power
READ p.292 OF OLD BOOK

Invalid Terms and Conditions

1. Employment Contracts
1.
DON’T SUPER GET (READ BEA’S NOTES)

Art. 1307
Innominate (not named or classified) contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book,
by the rules governing the most analogous nominate contracts, and by the customs of the place

Classification of contracts according to its name or designation

1. Nominate contract: has a specific name or designation in law
2. Innominate contract: no specific name or designation in law

Kinds of innominate contract

Chapter 2 Essential Requisites of Contracts

Art. 1318
There is no contract unless the following requisites concur:
1. Consent (permission) of the contracting parties
2. Object certain which is the subject matter of the contract
3. Cause of the obligation which is established

• Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract
• READ OLD BOOK FOR “CLASSES OF ELEMENTS OF A CONTRACT”

Section 1 – Consent

Art. 1319
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.

OLD BOOK
Meaning of consent
• Consent is the conformity or concurrence of wills (offer and acceptance) and with respect to contracts, it is the
agreement of the will of one contracting party with that of another or others
• Meeting of minds b/w the parties on the subject matter and the cause which are to constitute the contract

Meaning of offer
• Offer is a proposal made by one party to another to enter into a contract
• Expression of desire or hope

Offer must be certain

• So that the liability (or rights) of the parties may be exactly fixed because it is necessary that the acceptance be
identical with the offer to create a contract w/o any further act on the part of the offerer

Meaning of acceptance
• Acceptance is the manifestation by the offeree of his assent (agreement) to the terms of the offer
• W/o acceptance, there can be no meeting of the minds b/w the partieso

Acceptance of offer must be absolute/unqualified

• It must be identical in all respects with that of the offer so as to produce consent or meeting of the minds
• If acceptance is qualified subject to a condition it merely constitutes a counter-offer REJECTION OF
THE ORIGINAL OFFER AND AN ATTEMPT BY THE PARTIES TO ENTER INTO A CONTRACT ON A
DIFFERENT BASIS
o Ex. S: “Buy my car for P200,000”
B: I will pay P160,000 for the car nalang. OR a land for P200,000

B’s acceptance is qualified and

becomes a counter-offer
NEW BOOK
Certain Offer
a. Definite
b. Complete: must contain all the details
c. Intentional:
Absolute Acceptance
• Unmistakable, unqualified, and identical in all respects to the offer
 • No doubt dapat

Qualified Acceptance
• Involves a new proposal
• Constitutes a counter-offer and is a rejection of the original offer any modification or variation from the terms of the
offer ANNULS THE OFFER

Expression of agreement
• Contract is perfected only from the time acceptance comes to the offerer’s knowledge
• Acceptance by the offeree of the offer after knowledge of the revocation/withdrawal of the offer is ineffective

Manner of making the acceptance

• Acts, conduct, words

Art. 1320
An acceptance may be express of implied

• Consent may either be expressed or implied

• Unless the law specifically requires a particular way or manner of expressing such consent
• Ex. Signature of a party in a contract

Art. 1321
The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with.

Matters that may be fixed by the offerer

• Person making the offer may prescribe the time, place, and manner of acceptance
• An acceptance departing from the terms of the offer constitutes a counter-offer
o Counter-offer – has a way of extinguishing the offer

Art. 1322
An offer made through an agent is accepted from the time acceptance is communicated to him

Communication of acceptance to agent

• Agent – considered an extension of the personality of his principal
o The act of the agent is, in law, the act of the principal
o Dapat the agent is authorized to receive the acceptance

Art. 1323
An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed (carried out)
• The disappearance of either party or his loss of capacity before perfection prevents the contractual tie from being
formed

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

NEW BOOK
Rules:
1. If period is not founded offerer has the right to withdraw the offer before the acceptance of the offeree
If the offeree has accepted the offer can still be withdrawn if the offerer communicates said withdrawal to the
offeree before acceptance comes
2. If the period is supported by a consideration, an “option contract” is perfected
• The offer cannot be withdrawn
• Ex. A B an option to purchase a condo for P5,000,000. B has the option to pay until May 1. --- B pays A
P10,000 A cannot withdraw the offer
3. If the offeree accepts the offer prior to its withdrawal, then a contract is perfected
OLD BOOK
Meaning of contract of option;option period; option money
1. Option contract – giving a certain period within which to accept the offer of the offerer
2. Option period – the period given within which the offeree must accept the offer
3. Option money – money paid or promised to be paid in consideration for the option
o Different from earnest money (partial payment of the purchase price and is considered as proof of the perfection of the
contract)

Art. 1325
Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer

Business advertisements generally not definite offers

• Will perfect a contract BUT are merely invitations to the reader to make an offer

Art. 1326
Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the
contrary appears

Advertisements for bidders generally not definite offers

• In reality, the bidder is the one making the offer which the advertiser is free to accept or reject

Art. 1327
The following cannot give consent to a contract:
1. Unemancipated (not free) minors;
2. Insane of demented persons, and deaf-mutes who so not know how to write

• Reason for #1 is because they can easily be the victim of fraud due to the inability of realizing the implications of her
actions
• They can enter into a contract only through a parent or guardian

Exeptions
• When a minor buys necessities
• When a minor claims that she is of age, when in fact she is not

Art. 1328
Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable

Contracts entered into during a lucid (clear) interval

• Lucid Interval – temporary period of sanity (think and behave in a normal manner)
o Contract entered by an insane person during a lucid interval is VALID

Effect of drunkenness and hypnotic spell

• Equivalent to temporary insanity
• Voidable

Art. 1329
The incapacity declared in article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special
disqualifications extablished in the laws

Certain cases wherein their incapacity may be modified by law (para valid)
1. When necessaries such as food, are sold and delivered to a minor or other person w/o capacity to act
2. Health, accident insurance
3. Contract is valid if entered through a guardian/legal representative
4. Contract is valid when a minor misrepresented his age and convincingly let the other party to believe in his legal
capacity
5. Contract is valid where a minor b/w 18-21 yrs. Voluntarily pays a sum of money
Other special disqualifications may be provided by law
READ OLD BOOK

Art. 1330
A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable

Consent requires the ff: (characteristics of consent)

1. It should be intelligent or with an accurate perception of the matter to which it refers (error) – capacity to act
2. It should be free/voluntary (violence, intimidation, undue influence)
3. It should be conscious/spontaneous (fraud)

Causes vitigating consent and causes of incapacity distinguished

1. Former are temporary, while latter are more or less permanent
2. First refers to contract itself, 2nd is entering into the contract

Art. 1331
In order that mistake may invalidate consent, it should refer to the substance or the thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract

Mistake
• Mistake consists of:
a. Ignorance – absence of knowledge with respect to a thing
b. Mistake itself
* Basically, there is a lack of full and correct knowledge
READ BEA’s NOTES

Art. 1332
When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged (taken place),
the person enforcing the contract must show that the terms thereof have been fully explained to the former

• It is intended to protect a party to a contract who is illiterate, ignorant, or mental weakness or is under some other
handicap

Art. 1333
There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract

• Parties are not allowed to claim mistake if the supposed mistake arose from facts that were known to the parties
anyway

Affect of knowledge of risk

• If a person knew beforehand the doubt, contingency, or risk affecting the object of the contract, it is to be assumed
that he was willing to take chances and cannot, therefore, claim mistake

Art. 1334
Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent

Meaning of mistake of law

• Arises from an ignorance of some provision of law

Effect of mistake of law

• Does not invalidate consent because “ignorance of the law excuses no one from compliance therewith”

Requisites under this provision

1. The error must be mutual
2. It must be as to the legal effect of an agreement
3. It must frustrate the real purpose of the parties
Art. 1335
There is violence when in order to wrest consent, serious or irresistible force is employed.
There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or upon the person or property of this spouse,
descendants or ascendants, to give his consent
To determine the degree of intimidation, the age, sex, and condition of the person shall be borne in mind.
A threat to enforce one’s claim through competent authority, if the claim is just or legal, does not vitiate consent.

Nature of violence or force

• Violence requires the employment of physical force
• To make consent defective, the force employed must be either serious or irresistible

Nature of intimidation or threat

Requisites:
1. It must produce a reasonable and well-grounded fear of an evil
2. The evil must be imminent and grave
3. The evil must be upon his person or property, or that of his spouse, descendants, or ascendants
4. It is the reason why he enters into the contract
* Intimidation need not resort to physical force. Intimidation is internal while violence is external

CONTINUE READING OLD BOOK

Art. 1336
Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in the contract

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

Meaning of undue influence

• Undue influence – influence of a kind that so overpowers the mind of a party as to destroy his free will and make him
express the will of another, rather than his own

Circumstances to be considered
OLD BOOK
To determine whether undue influence has been exercised:
1. Confidential, family, spiritual and other relations between the parties
2. Mental weakness
3. Ignorance
4. Financial distress of the person alleged to have been unduly influenced

NEW BOOK (different with ^)

To justify annulment, 3 elements:
1. A person is influenced
2. The exertion od improper influence
3. Capitulation to the overwhelming effect of such unlawful conduct

Confidential or Fiduciary relationship

• Includes relations between persons, which enable us to control the other
• Ex. Attorneya and client, doctor and patient, guardian and ward, priest and parishioner, etc.

Contracts of adhesion
• Contract drawn up by one part, and imposed in the other party, who can only accept or reject, but not modify its
terms
• Ex. Loan agreements
Art. 1338
There is fraud when, through insidious (gradual, subtle) words or machinations of one of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to.

Meaning of causal fraud

• Fraud commited by one party before or at the time of the celebration of the contract to secure the consent of the
other
• It is the fraud used by a party to induce the other to enter into a contract w/o which the latter would not have agreed
to

How causal fraud commited

• Commited through insidious words or machinations (schemes, plotting)

Requisites of Causal Fraud

Art. 1339
Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud

Fraud by concealment
• A neglect or failure to communicate that which a party to a contract knows and ought to communicate constitutes
concealment
• The injured party is entitled to rescind (cancel) or annul the contract whether the failure to disclose the facts in
intensional or intensional
• If it in unintensional, the basis of the action for annulment is not fraud but mistake or error

Art. 1340
The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent

• Usually refers to sales talk to convince people to buy a product

Usual exaggerations in trade

• It is the natural tendency for merchants and traders to resort to exaggerations in their attempt to make a sale at the
highest price possible
• Customers are expected to take care of their concerns and to rely on their own independent judgements (any person
who relies on said exaggerations does so at his own peril)

Art. 1341
A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former’s special knowledge

Expression of opinion
• For it to be fraud, the misrepresentation must refer to facts, not opinions
• In order for an OPINION to be considered fraud, the ff requisites must be present:
o It must be made by an expert
o The other contracting party has relied on the expert’s opinion
o The opinion turned out to be false or erroneous

Art. 1342
Misrepresentation by a third person does not vitiate (spoil or impair the quality) consent, unless such misrepresentation has created substantial
mistake and the same is mutual

Fraud by a third person

• Fraud employed by a 3rd person does not make the parties’ consent defective
• A misrepresentation by him does not vitiate consent
• Exceptions:
a. If fraud employed by a 3rd person has created a substantial mistake and the mistake is mutual
b. The 3rd person was in connivance (secretly involved) with one of the parties to the contract
Art. 1343
Misrepresentation made in good faith is not fraudulent but may constitute error

Effect of misrepresentation made in good faith

• If misrepresentation is not intentional but made in good faith, it is considered a mere mistake or error

Art. 1344
In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties
Incidental fraud only obliges the person employing it to pay damages

2 kinds of fraud in the making of contract

1. Causal Fraud – ground for the annulment of a contract
2. Incidental Fraud – the party who employs it is liable for damages because the fraud was not the principal inducement
that led the other to give his consent

Extent of Fraud

Mutual Fraud
• Both parties commit fraud
• Neither can go to court to ask for an annulment of the contract

Incidental Fraud
• Commited during performance of the contract
• It only goves rise to liability for damages of the fraudulent party

Art. 1345
Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the
parties conceal their true agreement.

Art. 1346
An absolutely simulated or fictitious (not real or true) contract is void. A relative simulation, when it does not prejudice a third person and is not
intended for any purpose contrary to law, morals, good custome, publis order or public policy binds the parties to their real agreement.

Meaning of simulation of a contract

• Simulation of a contract – act of deceiving others, by feigning or pretending by agreement, the appearance of a contract
which is either non-existent or concealed
• 3 requisites:
a. an outward declaration of will different from the will of the parties
b. the false appearance must have been intended by mutual agreement
c. the purpose is to deceive third persons

Kinds of simulation
1. Absolute simulation
• When the contract does not really exist and the parties do not intend to be bound at all
• Fictitious contracts are inexistent and void
2. Relative simulation
• When the contract entered into by the parties is different from their true agreement

Section 2 – Object of Contracts

Art. 1347
All things which are not outside the commerce of men, including future things, may be the object of a contract.
All rights which are not intransmissibile may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract.
Objects of contracts can either be:
a. Things which are within the commerce of men, including future things;
b. Rights that are transmissible
c. Services which are in accordance with law, morals, good customs, public order to public policy

Things within commerce of man

• If it is capable of private ownership and transmission or transfer
• Ex. House and lot, jewelry
• Things that cannot be objects of contracts:
o Public property (ex. Manila bay)
o Property which is unlawful to produce
o Rights and interests covered by Certificates of Land Transfer

Existence of object and future things

• In order for a thing to be an object in a contract, it has to be in existence at the time of the perfection of the contract
or at least has potential existence
• “future thing” capable of coming into existence
o not only for material things but also on rights

Rights as object of contracts

• Rights can be object of contracts unless they are intransmissible (refer to rights that are personal)
• MUST BE TRANSMISSIBLE
Future inheritance
• Definition: any property or right, not in existence or capable of determination at the time of he contract, that a
peson may inherit in the future
• The contract is void if the object is part of an inheritance
• READ NEW BOOK

Service
• Must be lawful

Art. 1348
Impossible things or services cannot be the object of contracts
• Requirement that it sould be “possible”

Art. 1349
The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence
of the contract, provided it is possible to determine the same, without the need of a new contract between parties.

Section 3 – Cause of Contracts

Art. 1350
In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in
remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor

Meaning of cause
• Cause is the essential or more proximate purpose which the contracting parties have in view at the time of entering
into the contract

READ OLD BOOK

Art. 1351
The particular motives of the parties in entering into a contract are different from the cause thereof.
Chapter 7 Voidable Contracts

Art. 1390 (voidable contracts even though walang damage)

The following contracts are voidable or annullable, even though there may have been no damage to the contradicting parties
1. Those were one of the parties incapable of giving consent to a contract;
2. Those where the consent is vitiated (impair the quality)by mistake, violence, intimidation, undue influence or fraud
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.

Meaning of voidable contracts

Voidable or annullable contracts - those which possess all the essential requisites of a valid contract but one of the parties is
incapable of giving consent (permission or something to happen)

Kinds of voidable contracts (causes for defective consent)

A contract is voidable if the defect is caused by either:
1. Legal incapacity to give consent, where one of the parties in incapable of giving consent to the contract
Ex. Tim, 17 yrs old, owns an estate and he sells to selena. voidable because he in a minor
2. Violation of consent, where the vitiation is done by mistake, violence, intimidation, undue influence, or fraud.

Meaning of annulment
Annulment – a remedy provided by law, for reason of public interest, for the declaration of the inefficiency of a contract based
on a defect or vice in the consent of one of the contracting parties

As distinguished from rescissible contract

a. A voidable contract does not require lesion or injury to 3rd parties
b. Only a party to the contract can file an action to annul a voidable contract
c. The action is principal not subsudiary

Art. 1391
The action for annulment shall be brought within four years. This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases.

Period for filing action for annulment 4 years

• From the time they reached 18
• From the time they are no longer under guardianship
• From the time of the intimidation, etc.
• From the mistake or fraud

Art. 1392
Ratification (sign or give formal consent) extinguishes the action to annul a voidable contract

Meaning and effect of Ratification

1. Ratification – one voluntarily adopts some defective or unauthorized act or contract which, without his subsequent
approval or consent, would not be binding on him
2. Ratification cleanses the contract from all its defects from the moment it was constituted. The contract thus becomes
valid. The action to annul is extinguished.

Art. 1393
Ratification may be effected expressly or tacitly (understood or implied w/o being stated). It is understood that there is a tacit ratification if, with
knowlwdge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an
act which necessarily implies an intention to waive his right.

Kinds of Ratification
1. Express – when the ratification is manifested in words or in writing
 2. Implied or tacit – it may take diverse forms, such as by silence of acquienscence; by acts showing adoption or
approval of the contract; or by acceptance and retention of benefits flowing therefrom

Requisites of ratification
1. for implied ratification
a. there must be knowledge of the reason which renders the contract voidable
b. such reason must have ceased
c. the injured party must have executed an act which necessarily implies an intention to waive his right
2. express ratification

Art. 1394
Ratification may be effected by the guardian of the incapacitated person

Who may ratify

1. A contract entered into by an incapacitated person may be ratified by:
a. The guardian – guardians have the power to contract on their behalf. They may also ratify contracts ino by
their wards
b. The injured party hmself provided he is already capacitated
2. In case the contract is voidable on the ground of mistake, ratification can be made by the party whose cosnent is
vitiated.

Art. 1395
Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment

Ratification is unilateral (performed by or affecting only one person) act by which a party waives the defect in his consent. The
consent of the guilty party is not required; otherwise, he can conveniently disregard his contract by the simple expedient
(convenience) of refusing to give his conformity

Art. 1396
Ratification cleanses the contract from all its defects from the moment it was constituted.

Effect of ratification retroactive

Ratification cleanses the contract from all its defects from the moment it was executed. It extinguishes the right of action to
annul. In other words, the effect of ratification is to make the contract valid from its inception (starting point)
subject to the prior rights of third person.

Art. 1397
The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidarily. However, persons who are
capable cannot allege (claim) the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence,
or employed fraud, or caused mistake base their action upon these flaws of the contract

Partly entitled to bring an action to annul

2 different requisites are required to confer
1. The plantiff must have an interest in the contract
2. The victim and not the party responsible for the defect is the person who must assert the same

Strangers are w/o right or personality to bring the action for they are not obliged by the contract, principally or subsidiarily,
unless they can show detriment which would positively result to them from the contract in which they had no intervention or
participation

**the person who can ask for annulment has to be a person who has an interest in the contract, and not a 3rd person

Art. 1398
An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract,
with their fruits, and the price with its interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the basis for damages.
 1. If the contract is annulled, the parties, as a general rule, must restore to each other:
a. The subject matter of the contract w/ its fruits
b. The price w/ legal interest
**the purpose of law is to restore the parties to their original situation by mutual restitution. The fruits must be
returned because the party who received them has no right to enjoy them
2. For services: damages

Art. 1399
When the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution except
insofar as he has been benefited by the thing or price received by him.

Restitution by an incapacitated person

• The incapacitated person is obliged to make restitution only to the extent that he was benefited by the thing or price
received by him.
• IN SIMPLER TERMS restitution is not required of incapacitated persons, except to the extent that she was
benefited

Art. 1400
Whenever the person obliged by the decree of annulment to return the thing cannot do so because it has been lost through his fault, he shall return the
fruits received and the value of the thing at the time of the loss, with interest from the same date.

Effect of loss of thing to be returned

1. If the thing is lost w/o the fault of the person not obliged to return the thing
*the other cannot be compelled to retsore what is bound to return
2. If it is lost through his fault damages (value of thing at the time of the loss with interest and fruits received from
the time it was given to when it got lost)

Art. 1401
The action for annulment of contracts shall be extinguished when the thing, which is the object thereof, is lost through the fraud or fault of the person
who has a right to institute proceedings.
If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to the
success of the action, unless said loss took place through the fraud or fault of the plaintiff

Extinguishment of action for annulment

1. If the person who has the right to annul won’t be able to restore the thing na kailangan ireturn because of his fraud
or fault then his right to have the contract annulled is lost
2. The rule is the same for incapacity people

*the action of annulment shall be extinguished only if the loss is through the fault or fraud of the plaintiff

Art. 1402
As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is bound to return, the other cannot be
compelled to comply with what is incumbent upon him.

Effect where a party cannot restore what he is bound to return

• There will be no annullment if the party cannot restore what he is bound to return. (even if fortuitous event)

If the thing to be returned is in the possession of the PERSON BEING SUED and it got lost…:
1. Due to the fault of the DEFENDANT --- he should return the fruits, the value of the thing at the time it was lost,
and interest
2. Due to FORTUTOUS EVENT --- he should pay the value of the thing at the time of the loss ONLY

If the thing to be returned is in the possession of the palintiff (suer) and it got lost…:
1. Due to the fault of the PLAINTIFF --- the action of annulment is extinguished
2. Due to FORTUITOUS EVENT --- the plaintiff losses the right to annul unless she offers to pay the value of the
thing (no need for interest)
Chapter 8 Unenforceable Contracts

Art. 1403
Meaning of unforceable contracts
Unforceable contracts – those entered in the name of another person by one who has been given no authority

Kinds of unenforceable contracts

1. Those entered into by a person without authority or in excess of his authority
2. Those violating the statue of fraud requirement
3. Where both parties are incapacitated

Letter of attorney – written authorization itself is the power of attorney

- used to prove the agent’s authority
Chapter 9 Void Contracts

Art. 1409 (VOID from the beginning)

The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause/object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.

Meaning of void contracts

• Void Contracts
OLD BOOK
o Are those which, because of certain defects, generally produce no effect at all
o Considered as inexistent from the beginning
o An agreement tainted with illegality
NEW BOOK
o Has no force
o Produces no effect either against or in favor of anyone
o Legally non-existent
o Cannot be novated (substitution of a new contract n place of the old one)

Meaning of inexistent contracts

• Inexistent Contracts – refer to agreements which lack one or some or all of the elements (ex. Consent, object/cause) or
do not comply with the formalities which are essential of a contract

A legal action for the declaration of a void contract’s nullity can be filed at ANYTIME – even non-parties may bring such
an action in court

1. No Consent
a. When there is no concurrence (happening) between the offer and the acceptance
Ex. Kim offers her LV bag to Katie for P500,000, and Katie says no.
b. Those which are absolutely simulated or fictitious (not real/true)
c. Those where the intention of the parties relative to the object of the contract cannot be made sure
Ex. Achi Katrin sells her car to Monica. But since she has many cars, it’s hard to make sure which car was
offered.

2. No cause or object
a. Cause/Object/Purpose is contrary (opposite) to law, morals, good customs, public order/policy
 b. Cause/Object did not exist at the time of transaction and could not come into existence
Ex. Breanna offers to sell her pegacorn. void because the object doesn’t exist
c. Object is outside the commerce of men
Ex. Building a spa in taal volcano
d. Impossible Service
Ex. Perform floating in air

3. Expressly prohibited or declared void by law

a. Certain persons are prohibited from entering into contracts – contracts that they enter into are considered
void:
- husbands and wives cannot sell property to each other
- Guardian cannot buy ward’s (a child under the care of a guardian) property
- Agent cannot purchase property entrusted to them (unless they are authorized)
- Public offers & employees cannot purchase property of the State
- Juridical authorities cannot purchase objects of litigation
b. Donations b/w husband and wife
c. Donations b/w those who committed adultery
d. Sale of future inheritance
e. Sale by an unauthorized agent of real property
f. Sale of conjugal property without spousal consent
g. Sale by a tenant beneficiary of the land grant to persons not enumerated in the law

Art. 1410
The action or defense for the declaration of the inexistence of a contract does not prescribe
• If a contract is void the party can bring it to court to declare it void BUT it’s not necessary naman

Art. 1411 (“pari delicto” = “equally guilty”)

When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari
delicto, they shall have no action against each other, and both shall be prosecuted (put on trial). Moreover, the provisions of the Penal Code relative to
the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be
bound to comply with his promise.

Rules when contract is illegal and the act constitutes a criminal offense
1. Where both parties are in pari delicto “equally guilty”
Effects of a contract whose cause of object constitutes a criminal offense and both parties are equally guilty:
i. The parties shall have no action against each other
ii. Both shall be prosecuted
iii. The things of the price of the contract, as the effects or instruments of the crime, shall be
confiscated in favor of the gov’t
Ex. A sold B contraband articles (illegal) for 10k. B only gave 1k so A didn’t give all the articles
Neither party has a right of action against each other both shall be prosecuted and the price and
the articles shall be confiscated

2. Where only 1 party is guilty

• The rule (prosecution and confiscation) applies to the guilty party and the innocent one may claim
what he has given and shall not be bound to comply with his promise
Ex. If B acted in good faith, he can ask for the return of the 1k. BUT the articles of A will be
confiscated

Doctrine of Pari Delicto - the parties are left by the law as they are because both are
“equally guilty”
-Neither party has a right of action against the other, not may recover what they
have given
- Thing/Its price shall be confiscated + guilty party will be prosecuted
Art. 1412 (unlawful cause does not amount to a criminal offense)
If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed:
a. When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand
the performance of the other’s undertaking;
b. When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the
fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any
obligation to comply his promise.

Rules when contract is illegal but the act does not constitute a criminal offense
1. Where both parties are in pari delicto (if the cause of the contract is unlawful but there is no criminal
offense made)
i. Neither party may recover what he has given
ii. Neither party may demand the performance of the other
2. When only 1 party is guilty
i. The guilty party loses what he has given
ii. Guilty party cannot ask for fulfillment of the other
iii. Innocent party may demand the return of what he has given
iv. Innocent party cannot be compelled to comply with his promise
Ex. MINOR gave OLD GUY land. Old guy cannot get the land or demand from MINOR
MINOR can recover any property she gave

**In pari delicto – law refuses them every remedy and leave them where they are

Art. 1413
Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the date of the payment.

• Any rate of interest in the excess of what is allowed (usury – lending money in unreasonable high rates of interest)
may be recovered together with the interest
• Court can disallow interest rates that are unfair, unreasonable, and contrary to law and morals

Art. 1414 (money/property delivered for an illegal purpose)

When money is paid or property delivered for an illegal purpose, the contract may be repudiated (rejected) by one of the parties before the purpose has
been accomplished, or before any damage has been caused to a third person. In such case, the courts may, if the public interest will thus be subserved,
allow the party repudiating the contract to recover the money or property.

Recovery where contract entered into for illegal purpose

Requisites:
1. Contract is for illegal purpose (ex. Kidnap this person)
2. Contract is repudiated (reject) (ex. Person changed his mind)
3. Court can allow the recovery (Ex. Recover money)

Art. 1415 (one party in an illegal contract in unable to give consent)

Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so demands allow recovery of
money or property delivered by the incapacitated person

• Incapacitated person can recover money or property

Art. 1416
When the agreement is not illegal per se but is merely PROHIBITED, and the prohibition by the law is designated for the protection for the
plaintiff (a person who brings a case against another in court), he may, if public policy is thereby enhanced, recover what he has paid or delivered.

PLAINTIFF – the one that filed for annulment/accuser, initiates the lawsuit, “victim party”

Talks about contracts that are not illegal (universally recognized standards state that it is inherently or by its nature bad) per
se but are void because of express prohibition by law
Art. 1417 (Ceiling law)
When the price of any article or commodity is determined by statute, or by authority of law, any person paying any amount in excess of the
maximum price allowed may recover such excess.
• Ceiling law – max price of a commodity (raw material)
Ex. If the price of rice is P20.00. But you paid P22.00, you can recover the excess.

Art. 1418 (Labor code)

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

• Labor Code – normal hours of work of any employee shall not exceed 8 hrs a day

Art. 1419 (Minimum wage law)

When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a laborer accepts a lower wage,
he shall be entitled to recover the deficiency.
• If the employee receives less that the minimum wage rate, he can:
o Recover yung kulang with legal interest
o Employer shall be criminally liable

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

If contract is divisible into independent obligations, those that are legal can be enforced (read new book ex.)

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

Only persons who are directly affected by a contract can raise the contract’s illegality in actions against them

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

• An illegal contract is void and inexistent and cannot give rise to a valid contract

Business Organizations

Title One
Sole Proprietorship
• Simplest form of doing business
• Ex. Selling fishballs in a cart, internet café
• Advantages:
o It is easy to set up
o No distinct personality b/w the business and owner
o No body of law that governs the business
• ADVANTAGES:
o Simplicity in creation
o Efficient decision making
o Less paper work in its registration and operation
o Taxation based on graduated tax rate
o No double taxation
- Because salary of proprietor is not expense (not subject to tax)
- Only the sole proprietorship itself pays taxes
- In partnership earnings and corporate profits, income earned by the partnership/corporation is first taxed at
the “entity level” – partnership/corporation is treated as a person; then when part of income is distributed to
partner (share) /shareholder (dividend), individual’s income is taxed again
Double Taxation – income earned is taxed twice
 o Ease of dissolution
• DISADVANTAGES:
1. BUSINESS LIABILITIES ARE ALSO OWNER’S PERSONAL LIABILITIES
- Sole proprietor cannot compartmentalize (divide) their assets as personal assets and business assets
- All their assets can potentially be used to pay off what business owes to creditors
- Proprietor is liable for all the obligations of the business
2. ALL PERSONAL ASSETS ARE BUSINESS ASSETS
- Sole proprietor will be subject to potentially large estate taxes before business assets can be transmitted
to owner’s heirs
3. DEATH TERMINATES THE BUSINESS (business will be subject to estate tax)
- Creditors, suppliers, etc. will be hesitant to extend large credit to sole proprietorship because of lack of
stability
4. NO CHANCE FOR PARTICIPATION BY OTHERS

- For a person doing business under own name: go to BIR – RDO, fill up form, pay fee, and they will issue Certificate
of Registration
- For a person doing business under other name: go to DTI, BIR, and secure Mayor’s permit from City Hall
o Business Name Law: “It shall be unlawful for any person to use/sign a firm or business name without first
registering such in the Bureau of Commerce together with their true name and that of any other person
having a joint/common interest”

Title Two
Partnerships
• Contract were 2 or more persons bind themselves to contribute money, property or industry to a common fund, with
the intention of dividing profit among themselves
• Basic Elements:
a. Agreement to contribute money, property or industry to a common fund
b. Intent to divide the profits among the contracting parties
A. Requisutes:
B. When a written public instrument is required
• A written partnership agreement is required when:
i. The capital contribution exceeds P3,000 (in money or property)
ii. Immovable or real rights are contributed - also, inventory of said property should be made and
signed by the parties and attached to public instrument (necessary for the validity of the partnership)
- Failure to provide written partnership agreement in a public instrument (if required) will NOT affect liability of
partners to third persons – partners will still be liable as if a partnership exists
- If immovable property has been contributed and formal requisites are not met, partnership contract is VOID
- To register a partnership, partners must agree to an ARTICLES OF PARTNERSHIP then RESERVE a business
name by going to the SEC

Effect of non-registration with SEC

• Failure to register does not invalidate a contract that has essential requisites to partnership
• Purpose of registration of the contract is to give notice to 3rd parties
• Failure does not affectthe liability of the partnership (meaning they cannot escape the liabilities from creditor)
C. Distict personality of the partnership
• Partnership has a distinct personality from the partners
• Partnership can sue and be sued
• Partnership assets are distinct from those of partners, even debts
• Once a partner contributes a property to the partnership partner cannot possess such property for any
purpose ither than for the partnership
D. Who may be a partner
• Delectus personae or mutual agency – all partners are agents of each other, and whatever any individual partner
does will bind the entire partnership
• Important that partners trust each other
• Exception to mutual agency: when the respective duties of a partner have been agreed upon, or when ithas
been stipulated that a partner shall act only when the others have given their consent
 • Corporations cannot be a member in a partnerchip
2 reasons:
i. Mutual agency of the corporation will be inconsistent w/ the policy of law
ii. It would improperly allow corporate property to be subject to risks not contemplate by the
stockholders when they invested in the corporation
• Industrial and Capitalist Partners
o Industrial partner – contributes service
- shares in profits
- not liable for business losses
- Share must come from bet profits
- CANNOT make her own business UNLESS allowed by other partners
o Capitalist partner – contributes money/property
- May engage in other businesses as long as not of the same kind as the other partnership
E. Rights and obligations of partners
• Profits or losses are to be distributed in conformity with the agreement of the partners
• If no agreement was made distribution of profits is done in proportion to what each has contributed
• Partnership liability should be first satisfied using partnership’s assets, if all of partnership’s assets have been
exhausted and there is still a remaining balance, all partners (including industrial partners), are liable
proportionately with their PERSONAL property – parties cannot agree to exempt anyone from this
requirement
• However, if tort (crime) is committed by the partnership, partners will be solidarily liable with their personal
property
• HOWEVER… it is possible to limitthe liability of certain partners LIMITED PARTNERSHIP
Must have at least 1:
i. General partner – liable with their personal assets
ii. Limited partner – not be liable for losses and liabilities incurred by the partnership beyond their
contribution
** If a limited partner takes part in the control of the business, their liability will be like that of a general
partner
F. Management of the partnership
• Any partner can deal with a third person, and what the partner agrees with the third person is binding on the
partnership
• HOWEVER, an act of a partner which is not the usual way of carrying on the partnership’s business will not
bind the partnership (Ex. Coffee shop, then one partner rented tractors)
• The partnership can appoint one or more of the partners as managers of the business
G. Advantages and Disadvantages of partnerships
• Advantages:
i. Ease in creation
ii. Not subject to regular reportorial requirements
iii. Ability to own property, sue, etc. under a separate personality
iv. Right of partners to segregate personal from business assets
v. Right to select partners
• Disadvantages:
i. Unlimited liability of partners in case partnership assets are not sufficient to cover partnership
liabilities
ii. Double taxation of partnership income
- Income of partnership is subject to CORPORATE INCOME TAX (30% taxable income);
dividends distributed to partners are also subject to DIVIDEND TAX
iii. Difficulty in assigning partnership rights
- Principle of Delectus Personae (MUTUAL AGENCY) – consent of all partners is necessary in
order to admit a new partner
- If a partner sells their whole interest, buyer will not be entitled to interfere in the management/
administration of the partnership – they will only get shares in partnership’s profits
iv. Existence of partnership is dependent on partners remaining in the partners

Title Three
Corporations
• An artificial being created by operation law, having the right of succession and the powers, attributes and properties
expressly authorized by law or incident to its existence

1. Artificial Being
• A corporation has a separate judicial personality from its owners
• Properties that the corporation owns are registered in its own name
• Cannot be used to anwer for debts of the shareholders
• Doctrine of piercing the veil of corporate fiction
o Disregards corporation’s juridical personality
o Court treats corporation and its owners as one
o Separate and distinct personality of a corporation cannot be used for ends subversive (against) to the policy and purpose
behind its creation or to the purpose intended by law, to which it owes its being
o Takes place when the fiction is used to defeat public convenience, justify wrong, protect fraud, defend crime, confuse
legitimate legal or judicial issues, perpetrate deception or otherwise circumvent the law
o Also takes place when corporate entity is used as an alter ego for the sole benefit of the shareholders or of another corporate
entity
2.