OBLIGATIONS AND CONTRACTS

I. OBLIGATIONS through mistake to another who has no

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

 Sources (Article 1157): NOTES:

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

Principal Kinds of Quasi-contracts: Nature of Obligations

1. Negotiorum gestio - arises whenever 1. Personal Obligations - obligations to
a person voluntarily takes charge of do
the agency or management of the a. Positive – obligation to do
business or property of another b. Negative – obligation not to do
without any power or authority from 2. Real Obligations - obligations to give
the latter. a. Determinate or specific – object
2. Solutio indebiti - arises whenever a is particularly designated or
person unduly delivers a thing
 physically segregated from all of the case, the result of the specific
other of the same class performance of the contract would
b. Generic – object is designated be harsh, inequitable, oppressive or
merely by its class or genus result in an unconscionable
c. Limited generic thing – when the advantage to the plaintiff. The
generic objects are confined to a courts may adjust the rights of the
particular class, e.g. an parties in accordance with the
obligation to deliver one of my circumstances obtaining at the time
horses (Tolentino, Volume IV, p. of rendition of judgment, when
91). these are significantly different from
those existing at the time of
PERSONAL vs. REAL RIGHT generation of those rights. (Agcaoili
Personal Real vs. GSIS, G.R. No. 30056, August 30,
1. jus ad rem, a 1. jus in re, a right 1988)
right enforceable enforceable
only against a against the whole OBLIGATIONS OF THE DEBTOR
definite person or world Determinate Generic
group of persons
1. deliver the thing 1. deliver the thing
2. right pertaining 2. right pertaining which he has which is neither of
to the person to to a person over a obligated himself to superior nor inferior
demand from specific thing, give quality
another, as a without a passive 2. take care of the 2. pay damages in
definite passive subject individually thing with the case of breach of
subject, the determined against proper diligence of the obligation by
fulfillment of a whom such right a good father of a reason of delay,
prestation to give, may be personally family fraud, negligence or
to do or not to do. enforced 3. deliver all contravention of the
accessions and tenor thereof
RIGHTS OF A CREDITOR accessories of the
Determinate Generic thing even though
1. compel specific 1. ask for they may not have
performance performance of the been mentioned
obligation 4. pay damages in
2. recover 2. ask that the case of breach of
damages in case of obligation be the obligation by
breach of the complied with at reason of delay,
obligation, the expense of the fraud, negligence or
exclusive or in debtor contravention of the
addition to tenor thereof
specific
performance EFFECTS OF BREACH
3. entitlement to 3. recover Positive Personal Negative Personal
fruits, interests damages in case of Obligations Obligations
from the time the breach of the The creditor can: If the obligor does
obligation to obligation 1. have the what has been
deliver arises. obligation performed forbidden him, the
or executed at the creditor can:
Principle of Balancing of Equities as expense of the 1. have it undone at
Applied in Actions for Specific obligor (except in the expense of the
Performance cases where the obligor; and
 In decreeing specific performance, personal 2. ask for damages
equity requires not only that the qualifications of the
contract be just and equitable in its debtor are taken into
account in which
provisions, but that the
case the only remedy
consequences of specific is an action for
performance likewise be equitable damages)
and just. The general rule is that 2. ask that what has
this equitable relief will not be been poorly done be
granted if, under the circumstances undone
3. recover damages 1. Mora solvendi - delay of the debtor
because of breach of to perform his obligation. It may be:
the obligation a. Ex re – obligation is to give
b. Ex persona – obligation is to do
Cases where the remedy granted under 2. Mora accipiendi - delay of the
Article 1168 is not available: creditor to accept the delivery of
1. Where the effects of the act which is the thing w/c is the object of the
forbidden, are definite in character, obligation
in which case, even if it is possible 3. Compensatio morae - delay of the
for the obligee to ask that the act be parties or obligors in reciprocal
undone at the expense of the obligation
obligor, consequences contrary to
the object of the obligation will have  When incurred:
been produced which are permanent General Rule: There must be a demand
in character (judicial or extra-judicial) before delay
2. Where it would be physically or may be incurred.
legally impossible to undo what has Exceptions:
been undone because of the very 1. obligation or law expressly so
nature of the act itself or because of declares
a provision of law, or because of 2. time is of the essence of the
conflicting rights of 3rd persons contract
NOTE: In either case, the remedy is to 3. demand is useless as when
ask for damages. obligor has rendered beyond his
power to perform
BREACH OF OBLIGATIONS 4. there is acknowledgment of
1. Voluntary - debtor, in the default
performance of the obligation, is
guilty of: NOTES:
a. default (mora)  There can be delay only in positive
b. fraud (dolo) obligations (to give/to do). There
c. negligence (culpa) can be no delay in negative
d. contravention of the tenor of obligations (not to give/not to do).
the obligation
 In reciprocal obligations one party
NOTE: debtor is liable for damages
incurs in delay from the moment the
other party fulfills his obligation,
2. Involuntary - debtor is unable to
while he himself does not comply or
comply with his obligation because
is not ready to comply in a proper
of fortuitous event
manner with what is incumbent upon
NOTE: debtor is not liable for
him. The general rule is that
damages
fulfillment by both parties should be
simultaneous except when different
DEFAULT or DELAY
dates for the performance of
 Non-fulfillment of the obligation
obligation is fixed by the parties.
with respect to time
 Requisites:  Demand is still necessary if their
1. Obligation is demandable and respective obligations are to be
already liquidated performed on separate dates
2. The debtor delays performance
3. The creditor requires performance FRAUD
judicially or extra-judicially  Deliberate and intentional evasion of
the fulfillment of an obligation

 3 Kinds:
NOTE: Future fraud cannot be waived Test of Negligence
because it would result to illusory  The test of negligence can be
obligation. determined by this standard: If the
defendant, in committing or causing
Incidental Causal Fraud/dolo the negligent act, had used
Fraud/dolo causante reasonable care and vigilance which
incidente (Article 1338) a man of ordinary prudence would
(Article 1170) have employed under the same
situation, he is not guilty of
1. Present during 1. Present during the
the performance time of birth or
negligence. Otherwise, he is guilty.
of a pre-existing perfection of the
obligation obligation Doctrine of Res Ipsa Loquitur as
Applied in Negligence Cases
2. Purpose is to 2. Purpose is to  The thing or transaction speaks for
evade the normal secure the consent of
fulfillment of the the other to enter
itself
obligation into a contract  When the thing which caused injury,
without fault of the injured person,
3. Results in the 3. Results in the is under the exclusive control of the
non-fulfillment or vitiation of consent defendant and the injury is such as
breach of the in the ordinary course of things does
obligation not occur if he having such control
use proper care, it affords
4. Gives rise to a 4. Gives rise to a
reasonable evidence, in the absence
right of the creditor right of an innocent
to recover damages party to annul the of explanation from the defendant,
from the debtor contract that the injury arose from
defendant’s want of care (Africa vs.
Caltex, 16 SCRA 448 and Republic vs.
NEGLIGENCE Luzon Stevedoring, 21 SCRA 279).
 Omission of that diligence which is
required by the nature of the FORTUITOUS EVENT
obligation and corresponds with the  An event which could not be
circumstances of the persons, of the foreseen or which though foreseen
time and of the place was inevitable.
NOTE: Negligence can be waived unless
the nature of the obligation or public  Requisites:
policy requires extraordinary diligence as 1. cause is independent of the will of
in common carrier. the debtor
2. the event must be unforeseeable or
Diligence Required unavoidable
1. That agreed upon by the parties 3. occurrence must be such as to
2. In the absence of stipulation, that render it impossible for the debtor
required by law in the particular to fulfill his obligation in a normal
case manner
3. If both the contract and law are 4. debtor must be free from any
silent, diligence of a good father of a participation in
family 5. the aggravation of the injury
resulting to the creditor (Lasam vs.
Concept of Diligence of Good Father of Smith, 45 Phil. 657)
a Family
NOTE: It must not only be the
 That reasonable diligence which an
proximate cause but it must be the
ordinary prudent person would have
ONLY and SOLE CAUSE.
done under the same circumstances
GENERAL RULE: No liability in case of
fortuitous event. EXCEPTIONS:
EXCEPTIONS: 1. When they are not transmissible
1 When expressly declared by law by their very nature e.g. purely
NOTE: e.g. Article 552(2), personal right
1165(3), 1268, 1942, 2147, 2148 2. When there is a stipulation of
and 2159 of the Civil Code. the parties that they are not
2 When expressly declared by transmissible
stipulation or contract 3. Not transmissible by operation of
3 When the nature of the law
obligation requires the
assumption of risk PURE OBLIGATION
4 When the obligor is in default or  One whose effectivity or
has promised to deliver the same extinguishment does not depend
thing to 2 or more persons who upon the fulfillment or non-
do not have the same interest fulfillment of a condition or upon the
[Article 1165(3)]. expiration of a term or period and is
demandable at once.
EFFECT OF FORTUITOUS EVENT
CONDITIONAL OBLIGATION
Determinate Generic  One whose effectivity is
Obligation Obligation subordinated to the fulfillment or
obligation is obligation is not non-fulfillment of a future AND
extinguished extinguished based uncertain fact or event
on the rule that a
genus never perishes Kinds of conditions:
(genus nunquam 1. Suspensive - fulfillment of the
peruit)
condition results in the acquisition of
rights arising out of the obligation
2. Resolutory - fulfillment of the
condition results in the
PRINCIPLE UNDER ARTICLE 1176
extinguishments of rights arising out
 Before the presumption that a prior of the obligation
installment had been paid may arise, 3. Potestative - fulfillment of the
the receipt must specify the condition depends upon the will of a
installment for which payment is party to the obligation
made. 4. Casual - fulfillment of the condition
depends upon chance and/or upon
 REMEDIES OF CREDITOR TO the will of a third person
PROTECT CREDIT: 5. Mixed - fulfillment of the condition
1. Exhaustion of debtor’s property depends partly upon chance and/or
2. Accion subrogatoria - to be the will of a third person
subrogated to all the rights and 6. Possible - condition is capable of
actions of the debtor save those realization according to nature, law,
which are inherent in his person. public policy and good customs
3. Accion pauliana - impugn all the acts 7. Impossible - condition is not capable
w/c the debtor may have done to of realization according to nature,
defraud them. law, public policy and good customs
NOTE: 2nd & 3rd remedies are 8. Positive - condition involves the
subsidiary to the first performance of an act
9. Negative - condition involves the
GENERAL RULE: Rights acquired by omission of an act
virtue of an obligation are transmissible 10. Divisible - condition is susceptible of
in character partial realization
11. Indivisible - condition is not
susceptible of partial realization
12. Conjunctive - where there are be deemed to have been mutually
several conditions, all of which must compensated
be realized 5. If the obligation is unilateral, the
13. Alternative - where there are several debtor shall appropriate the fruits &
conditions but only one must be interests received, unless from the
realized nature & circumstances it should be
inferred that the intention of the
Rule in Potestative Conditions persons constituting the same was
a. If the fulfillment of the different
potestative condition depends 6. In obligations to do or not to do, the
upon the sole will of the debtor, court shall determine the retroactive
the condition as well as the effect or the conditions that has
obligation itself is void. It renders been complied with
the obligation illusory.
(Applicable only to a suspensive Constructive fulfillment of Suspensive
condition and to an obligation Condition
which depends for its perfection
 The condition shall be deemed
upon the fulfillment of the
fulfilled when the obligor actually
potestative condition and not to a
prevented the obligee from
pre-existing obligation.)
complying with the condition and
b. If the fulfillment depends
such prevention must have been
exclusively upon the will of the
voluntary and willful in character.
creditor, both the condition and
obligation is valid.
Effects of Resolutory Condition
NOTE: In case of simple potestative
1. Before the fulfillment of the
condition, e.g. right of first refusal,
condition, the right which the
such condition is valid.
creditor has already acquired by
virtue of the obligation is subject to
Rule in Impossible Conditions
a threat of extinction.
GENERAL RULE: They shall annul the
2. If condition is not fulfilled, rights are
obligation which depends upon them.
consolidated; they become absolute.
EXCEPTIONS:
3. Upon fulfillment of the condition,
1. pre-existing obligation
the parties shall return to each other
2. if obligation is divisible
what they received including the
3. in simple or renumeratory donations
fruits
4. in testamentary dispositions
5. in case of conditions not to do an
SUMMARY:
impossible thing
SUSPENSIVE RESOLUTORY
Effects of Suspensive Condition CONDITION CONDITION
1. if fulfilled, 1. if fulfilled,
1. Before fulfillment of the condition,
obligation arises obligation is
the demandability as well as the or becomes extinguished
acquisition or effectivity of the effective
rights arising from the obligation is 2. if not fulfilled, 2. if not fulfilled,
suspended no juridical juridical
2. After the fulfillment of the relation is created relation is
condition, the obligation arises or 3. rights are not yet consolidated
becomes effective acquired, but 3. rights are
3. The effects of a conditional there is hope or already
expectancy that acquired, but
obligation to give, once the
they will soon be subject to the
condition has been fulfilled, shall acquired threat or danger
retroact to the day of the of extinction
constitution of the obligation
4. When the obligation imposes
reciprocal prestations upon the
parties, the fruits & interests shall
Effects of Loss, Deterioration and RIGHT TO RESCIND (ART 1191)
Improvement in real obligations (during GENERAL RULE: The right to rescind
the pendency of the condition) needs judicial approval.
EXCEPTIONS:
1. Loss 1. If there is an express stipulation
a. without debtor’s fault - of automatic rescission
obligation is extinguished 2. When the debtor voluntarily
b. with debtor’s fault - debtor pays returned the thing
damages
NOTES:
2. Deterioration  Article 1191 refers to judicial
a. without debtor’s fault - rescission. It does not apply if there
impairment to be borne by the is an express stipulation to rescind,
creditor in which case such stipulation must
b. with debtor’s fault - creditor prevail. There is nothing in the law
may choose between the which prohibits the parties from
rescission of the obligation and entering into an agreement that
its fulfillment with indemnity for violation of the terms of the
damages in either case contract would cause its cancellation
without court intervention. Said
3. Improvement stipulation is in the nature of
a. by the thing’s nature or by time facultative resolutory condition
- improvement shall inure to the (Angeles vs. Calasanz, 135 SCRA
benefit of the creditor 323).
b. at the debtor’s expense - debtor  Rescission will be ordered only
shall have no other right than where the breach is substantial as to
that granted to a usufructuary defeat the object of the parties in
entering into the agreement.
NOTE: Applies only to determinate  The injured party may choose
things
between fulfillment and rescission of
the obligations, with the payment of
A Thing is Lost when it:
damages in either case. These
1. perishes
remedies are alternative, not
2. goes out of commerce
cumulative. However, should
3. disappears in such a way that its
fulfillment become impossible, the
existence is unknown or it cannot be
injured party may also seek
recovered
rescission.
RECIPROCAL OBLIGATIONS
 The right to rescind belongs
 Those which are created or established exclusively to the injured party.
at the same time, out of the same
cause, and which result in mutual OBLIGATION WITH A PERIOD
relationships of creditor & debtor  Those whose demandability or
between the parties extinguishment is subject to the
expiration of a term or period
TACIT RESOLUTORY CONDITION  Requisites:
If one of the parties fails to comply 1. future
with what is incumbent upon him, there 2. certain
is a right on the part of the other to 3. possible, legally and physically
rescind the obligation.
CLASSIFICATION OF TERM OR PERIOD
1. a. suspensive (ex die) – obligation
becomes demandable only upon
arrival of a day certain
 b. resolutory (in diem) – arrival of 3. If the debtor binds himself when his
day certain terminates the obligation means permit him to do so (Article
2. a. legal – granted by law 1180)
b. conventional – stipulated by
parties NOTE: The only action that can be
c. judicial – fixed by courts maintained is an action to ask the court
3. a. definite – date/time is know to fix the duration of the term or period.
beforehand The fulfillment of the obligation itself
b. indefinite – the date/time of day cannot be demanded until after the
certain is unknown court has fixed the period for
compliance therewith, and such period
TERM CONDITION has arrived. However, such technicality
1. interval of time 1. fact or event w/c need not be adhered to when a prior and
w/c is future & is future and separate action would be a mere
certain uncertain formality and would serve no other
2. interval of time 2. future and purpose than to delay (Borromeo vs. CA,
w/c must uncertain fact or 47 SCRA 65).
necessarily come, event w/c may or
although it may may not happen
not be known when Reason for Fixing the Period (ART 1197)
3.exerts an 3. exerts an  There can be no possibility of any
influence upon the influence upon the breach of contract or failure to
time of very existence of the perform the obligation unless the
demandability or obligation itself period is fixed by courts.
extinguishment of
an obligation When debtor loses right to make use of
4. does not have 4. has retroactive period: (IGIVA)
any retroactive effect 1. when after the obligation has been
effect unless there
contracted, he becomes insolvent,
is an agreement to
the contrary unless he gives guaranties or
5. when it is left 5. when it is left securities for the debt (the
exclusively to the exclusively to the insolvency need not be judicially
will of the debtor, will of the debtor, declared)
the existence of the very existence of 2. when he does not furnish to the
the obligation is the obligation is creditor the guaranties or securities
not affected affected he promised
3. when by his own act he has
impaired said guaranties or
GENERAL RULE: When a period is securities after their establishment,
designated for the performance or and when through fortuitous event
fulfillment of an obligation, it is they disappear, unless he gives new
presumed to have been established for ones equally satisfactory when
the benefit of both creditor and debtor. debtor violates any undertaking, in
EXCEPTION: When it appears from the consideration of which the creditor
tenor of the obligation or other agreed to the period or
circumstances that the period has been 4. when debtor attempts to abscond
established in favor of one or of the
other. FACULTATIVE ALTERNATIVE
Obligations Obligations
When court may fix period:
1. if the obligation does not fix a 1. comprehends 1. comprehends
period, but from its nature and only one object or several objects or
circumstances it can be inferred that prestation which is prestations which are
a period was intended by the parties due, but it may be due but may be
2. if the duration of the period depends complied with by complied with by the
upon the will of the debtor; and the delivery of delivery or
another object or performance of only
performance of one of them
another prestation b. If the loss of 1 of the things
in substitution occurs through the fault of the
debtor, the creditor may claim
2. fortuitous loss 2. fortuitous loss of any of those subsisting, or the
extinguishes the all prestations will price of that which, through the
obligation extinguish the
obligation
fault of the former, has
disappeared with a right to
3. culpable loss 3. culpable loss of any damages
obliges the debtor object due will give c. If all the things are lost through
to deliver rise to liability to the fault of the debtor, the
substitute debtor choice by the creditor shall fall
prestation without upon the price of any 1 of them,
liability to debtor also with indemnity for damages

JOINT AND SOLIDARY OBLIGATIONS

4. choice pertains 4. choice may pertain
only to debtor to creditor or even
GENERAL RULE: Obligation is presumed
third person joint if there is concurrence of two or
more debtors and/or creditors.
EXCEPTIONS:
NOTES: 1. when expressly stated that
there is solidarity
 In alternative obligations, choice 2. when the law requires solidarity
takes effect only upon 3. when the nature of the
communication of the choice to the obligation requires solidarity
other party and from such time the
obligation ceases to be alternative. JOINT DIVISIBLE OBLIGATIONS
 The debtor cannot choose those  Each creditor can demand for the
prestations or undertakings which payment of his proportionate share
are impossible, unlawful or w/c of the credit, while each debtor can
could not have been the object of be held liable only for the payment
the obligation. of his proportionate share of the
debt.
EFFECT OF LOSS OF OBJECT OF  A joint creditor cannot act in
OBLIGATION: representation of the other creditors
1. If right of choice belongs to debtor while a joint debtor cannot be
a. If through a fortuitous event - compelled to answer for the acts or
debtor cannot be held liable for liability of the other debtors.
damages
b. If 1 or more but not all of the JOINT INDIVISIBLE OBLIGATIONS
things are lost or one or some 1. If there are 2 or more debtors, the
but not all of the prestations fulfillment of or compliance with the
cannot be performed due to the obligation requires the concurrence
fault of the debtor, creditor of all the debtors, although each for
cannot hold the debtor liable for his own share. Consequently, the
damages because the debtor can obligation can be enforced only by
still comply with his obligation. proceeding against all of the
2. If right of choice belongs to the debtors.
creditor 2. If there are 2 or more creditors, the
a. If 1 of the things is lost through concurrence or collective act of all
a fortuitous event, the debtor the creditors, although each for his
shall perform the obligation by own share, is also necessary for the
delivering that which the enforcement of the obligation.
creditor should choose from
among the remainder, or that Effect of breach – If one of the joint
which remains if only 1 subsists debtors fails to comply with his
undertaking, the obligation can no
longer be fulfilled or performed. Effect of Assignment by Solidary
Consequently, it is converted into one of Creditor Without Consent of Others
indemnity for damages. Innocent joint 1. assignee is co-creditor – no violation
debtors shall not contribute to the of Article 1213 because there can be
indemnity beyond their corresponding no invasion of the personal or
share of the obligation. confidential relationship
2. assignee is third person – co-
Effect of insolvency of a debtor – If one creditors and debtors are not bound
of the joint debtors should be insolvent, by the assignment
the others shall not be liable for his
share. Effect of Novation upon Solidary
Obligation
INDIVISIBILITY SOLIDARITY 1. If the novation is prejudicial, the
1. refers to the 1. refers to the solidary creditor who effected the
prestation which legal tie or vinculum novation shall reimburse the others
constitutes the juris & consequently for damages incurred by them
object of the to the subjects or 2. If it is beneficial and the creditor
obligation parties of the who effected the novation is able to
obligation
secure performance of the
2. plurality of 2. plurality of
subjects is not subjects is obligation, such creditor shall be
required indispensable liable to the others for the share
3. in case of breach, 3. when there is which corresponds to them, not only
obligation is liability on the part in the obligation, but also in the
converted into 1 of of the debtors benefits
indemnity for because of the 3. If the novation is effected by
damages because of breach, the substituting another person in place
breach, indivisibility solidarity among the of the debtor, the solidary creditor
of the obligation is debtors remains
who effected the novation is liable
terminated
for the acts of the new debtor in
case the is deficiency in
performance or in case damages are
KINDS OF SOLIDARITY
incurred by the other solidary
1. Active solidarity
creditors as a result of the
 solidarity of creditors
substitution.
 each creditor is empowered to
4. If the novation is effected by
exercise against the debtor not only
subrogating a third person in the
the rights which correspond to him,
rights of the solidary creditor
but also all the rights which
responsible for the novation, the
correspond to the other creditors,
relation between the other creditors
with the consequent obligation to
not substituted and the debtor or
render an accounting of his acts to
debtors is maintained.
such creditors
 creates a relationship of mutual
Effect of Compensation and Confusion
agency among solidary creditors
upon Solidary Obligation
2. Passive solidarity
1. If the confusion or compensation is
 solidarity of debtors
partial, the rules regarding
 liability of each debtor for the
application of payment shall apply.
payment of the entire obligation,
This is without prejudice to the
with the consequent right to demand
right of other creditors who have
reimbursement from the others for
not caused the confusion or
their corresponding shares once
compensation to be reimbursed to
payment has been made
the extent that their rights are
3. Mixed solidarity
diminished or affected.
 solidarity among creditors and
2. If the confusion or compensation is
debtors
total, the obligation is extinguished,
what is left is the ensuing liability
 for reimbursement within each Defenses available to a Solidary Debtor
group: 1. Defenses derived from the very
a. The creditor causing the nature of the obligation
confusion or compensation is 2. Defenses personal to him or
obliged to reimburse the other pertaining to his own share
creditors 3. Defenses personal to the others, but
b. The debtors benefited by the only as regards that part of the debt
extinguishments of the for w/c the latter are responsible
obligation are obliged to
reimburse the debtor who made DIVISIBLE OBLIGATIONS
the confusion or compensation  Those which have as their object a
possible. prestation which is susceptible of
partial performance without the
Effect of Remission upon Solidary essence of obligation changed.
Obligation
1. If the remission covers the entire INDIVISIBLE OBLIGATIONS
obligation, the obligation is totally  Prestation is not susceptible of
extinguished and the entire juridical partial performance, otherwise, the
relation among the debtors is essence of the obligation will be
extinguished all together. changed
2. If the remission is for the benefit of
one of the debtors and it covers his NOTES:
entire share in the obligation, he is  Divisibility or indivisibility of the
completely released from the obligation refers to the performance
creditors but is still bound to his co- of the prestation and not to the
debtors. thing which is the object thereof.
3. If the remission is for the benefit of  Intention of parties should be taken
one of the debtors and it covers only into account to determine whether
a part of his share in the obligation, obligation is divisible or not.
his character as a solidary debtor is
not affected. GENERAL RULE: The creditor cannot be
compelled partially to receive the
Effect of Payment by Solidary Debtor prestation in which the obligation
1. Whole or partial extinguishment of consists; neither may the debtor be
debt required to make partial payments.
2. Right to recover against co-debtor EXCEPTIONS:
3. Right to recover interest from time 1. When the obligation expressly
the obligation becomes due stipulates the contrary;
2. When the different prestations
Effect of Loss or Impossibility of constituting the objects of the
Performance obligation are subject to
1. If it is not due to the fault of the different terms and conditions;
solidary debtors, the obligation is and
extinguished. 3. When the obligation is in part
2. If the loss or impossibility is due to liquidated and in part
the fault of one of the solidary unliquidated.
debtors or due to a fortuitous event
after one of the solidary debtors had OBLIGATIONS WITH A PENAL CLAUSE
already incurred in delay, the  One to which an accessory
obligation is converted into an undertaking is attached for the
obligation of indemnity for damages purpose of insuring its performance
but the solidary character of the by virtue of which the obligor is
obligation remains. bound to pay a stipulated indemnity
or perform a stipulated prestation in
case of breach.
 Purpose of Penalty: 3. compensation
1. To insure the performance of the 4. condonation or remission of the debt
obligation; 5. confusion or merger of rights of the
2. to liquidate the amount of creditor and debtor
damages to be awarded to the 6. novation
injured party in case of breach 7. annulment
of the principal obligation 8. rescission
(compensatory); and 9. prescription
3. in certain exceptional cases, to 10. payment or performance
punish the obligor in case of
breach of the principal Payment or Performance
obligation (punitive).  Means not only the delivery of
money but also the performance, in
GENERAL RULE: The penalty fixed by any other manner, of an obligation.
the parties is a compensation or
substitute for damages in case of Integrity of Payment
breach. GENERAL RULE: A debt shall not
EXCEPTIONS: be understood to have been paid unless
1. when there is a stipulation to the thing or service in which the
the contrary; obligation consists has been completely
2. when the debtor is sued for delivered or rendered, as the case may
refusal to pay the agreed be.
penalty; and EXCEPTIONS:
3. when debtor is guilty of fraud 1. When the obligation has been
substantially performed in good
NOTE: Article 1228 does not apply to faith;
these exceptions; there must be 2. When the obligee accepts
proof of actual damages. performance, knowing its
incompleteness or irregularity &
NOTES: w/out expressing any protest or
 The debtor cannot exempt himself objection;
from the performance of the 3. When there is an express stipulation;
principal obligation by paying the and
stipulated penalty unless when the 4. When the debt is in part liquidated
right has been expressly reserved for and in part unliquidated.
him.
 The creditor cannot demand the Identity of Payment
fulfillment of the principal obligation  requires that the very thing, service
and the satisfaction of the stipulated or forbearance, as the object of the
penalty at the same time unless the prestation, must be performed or
right has been clearly granted him. observed

When penalty may be reduced Persons who may pay the obligation:
1. If the principal obligation has been 1. the debtor himself or his legal
partly complied with; representative
2. If the principal obligation has been 2. any third person
irregularly complied with; and
3. If the penalty is iniquitous or GENERAL RULE: Creditor is not bound to
unconscionable even if there has been accept payment or performance by a
no performance. third person.
EXCEPTIONS:
1. when made by a third person
MODES OF EXTINGUISHMENT OF who has an interest in the
OBLIGATIONS (LFC3NARP2) fulfillment of the obligation;
1. loss of the thing due 2. when there is a stipulation to
2. fulfillment of resolutory condition the contrary.
Rights of 3rd person who paid the Rules in Monetary Obligations:
obligation: 1. Payment in cash - must be made in
the currency stipulated; if it is not
1. If payment was made with
possible to deliver such currency,
knowledge and consent of the
then in the currency which is legal
debtor:
tender in the Philippines.
a. can recover entire
2. Payment in check or other
amount paid
negotiable instrument - not
b. can be subrogated to all
considered payment; not considered
the rights of the
legal tender and may be refused by
creditor.
the creditor. It shall only produce
2. If payment was made without
the effect of payment:
knowledge or against the will of
a. when it has been cashed or
the debtor, he can recover only
b. when it has been impaired
insofar as the payment has been
through the fault of the creditor.
beneficial to the debtor.
LEGAL TENDER
To whom payment must be made:
 Such currency which may be used for
1. The person in whose favor the
the payment of all debts, whether
obligation has been constituted;
private or public. The kind of
2. His successor in interest; or
currency which a debtor can legally
3. Any person authorized to receive it.
compel a creditor to accept in
payment of a debt in money when
GENERAL RULE: If payment is made to a
tendered by the debtor in the right
person other than those enumerated, it
amount.
shall not be valid.
 Legal tender of the Philippines would
EXCEPTIONS:
be all notes and coins issued by the
1. Payment made to a 3rd person,
Central Bank.
provided that it has redounded
 Section 52, R.A. No. 7653
to the benefit of the creditor.
1. 25c and above, legal tender up
Such benefit to the creditor is
to P50
presumed in the following cases:
2. 10c and below, legal tender up
 If after the payment, the to P20
third person acquires the
creditor’s rights; Extraordinary inflation or deflation
 If the creditor ratifies the  unusual or beyond the common
payment to the third fluctuation in the value of currency,
person; which the parties could not have
 If by the creditor’s conduct, reasonably foreseen or which was
the debtor has been led to manifestly beyond their
believe that the third contemplation at the time the
person had authority to obligation was established.
receive the payment.  Applies only to contractual
2. Payment made to the possessor obligations
of the credit, provided that it  Requisites:
was made in good faith. a. The decrease in the value of the
currency could not have been
Obligation to Deliver a Generic Thing reasonably foreseen by the
 If the quality and circumstances parties or beyond their
have not been stated, the creditor contemplation at the time the
cannot demand a thing of superior obligation was established ;
quality; neither can the debtor b. There must be a declaration of
deliver a thing of inferior quality. such extraordinary inflation or
 deflation by the Bangko Sentral. Legal Application of Payment (ART1254)
Without such declaration, the 1. If neither the debtor nor the creditor
creditors cannot demand an makes any application of payment,
increase, and debtors a or if it cannot be inferred from other
decrease, of what is due to or circumstances, the debt which is
from them. (Ramos vs. CA, 275 most onerous to the debtor, among
SCRA 167 and Mobil Oil Phils. vs. those which are due, shall be
CA, 180 SCRA 651) deemed to have been satisfied.
2. If the debts due are of the same
Place of payment nature and burden, payment shall be
1. Place stipulated by the parties. applied to all of them
2. No stipulation and the obligation is proportionately.
to deliver a determinate thing,
payment shall be made at the place b. Dation in Payment (DACION EN
where the thing might be at the time PAGO)
the obligation was constituted.  Delivery and transmission of
3. In any other case, the payment shall ownership of a thing by the debtor
be made at the domicile of the to the creditor as an accepted
debtor. equivalent of the performance of the
obligation.
Special Forms of Payment:  Requisites:
a. Application of payment a. existence of a money obligation
b. Dation in Payment b. alienation to the creditor of a
c. Payment by Cession property by the debtor with the
d. Tender of payment and consent of the former
Consignation c. satisfaction of the money
obligation of the debtor
a. Application of Payment
 Designation of the debt to which the c. Payment by Cession
payment must be applied when the  Debtor abandons all of his property
debtor has several obligations of the for the benefit of his creditors in
same kind in favor of the same order that from the proceeds
creditor. thereof, the latter may obtain
 Requisites: payment of their credits.
a. there must be only 1 debtor &  Requisites:
only 1 creditor; a. plurality of debts
b. there must be 2 or more debts of b. partial or relative insolvency of
the same kind; the debtor
c. all of the debts must be due; c. acceptance of the cession by
except: if there’s stipulation to the creditors
the contrary; or application of
payment is made by the party DATION IN PAYMENT BY
for whose benefit the term has PAYMENT CESSION
been constituted; and
1. one creditor 1. plurality of
d. amount paid by the debtor must creditors
not be sufficient to cover the
total amount of all the debts. 2. not necessarily 2. debtor must be
in state of financial partially or
GENERAL RULE: The right to designate difficulty relatively insolvent
the debt to which the payment shall be
applied primarily belongs to the debtor. 3. thing delivered 3. universality of
EXCEPTION: If the debtor does not avail is considered as property of debtor is
of such right and he accepts from the equivalent of what is ceded
performance
creditor a receipt in which the
application is made.
 4. payment 4. merely releases efficacy of the consignation, the
extinguishes debtor for net obligation is extinguished.
obligation to the proceeds of things 2. If the creditor contests the
extent of the value ceded or assigned, validity or efficacy of the
of the thing unless there is
consignation or if the creditor is
delivered as agreed contrary intention
upon, proved or not interested or unknown or is
implied from the absent, the result is a litigation.
conduct of the If the debtor complied with all
creditor the requisites, the obligation is
extinguished.
d. Tender of Payment and Consignation
Tender of Payment GENERAL RULE: Consignation shall
 Manifestation of he debtor to the produce effects of payment only if there
creditor of his decision to comply is a valid tender of payment.
immediately with his obligation. EXCEPTIONS: (TIRAT or TRAIT)
 It is the preparatory act and 1. creditor is absent or unknown, or
extrajudicial in character. does not appear at the place of
payment
Consignation 2. creditor incapacitated to receive
 Deposit of the object of the payment at the time it is due
obligation in a competent court in 3. when two or more persons claim the
accordance with the rules prescribed right to collect
by law, after the tender of payment 4. when the title of the obligation has
has been refused or because of been lost
circumstances which render direct 5. when without just cause creditor
payment to the creditor impossible refuses to give a receipt
or inadvisable.
 It is the principal act and judicial in NOTES:
character.
 It is the consignation which
 Special Requisites: constitutes a form of payment and
a. The debt sought to be paid must must follow, supplement or
be due; complete the tender of payment in
b. There must be a valid and order to discharge the obligation.
unconditional tender of payment  A valid tender of payment has the
or any of the causes stated by effect of exempting the debtor from
law for effective consignation payment of interest and/or
without previous tender of damages.
payment exists;  If tender is made by means of a
c. The consignation of the thing check, such tender is valid because
due must first be announced to it is an exercise of a right. Article
the persons interested in the 1249 is not applicable.
fulfillment of the obligation;
d. Consignation shall be made by LOSS OF THE THING DUE
depositing the things due at the In Determinate Obligations to Give
disposal of judicial authority;
and GENERAL RULE: Obligation is
e. The consignation having been extinguished.
made, the interested parties  Requisites:
shall also be notified thereof. 1. The thing which is lost is
determinate;
 Effects of consignation: 2. The thing is lost without the
1. If the creditor accepts the thing fault of the debtor; and
or amount deposited without 3. The thing is lost before the
contesting the validity or debtor has incurred in delay.
EXCEPTIONS: 4. The contract is for a future
1. when by law, obligor is liable prestation.
even for fortuitous event;
2. when by stipulation, obligor is Principle of Subjective Impossibility
liable even for fortuitous event;  When there is no physical or legal
3. when the nature of the loss but the thing object of the
obligation requires the obligation belongs to another, the
assumption of risk; performance by the debtor of the
4. when the loss of the thing is due obligation undoubtedly becomes
partly to the fault of the debtor; impossible. Failure of performance is
5. when the loss of the thing occurs imputable to the debtor. Thus, the
after the debtor incurred in debtor must indemnify the creditor
delay; for the damages suffered by the
6. when the debtor promised to latter. (Tolentino, Volume IV, p.
deliver the same thing to two or 336)
more persons who do not have
the same interest; and Effect of Loss on Reciprocal Obligations
7. when the debt of a certain and  First view (Tolentino, Volume IV, pp.
determinate thing proceeds from 337-338) – If an obligation is
a criminal offense extinguished by the loss of the thing
or impossibility of performance
In Generic Obligations to Give through fortuitous events, the
counter-prestation is also
GENERAL RULE: Obligation is not extinguished. The debtor is released
extinguished because the genus of a from liability but he cannot demand
thing cannot perish. the prestation which has been
EXCEPTION: In case of generic stipulated for his benefit. He who
obligations whose object is a particular gives nothing has no reason to
class or group with specific or demand anything.
determinate qualities (Limited Generic
Obligations)  Second View (JBL Reyes) – The loss
or impossibility of performance must
In Obligations to Do be due to the fault of the debtor. In
this case, the injured party may ask
Obligation is extinguished when for rescission under Article 1191 plus
prestation becomes legally or physically damages. If the loss or impossibility
impossible. was due to a fortuitous event, the
other party is still obliged to give the
Effect of Relative Impossibility or prestation due to the other.
Doctrine of Unforeseen Events (ART
1267) CONDONATION OR REMISSION OF THE
 When the service has become DEBT
difficult as to be manifestly beyond  An act of pure liberality by virtue of
the contemplation of the parties, which the obligee, without receiving
the obligor may also be released any price or equivalent, renounces
therefrom, in whole or in part. the enforcement of the obligation,
 Requisites: as a result of which it is extinguished
1. The event or change in in its entirety or in that part or
circumstances could not have aspect of the same to which the
been foreseen at the time of the remission refers.
execution of the contract;  It is the gratuitous abandonment by
2. It makes the performance of the the creditor of his right.
contract extremely difficult but  Requisites:
not impossible; a. It must be gratuitous
3. The event must not be due to b. It must be accepted by the
the act of any of the parties; and debtor
 c. The obligation must be 2. there must be 2. only one
demandable at least two obligation
obligations
NOTE: Express condonation or remission
must comply with the formalities of Compensation Payment
donation. 1. The requisites prescribe by law for
compensation are different from those
CONFUSION OR MERGER OF RIGHTS prescribed by law for payment.
 Merger of the characters of the 2. Takes effect by 2. Takes effect by
operation of law act of the parties
creditor and the debtor in one and
3. Capacity to 3. Capacity to give
the same person by virtue of which
give and to and to acquire is
the obligation is extinguished. acquire is not essential
 Requisites: necessary
a. that the characters of creditor & 4. As a rule, it is 4. As a rule,
debtor must be in the same partial complete and
person; indivisible
b. that it must take place in the
person of either the principal
creditor or the principal debtor; Compensation Counterclaim
and
c. it must be complete & definite 1. Requires 2 1. Not necessary
debts must consist
in money or if
COMPENSATION
fungibles, same
 Extinguishment in the concurrent kind and quality
amount of the obligation of those
persons who are reciprocally debtors 2. Both debts 2. Does not require
and creditors of each other. must be that debts be
 Requisites: liquidated liquidated
a. there must be 2 parties, who, in
their own right, are principal 3. Need not be 3. Must be pleaded
pleaded to be effectual
creditors & principal debtors of
each other (except in case of
guarantor, Article 1280);
Kinds of Compensation
b. both debts must consist in
1. Legal – takes effect by operation
money, or if the things due are
of law
fungibles, they must be of the
2. Voluntary – agreed upon by the
same kind & quality;
parties
c. both debts must be due;
3. Judicial – takes effect by judicial
d. both debts must be liquidated &
decree
demandable;
4. Facultative – when it can be
e. there must be no retention or
claimed by one of the parties
controversy commenced by 3rd
who, however, has the right to
persons over either of the debts
object to it
& communicated in due time to
the debtor; and
Debts not subject to Compensation:
f. compensation must not be
1. debts arising from contracts of
prohibited by law.
deposit
2. debts arising from contracts of
Compensation Confusion commodatum
1. two persons 1. one person 3. claims for support due by
who are mutual where qualities of
gratuitous title
debtors and debtor and creditor
creditors of each are merged 4. obligations arising from criminal
other offenses
5. certain obligations in favor of
government
NOTE: Taxes are not subject to set-off b. Implied - when the old & new
or legal compensation because the obligation are incompatible w/
government & taxpayers are not each other on every point.
mutually creditors & debtors of each
other (Francia vs. IAC, 162 SCRA 753). Test of Incompatibility
 Whether or not the old and new
Facultative Compensation obligations can stand together, each
 This is compensation which can be having its own independent
set up only at the option of a existence. If they can stand
creditor, when legal compensation together, there is no incompatibility;
cannot take place because of want consequently, there is no novation.
of some legal requisites for the If they cannot stand together, there
benefit of the creditor. The latter is incompatibility; consequently,
can renounce his right to oppose the there is novation.
compensation and he himself can set
it up. It differs from conventional Forms of Substitution of Debtors:
compensation because it is unilateral 1. Expromision - effected with the
while the latter depends upon the consent of the creditor at the
agreement of both parties. instance of the new debtor even
(Tolentino, Volume IV, p. 367) without the consent or even
against the will of the old
NOVATION debtor.
 Substitution or change of an Requisites:
obligation by another, resulting in its a. Initiative for substitution must
extinguishment or modification, emanate from the new debtor
either by changing its object or b. Consent of the creditor to the
principal conditions, or by substitution
substituting another in place of the 2. Delegacion - effected with the
debtor, or by subrogating a third consent of the creditor at the
person in the rights of the creditor. instance of the old debtor, with
 Requisites: the concurrence of the new
a. a previous valid obligation; debtor.
b. agreement of the parties to the Requisites:
new obligation; a. Initiative for substitution must
c. extinguishment of the old emanate from the old debtor
obligation; and b. Consent of the new debtor
d. validity of the new obligation. c. Acceptance by the creditor

Kinds: Effect of insolvency of new debtor

1. As to its essence 1. Expromision – the new debtor’s
a. Objective/Real - refers to the insolvency or nonfulfillment of
change either in the cause, the obligation shall not revive
object or principal conditions of the original debtor’s liability to
the obligations the creditor whether the
b. Subjective/Personal - refers to substitution is effected with or
the substitution of the person of without the knowledge or
the debtor or to the subrogation against the will of the original
of a 3rd person in the rights of debtor.
the creditor 2. Delegacion – the creditor can sue the
c. Mixed old debtor only when the
2. As to its form/constitution insolvency was prior to the
a. Express - when it is declared in delegation and publicly known or
unequivocal terms that the old when the old debtor knew of
obligation is extinguished by a such insolvency at the time he
new one w/c substitutes the delegated the obligation.
same.
NOTE: A change in the incidental
elements of, or an addition of such CONTRACT
elements to an obligation, unless  A contract is a meeting of minds
otherwise expressed by the parties, will between two persons whereby one
not result in its extinguishment. binds himself, with respect to the
other, to give something or to render
CONVENTIONAL ASSIGNMENT OF some service (Article 1305).
SUBROGATION RIGHTS
 Elements
1. governed by Arts. 1. governed by Arts. 1. Essential – those without which
1300 to 1304 1624 to 1627 there can be no contract.
a. Consent
2. debtor’s consent 2. debtor’s consent b. Object or Subject Matter
is required is not required
c. Cause or Consideration
3. extinguishes the 3. transmission of
2. Natural – those derived from the
obligation and gives right of the creditor nature of the contract and ordinarily
rise to a new one to third person accompany the same.
without modifying or 3. Accidental – those which exist only
extinguishing the when the parties expressly provide
obligation for them for the purpose of limiting
or modifying the normal effects of
4. defects and 4. defects and vices the contract.
vices in the old in the old obligation
obligation are cured are not cured
Nominate contracts
5. takes effect 5. as far as the
upon moment of debtor is concerned,
 Those which have their own
novation or takes effect upon distinctive individuality and are
subrogation notification regulated by special provisions of
law.
 Kinds of Subrogation Innominate contracts
1. Conventional – takes place by  Those which lack individuality and
agreement of the parties; this kind are not regulated by special
of subrogation requires the provisions of law.
intervention and consent of 3  Regulated by the stipulations of the
persons: the original creditor, the parties, by the general provisions of
new creditor and the debtor. the Civil Code on obligations and
2. Legal – takes place without contracts, by rule governing the
agreement but by operation of law most analogous nominate contracts
because of certain acts (Article and by the customs of the place.
1302).  Kinds:
a. Do ut des - I give that you give
GENERAL RULE: Legal subrogation b. Do ut facias - I give that you do
cannot be presumed. c. Facio ut des - I do that you give
EXCEPTIONS: d. Facio ut facias - I do that you do
1. Creditor pays another creditor who is NOTE: According to some
preferred, without debtor’s authorities. do ut des in no longer an
knowledge; innominate contract. It has already
2. A third person not interested in the been given a name of its own, i.e.
obligation pays with the express or barter or exchange (Article 1638).
tacit approval of the debtor; or
3. Even without debtor’s knowledge, a Characteristics of Contracts: (ROMA)
person interested in the fulfillment 1. Relativity (ART 1311)
of the obligation pays without 2. Obligatory Force and Consensuality
prejudice to the effects of confusion (ART 1315)
as to the latter’s share. 3. Mutuality (ART 1308)
4. Autonomy (ART 1306)
II. CONTRACTS Relativity
GENERAL RULE: Contracts take effect 3. Third persons who come into
only between parties, their assigns and possession of the object of the
heirs. contract creating real rights
EXCEPTIONS: 4. Contracts entered into in fraud
1. Stipulation pour atrui - of creditors
stipulation in favor of a third
person. Mutuality
 Requisites:  The contract must bind both parties;
a. the stipulation must be a its validity or compliance must not
part, not the whole of be left to the will of one of them.
the contract; (ART 1308)
b. the contracting parties  The contract cannot have any
must have clearly and stipulation authorizing one of the
deliberately conferred a contracting parties (a) to determine
favor upon a third whether or not the contract shall be
person, not a mere valid, or (b) to determine whether
incidental benefit or or not the contract shall be fulfilled.
interest;
c. the third person must Autonomy
have communicated his  The parties are free to stipulate
acceptance to the anything they deem convenient
obligor before its provided that they are not contrary
revocation; to law, morals, good customs, public
d. the favorable stipulation order and public policy. (ART 1306)
should not be
conditioned or Consensuality
compensated by any kind  Contracts are perfected by mere
of obligation whatever; consent and from that moment, the
and parties are bound not only to the
e. neither of the fulfillment of what has been
contracting parties bears expressly stipulated but also to all
the legal representative consequences which, according to
or authorization of the their nature may be in keeping with
third person. good faith, usage and law.

Test of Beneficial Stipulation – the CONSENT

fairest test to determine whether the  Manifested by the concurrence of
interest of a 3rd person in a contract is a the offer and acceptance upon the
stipulation pour atrui or merely an thing and the cause which are to
incidental interest is to rely upon the constitute the contract.
intention of the parties as disclosed by  Requisites:
their contract. Determine whether the a. Legal capacity of the contracting
contracting parties desired to tender him parties
such an interest (Uy Tam vs. Leonard, 30 b. Manifestation of the conformity
Phil. 471). of the contracting parties
c. The parties’ conformity to the
2. When a third person induces a object, cause, the terms and
party to violate contract conditions of the contract must
(ART1314) be intelligent, spontaneous and
 Requisites: free from all vices of consent
a. Existence of a valid contract; d. The said conformity must be real
b. knowledge of contract by and not simulated or fictitious
third person; and
c. interference by third person Offer
without legal justification or  A proposal made by one party to
excuse. another to enter into a contract.
 It must be certain or definite, knowledge by the offeror of the
complete and intentional. express acceptance by the offeree of
the offer. An acceptance which is
NOTE: Offer/proposal may be withdrawn not made in the manner prescribed
so long as the offeror has no knowledge by the offeror is NOT EFFECTIVE BUT
of acceptance by offeree. A COUNTER-OFFER which the offeror
Acceptance may accept or reject. (Malbarosa vs.
 Manifestation by the offeree of his CA, et al., G.R. # 125761, April 30,
assent to the terms of the offer. 2003)
 It must me absolute.  Contracts under the Civil Code
 A qualified acceptance constitutes generally adhere to the Cognition
counter-offer. Theory (contract is perfected from
the moment the acceptance comes
NOTE: Acceptance may be revoked to the knowledge of the offeror),
before it comes to the knowledge of the while transactions under the Code of
offeror. Commerce use the Manifestation
Theory (it is perfected from the
Amplified Acceptance
moment the acceptance is declared
 Under certain circumstances, a mere
or made).
amplification on the offer must be
understood as an acceptance of the
PERSONS INCAPACITATED TO GIVE
original offer, plus a new offer which
CONSENT:
is contained in the amplification.
1. Minors
(Tolentino, Volume IV, p. 452)
EXCEPTIONS:
Rule on Complex offers
 Contracts where the minor is
1. Offers are interrelated – contract is
estopped to raise minority as a
perfected if all the offers are
defense through his own
accepted.
misrepresentation
2. Offers are not interrelated – single
acceptance of each offer results in a  Contracts for necessaries
perfected contract unless the offeror  Contracts by guardians or legal
has made it clear that one is representatives
dependent upon the other and  Voluntary fulfillment of a natural
acceptance of both is necessary. obligation provided that the
minor is between 18-21 years of
NOTES: age
 Contracts of life, health or
 Consensual contracts are perfected accident insurance taken on the
from the moment there is a life of the minor
manifestation of concurrence 2. Insane or demented persons, unless
between the offer and the the contract was entered into during
acceptance regarding the object and a lucid interval
the cause. 3. Deaf-mutes who do not know how to
 Real contracts like deposit, pledge read and write
and commodatum requires delivery
of object for perfection. Effect of Misrepresentation of Age by
 Solemn contracts are those which the Minor
requires compliance with certain  Misrepresentation by minors with
formalities prescribed by law, such regard to their age when entering
prescribed form being an essential into a contract shall bind them in
element (i.e., donation of real the sense that they are estopped
property). subsequently from impugning the
 An offer made inter praesentes must validity of the contract on the
be accepted IMMEDIATELY. If the ground of minority. It is necessary
parties intended that there should that the misrepresentation must be
be an express acceptance, the active (e.g. when minors specifically
contract will be perfected only upon
 stated in a contract that they were 1. Absolute – when the contracting
of age), not merely constructive. parties do not intend to be bound by
the contract at all. Thus, an
VICES OF CONSENT (VIMFU) absolutely simulated contract is
1. Violence - when in order to wrest VOID.
consent, serious or irresistible force 2. Relative – when the contracting
is employed. parties conceal their true
2. Intimidation - when 1 of the agreement. A relatively simulate
contracting parties is compelled by contract binds the parties to their
a reasonable & well-grounded fear real agreement, when it does not
of an imminent & grave evil upon his prejudice a 3rd person and is not
person or property, or upon the intended for any purpose contrary to
person or property of his spouse, law, morals, good customs, public
descendants or ascendants, to give order or public policy.
his consent.
3. Mistake - should refer to the OBJECT
substance of the thing which is the  The thing, right or service which is
object of the contract, or to those the subject matter of the obligation
conditions which have principally arising from the contract.
moved one or both parties to enter  Requisites:
into the contact. a. It must be w/in the commerce of
 Must be mistake of fact and not of man
law, except under Article 1334. b. It must be licit or not contrary
 Requisites under Article 1334: law, morals, good customs,
a. Mistake must be with respect public order or public policy
to the legal effect of an c. It must be possible
agreement d. It must be determinate as to its
b. Mistake must be mutual kind
c. Real purpose of the parties
must have been frustrated. Things which Cannot be the Object of
4. Fraud - when, through insidious Contract
words or machinations of 1 of the 1. Things which are outside the
contracting parties, the other is commerce of men
induced to enter into a contract 2. Intransmissible rights
which, without them, he would not 3. Future inheritance, except in
have agreed to. cases expressly authorized by
5. Undue influence - when a person law
takes improper advantage of his 4. Services which are contrary to
power over the will of another, law, morals, good customs,
depriving the latter of a reasonable public order or public policy
freedom of choice. 5. Impossible things or services
6. Objects which are not possible of
Reluctant Consent determination as to their kind
 A contract is valid even though one
CAUSE
of the parties entered into it against
 The immediate, direct and most
his wishes and desires or even
proximate reason which explains and
against his better judgment.
justifies the creation of obligation.
Contracts are also valid even though
 Requisites
they are entered into by one of the
a. Cause should be in existence at
parties without hope of advantage or
the time of the celebration of
profit. (Martinez vs. Hongkong and
the contract
Shanghai Bank, 15 Phil. 252)
b. Cause should be licit or lawful
c. Cause should be true
Simulation of Contracts
 Rules:
1. In onerous contracts, the cause is 2. When the law requires that a
understood to be, for each contract be in some form in order
contracting party, the prestation of that it may be enforceable
promise of a thing or service by the
other. NOTES:
2. In remuneratory contracts, the
service or benefit w/c is  Parties may compel each other to
remunerated. comply with the form required once
3. In contracts of pure beneficence, the contract has been perfected.
the mere liberality of the donor or (Article 1357)
benefactor.  Contracts under Art 1358 which are
4. In accessory contracts (mortgage or required to be in some specific form
pledge), the cause is identical with is only for the convenience of parties
the cause of the principal contract, and does not affect its validity and
that is, the loan from which it enforceability as between them.
derives its life and existence.
RA 8792 (E- COMMERCE ACT) provides
CAUSE EFFECT that the formal requirements to make
the contract confers contracts effective as against third
1. Absence of cause no right and produces persons and to establish the existence of
no legal effect a contract are deemed complied with
does not render the provided that the electronic document is
2. Failure of cause contract void unaltered and can be authenticated as
the contract is null
to be usable for future reference.
3. Illegality of cause and void
the contract is void,
4. Falsity of cause unless the parties REFORMATION OF INSTRUMENTS
show that there is  Requisites:
another cause which a. meeting of the minds to the
is true and lawful contract
does not invalidate b. true intention is not expressed in
5. Lesion the contract, unless the instrument by reason of
(a) there is fraud, mistake, accident, relative
mistake or undue simulation, fraud, or inequitable
influence; or (b)
conduct
when the parties
intended a donation c. clear and convincing proof of
or some other mistake, accident, relative
contract simulation, fraud, or inequitable
conduct

FORM OF CONTRACTS Instances when there can be no

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

VOID VOIDABLE RESCISSIBLE UNENFORCEABLE

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

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

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

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

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

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

prescription prescription

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

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

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

or collaterally collaterally collaterally

RESCISSIBLE CONTRACTS 4. those which refer to things under

 Contracts validly agreed upon but, litigation if they have been entered
by reason of lesion or economic into by the defendant without the
prejudice may be rescinded in cases knowledge and approval of the
established by law. litigants and the court;
5. all other contracts especially
What contracts are rescissible declared by law to be subject to
1. those entered into by guardians rescission; and
where the ward suffers lesion of 6. payments made in a state of
more than ¼ of the value of the insolvency on account of obligations
things which are objects thereof; not yet enforceable
2. those agreed upon in representation
of absentees, if the latter suffer  Requisites:
lesion by more than ¼ of the value a. the contract must be rescissible
of the things which are subject b. the party asking for rescission
thereof; must have no other legal means
3. those undertaken in fraud of c. to obtain reparation for the
creditors when the latter cannot in damages suffered by him
any manner claim what are due d. the person demanding rescission
them; must be able to return whatever
 he may be obliged to restore if 6. Its purpose is to 6. Its purpose is to
rescission is granted cancel the contract. seek reparation for
e. the things w/c are the object of the damage or injury
the contract must not have caused, thus allowing
partial rescission of
passed legally to the possession
the contract.
of a 3rd person acting in good
faith
VOIDABLE CONTRACTS
f. the action for rescission must be
 Those in which all of the essential
brought w/in the prescriptive
elements for validity are present,
period of 4 years
although the element of consent is
vitiated either by lack of capacity of
one of the contracting parties or by
BADGES OF FRAUD:
VIMFU.
1. Consideration of the conveyance
is inadequate or fictitious;
What contracts are voidable
2. Transfer was made by a debtor
after a suit has been begun and 1. Those where one of the parties is
while it is pending against him; incapable of giving consent to a
3. Sale upon credit by an insolvent contract
debtor; 2. Those where the consent is vitiated
4. Evidence of indebtedness or by mistake, violence, intimidation,
complete insolvency undue influence or fraud
5. Transfer of all his property by a
debtor when he is financially Causes of extinction of action to annul:
embarrassed or insolvent; 1. PRESCRIPTION
6. Transfer made between father &  the action must be commenced
son, where there is present any within 4 years from:
of the above circumstances a. the time the incapacity
7. Failure of the vendee to take ends;
exclusive possession of all the b. the time the violence,
property intimidation or undue
influence ends; or
c. the time the mistake or
Rescission in Rescission Proper fraud is discovered.
Article 1191 in Article 1381 NOTE: Discovery of fraud must be
1. It is a principal 1. It is a subsidiary reckoned to have taken place from
action retaliatory in remedy. the time the document was
character. registered in the office of the
2. The only ground is 2. There are 5 register of deeds. Registration
non-performance of grounds to rescind. constitutes constructive notice to
one’s obligation/s or Non-performance by the whole world. (Carantes vs. CA,
what is incumbent the other party is not 76 SCRA 514)
upon him. important.
3. It applies only to 3. It applies to both
reciprocal obligation unilateral and
2. RATIFICATION
reciprocal  Requisites:
obligations. a. there must be knowledge of
4. Only a party to the 4. Even a 3rd person the reason which renders
contract may demand who is prejudiced by the contract voidable
fulfillment or seek the contract may b. such reason must have
the rescission of the demand the ceased and
contract. rescission of the c. the injured party must have
contract. executed an act which
5. Court may fix a 5. Court cannot grant expressly or impliedly
period or grant extension of time for
extension of time for fulfillment of the
conveys an intention to
the fulfillment of the obligation. waive his right
obligation.
3. By loss of the thing which is the by the party charged or by his agent,
object of the contract through fraud otherwise, the said contracts shall
or fault of the person who is entitled be unenforceable.
to annul the contract.  The statute of frauds applies only to
executory contracts, not to those
NOTE: If the object is lost through that are partially or completely
fortuitous event, the contract can still fulfilled.
be annulled, but the person obliged to
return the same can be held liable only Ratification of contracts in violation of
for the value of the thing at the time of the Statute of Frauds
the loss, but without interest thereon. 1. Failure to object to the presentation
of oral evidence to prove such
UNENFORCEABLE CONTRACTS contracts
 Those which cannot be enforced by 2. Acceptance of benefits under these
proper action in court unless they contracts
are ratified
VOID CONTRACTS
What contracts are unenforceable  Those where all of the requisites of a
1. those entered into in the name of contract are present but the cause,
another by one without or acting in object or purpose is contrary to law,
excess of authority; morals, good customs, public order
2. those where both parties are or public policy, or contract itself is
incapable of giving consent; and prohibited or declared void by law.
3. those which do not comply with the
Statute of Frauds What contracts are void
1. Those whose cause, object or
Agreements within the scope of the purpose is contrary to law, morals
Statute of Frauds (EXCLUSIVE LIST): good customs, public order or public
1. Agreements not to be performed policy;
within one year from the making 2. Those whose object is outside the
thereof; commerce of men;
2. Special promise to answer for the 3. Those which contemplate an
debt, default or miscarriage of impossible service;
another; 4. Those where the intention of the
NOTE: This does not refer to the original parties relative to the principal
or independent promise of the object of the contract cannot be
debtor to his own creditor. It refers ascertained; and
rather to a collateral promise. 5. Those expressly prohibited or
3. Agreement in consideration of declared void by law.
marriage other than a mutual
promise to marry; INEXISTENT CONTRACTS
4. Agreement for the sale of goods,  Those where one or some or all of
etc. at a price not less than P500.00; the requisites essential for the
5. Contracts of lease for a period validity of a contract are absolutely
longer than one year; lacking.
6. Agreements for the sale of real
property or interest therein; and What contracts are inexistent
7. Representation as to the credit of a
1. Those which are absolutely
third person.
simulated or fictitious; and
2. Those whose cause or object did not
NOTES:
exist at the time of the transaction.
 The contracts/agreements under the
Statute of Frauds require that the NOTE: The principle of In Pari Delicto is
same be evidenced by some note, applicable only to void contracts and not
memorandum or writing, subscribed as to inexistent contracts.
Principle of In Pari Delicto 2. Executory Contracts - Neither of the
GENERAL RULE: When the defect of a contracting parties can demand for
void contract consists in the illegality of the fulfillment of any obligation
the cause or object of the contract and from the contract nor may be
both of the parties are at fault or in pari compelled to comply with such
delicto, the law refuses them every obligation
remedy and leaves them where they are.
EXCEPTIONS: NATURAL OBLIGATIONS
1. Payment of usurious interest  They are real obligations to which
2. Payment of money or delivery of the law denies an action, but which
property for an illegal purpose, the debtor may perform voluntarily.
where the party who paid or  It is patrimonial, and presupposes a
delivered repudiates the prestation.
contract before the purpose has  The binding tie of these obligations
been accomplished, or before is in the conscience of man, for
any damage has been caused to under the law, they do not have the
a 3rd person. necessary efficacy to give rise to an
3. Payment of money or delivery of action.
property made by an
incapacitated person Examples of natural obligations
4. Agreement or contract which is enumerated under the Civil Code:
not illegal per se & the 1. Performance after the civil
prohibition is designed for the obligation has prescribed;
protection of the plaintiff 2. Reimbursement of a third person for
5. Payment of any amount in excess a debt that has prescribed;
of the maximum price of any 3. Restitution by minor after annulment
article or commodity fixed by of contract;
law or regulation by competent 4. Delivery by minor of money or
authority. fungible thing in fulfillment of
6. Contract whereby a laborer obligation;
undertakes to work longer than 5. Performance after action to enforce
the maximum # of hours fixed by civil obligation has failed;
law. 6. Payment by heir of debt exceeding
7. Contract whereby a laborer value of property inherited; and
accepts a wage lower than the 7. Payment of legacy after will have
minimum wage fixed by law. been declared void.
8. One who lost in gambling
because of fraudulent schemes ESTOPPEL
practiced on him is allowed to  A condition or state by virtue of
recover his losses [(Art. 315, 3 which an admission or representation
(b), RPC] even if gambling is a is rendered conclusive upon the
prohibited one. person making it and cannot be
denied or disproved as against the
Rules when only one of the parties is at person relying thereon.
fault:  Kinds:
1. Executed Contracts: 1. Estoppel in Pais (by conduct)
a. Guilty party is barred from a. Estoppel by silence
recovering what he has given to b. Estoppel by acceptance of
the other party is barred from benefits
recovering what he has given to 2. Technical Estoppel
the other party by reason of the a. Estoppel by deed
contract. b. Estoppel by record
b. Innocent party may demand for c. Estoppel by judgment
the return for the return of d. Estoppel by laches
what he has given.
LACHES or “STALE DEMANDS” LACHES PRESCRIPTION
 Failure or neglect, for an
unreasonable and unexplained length 1. concerned with 1. concerned with
of time, to do that which, by effect of delay fact of delay
exercising due diligence, could or
should have been done earlier; it is 2. question of 2. question or
negligence or omission to assert a inequity of matter of time
right within reasonable time, permitting the claim
warranting a presumption that the to be enforced
party entitled to assert it either has
abandoned it or declined to assert it. 3. not statutory 3. statutory

 Elements: 4. applies in equity 4. applies at law

a. Conduct on part of the
defendant, or of one under 5. not based on a 5. based on a fixed
whom he claims, giving rise to fixed time time
the situation of which complaint
is made and for which the
complaint seeks a remedy
b. Delay in asserting the
complainant’s rights, the
complainant having knowledge
or notice, of the defendant’s
conduct and having been
afforded the opportunity to
institute a suit
c. Lack of knowledge or notice on
the part of the defendant that
the complainant would assert
the right on which he bases his
suit
d. Injury to the defendant in the
event relief is accorded tot the
complainant, or the suit in not
held to be barred