OBLIGATIONS AND CONTRACTS

GENERAL PROVISION
Art. 1179 - obligations demandable at once
Art. 1156 - obligation Art. 1180 - means permit
Art. 1157 - sources Art. 1181 - conditional obligations
Art. 1182 - sole will of debtor
Art. 1158 - law; not presumed
Art. 1183 - Impossible conditions
Art. 1159 - contracts; force of law
Art. 1184 - Positive condition
Art. 1160 - quasi contracts; C1, Title 17 Art. 1185 - Negative condition
Art. 1161 - criminal offenses; penal laws Art. 1186 - Deemed fulfilled
Art. 1162 - quasi delict; C2, Title 17 Art. 1187 - Retroactivity of a real conditional obligation; reciprocal; unilateral
Art. 1188 - Preservation of right action
NATURE & EFFECT OF OBLIGATIONS Art. 1189 - Improvement, Loss or Deterioration: Real Suspensive Condition
Art. 1190 - Improvement, Loss or Deterioration: Real Resolutory Condition
Art. 1163 - proper diligence for determinate Art. 1191 - Reciprocal: power to rescind
Art. 1192 - Reciprocal breach of obligation
Art. 1164 - ROC: fruits of the thing
Art. 1165 - ROC: 1) determinate: compel
II.​ Obligations with a Period
2) indeterminate: comply at debtor’s expense
​ 3) delay: responsible for fortuitous
Art. 1193
Art. 1166 - determinate: accessions & accessories
Art. 1194
Art. 1167 - to do; fails or contravention
Art. 1195
Art. 1168 - not to do; undone
Art. 1196
Art. 1169 - no demand no delay; exception
Art. 1197
Art. 1170 - breaches of obligation
Art. 1198
Art. 1171 - fraud responsibility
Art. 1172 - negligence responsibility
III.​ Alternative & Facultative
Art. 1173 - fault or negligence; omission of diligence required
Art. 1174 - fortuitous events; exceptions
Art. 1199 - Completely perform cannot compel
Art. 1175 - usurious transactions
Art. 1200 - Right of Choice; No impossible unlawful of not object
Art. 1176 - presumption without reservation to interest or installment
Art. 1177 - claims; possession and actions
Art. 1178 - rights are transmissible

DIFFERENT KINDS OF OBLIGATIONS

I.​ Pure and Conditional

 OBLIGATIONS AND CONTRACTS

OBLIGATION
1)​ Legal Right: Creditor/Plaintiff
An obligation is a juridical necessity to give, to do or not to do (Art. 1156) 2)​ Legal Obligation: Debtor/Defendant
3)​ Act/omission in breach or violation (WRONG)​
-​ Juridical necessity implies the existence of legal sanctions that may
be imposed upon the obligor in case of breach of the obligation. Example: Buyer & Seller relationship, down payment with option to
purchase but seller reimbursed and rejected contract. Buyer has yet to
Sources of Obligations: exercise his legal right to choose w/n to buy. Seller’s obligation, give him the
(1) Law, (2) Contracts, (3) Quasi-contracts, (4) Delict, (5) Quasi-delict option to choose. The wrong/act violation, is rejecting the contract prior to
-​ An obligation imposed on a person must be rooted in at least one of the period for exercise of option.
the sources.
-​ For example, a practice or a custom is not a source of a legally ●​ INJURY - act/omission causing loss or harm
demandable right. [Makati Stock Exchange v. Campos] ●​ DAMAGE - loss/harm suffered
●​ DAMAGES - recompensation/sum of money for the loss/harm
Kinds of Obligations:
➢​ Real: Generic/Indeterminate or Specific/Determinate IWD - Injury Without Damage: damage must be shown or proven
➢​ Personal: Positive Personal or Negative Personal ➢​ XPN: Actual, compensatory, moral, nominal, temperate, liquidated,
exemplary (MANTLEC) ​
Requisites of an obligation: ​
DWI - Damage Without Injury: Not entitled to damages, as it is an exercise
➢​ Passive Subject: DEBTOR/OBLIGOR of legal right (Auyong Hian v. CA)
➢​ Active Subject: CREDITOR/OBLIGEE ➢​ XPN: Bad faith
➢​ Object/Prestation: CONDUCT REQUIRED (to give, to do or not to
do) SOURCES OF OBLIGATION
➢​ Juridical/Legal Tie or vinculum juris: SOURCE OF OBLIGATION

I.​ LAW (EX LEGE) [Art. 1158]​

Elements of Cause of Action

➢​ provided by law itself, not presumed or implied

1.​ OBLIGATION 2.​ RIGHT 3.​ WRONG ➢​ only those determined in the Civil Code or special laws are
demandable
Act/performance Power to demand Act/omission in violation
required the obligation of rights of another
●​ Examples of obligations arising from law are: obligation to pay
causing injury
taxes, obligation of spouses to render mutual support.
 OBLIGATIONS AND CONTRACTS

●​ These obligations are regulated by the precepts of the law which Characteristics of Quasi-Contract:
establishes them, as to those not foreseen, by the provisions of
Book IV of the Civil Code. 1)​ Arises from a lawful act.
2)​ Arises from a voluntary act.
3)​ Arises from a unilateral act.
II.​ CONTRACTS (EX CONTRACTU)

Kinds of Quasi- Contract: ​

➢​ obligations arising from contracts have the force of law and
should be complied with in good faith [Art. 1159]
a)​ Solutio Indebiti: something that is not due is delivered by mistake.
➢​ must be valid (Art. 1318) and enforceable
It applies where:
➢​ Consent is the essence of a contract
i)​ Payment is made without binding relation or duty to pay
ii)​ Payment is made through mistake
Characteristics of Contracts (ROMA) ●​ Recipient is exempt from obligation to restore it if:
➢​ Obligatory force ○​ (1) He believed in good faith that payment was out of a
➢​ Relativity: effectivity of contracts between parties including their subsisting claim
heirs and assigns ○​ (2) He destroyed the document or allowed action to
●​ XPN: rights and obligations are intransmissible by nature or prescribe, or gave up the pledges or cancelled the
by law (ex: obli to support, personal obligations) guarantees for his right.
➢​ Mutuality
➢​ Autonomy b)​ Negotiorum Gestio: voluntary management of the affairs or
property of another without knowledge or consent of the latter.
Requirement for a corresponding right of relief:
(1) Proof of existence of the contract ●​ Requisites: (1) Officious manager voluntarily assumes the agency
(2) Failure of its compliance or management (2) The property or business is neglected or
abandoned (3) There is no authorization from owner (4) Assumption
III.​ QUASI-CONTRACTS (ART 1160) was made in good faith.
●​ Effect:
➢​ arise from lawful, unilateral acts enforceable to the end that no ○​ The officious manager should continue until termination
one shall be unjustly enriched at the expense of another ○​ If the owner suffers damage by fault or negligence, or the
➢​ contracts: meeting of the minds, agreement; quasi: voluntary and manager abandons the property, the latter shall be liable.
one-way ○​ The owner is liable for obligations incurred in his interest.
➢​ Effect: as if a contract has been entered into to prevent injustice ○​ Liable for necessary, useful expenses, and damages
suffered.
 OBLIGATIONS AND CONTRACTS

●​ Extinguishment: EFFECT OF DEATH (Pending appeal of conviction)

○​ Owner’s repudiation of officious management
○​ Putting an end to such officious management ➢​ Criminal liability - extinguished
○​ Death, civil interdiction, insanity or insolvency ➢​ Civil Liability ex delicto - extinguished
○​ Withdrawal from the management ➢​ Civil liability predicated on a source other than delict (ex: law,
contract, quasi con, quasi delict): SURVIVES
●​ THIRD PARTY: If enrichment of another was done so pursuant to a
V.​ QUASI - DELICT ART. 1162
contract with a third party, course of action would be against the 3rd
​
party
-​ Obligations derived from quasi-delicts shall be governed by the
provisions of Chapter 2 Title 17 of Civil Code and by special laws.

IV.​ ACTS/OMISSIONS PUNISHED BY LAW (Crime/Delic) ART.

Quasi Delict as defined under Art. 2176 of the Civil Code
1161​
-​ arise from damage caused by an act or omission, with fault or
negligence and no contractual relation exists
➢​ civil liability resulting from criminal offense
➢​ Art 100. Every person criminally liable is also civilly liable 2
Fault or Dolo: covers deliberate and intentional acts
liability
Negligence or Culpa: refers to cases of omission of the required or proper
➢​ No civil liability where the crime does not affect private interest
diligence of a certain act.
such as: espionage, rebellion, treason, contempt.

Requisites:
CIVIL LIABILITY 1)​ Damage suffered by the plaintiff
2)​ Fault or negligence of the defendant
-​ covered by Civil Code and Revised Penal Code (RIR): (1) 3)​ Connection of cause and effect between the fault or negligence and
Reparation for damage cause (2) Restitution (3) Indemnification for damage incurred
consequential ​
Obligation arising from Quasi-delict for acts of another
EFFECT OF ACQUITTAL
➢​ Father and Mother: Minor children living in their company
➢​ Civil liability: The act or omission causing civil liability did not exist ➢​ Guardians: Minor and incapacitated living in their company
(Not author of act/omission) ➢​ Owners and Managers: Employee in exercise of their function
➢​ Not exempt: Reasonable doubt may be proved by preponderance of ➢​ Employers: Employees and household helpers
evidence. ➢​ State: Special agent
 OBLIGATIONS AND CONTRACTS

➢​ Teachers & Heads of Establishment: Pupils, Students or ○​ Another standard of care is required according to law or
Apprentices in their custody stipulation.
○​ When there has been a delay, debtor is liable even for
●​ Exception to rule of responsibility: Diligence of a good father of a fortuitous events until delivery.
family was observed/exercised. ●​ To deliver the fruits of the thing due by the time the obligation
acquires right to them [Art. 1164]
Is the concept of Quasi-delict limited only to fault or negligence not ●​ To deliver the accessions and accessories [Art. 1166]
punishable by law?
-​ Accessories: intended for ornamentation, use or preservation of
-​ Supreme Court ruled in the negative. It was held that the same the more important element of an obligation.
negligent act causing damages. -​ Accessions: includes cases of natural accessions.
-​ However, Art. 2177 prohibits double recovery. -​ Fruits of Specific or Determinate thing: the creditor is entitled
from the time right to the thing due is acquired.
Effect of Pre-existing Contractual Relations
-​ A pre-existing contract does not bar the applicability of the law on Right of Creditor in a Real Specific Obligation
quasi-delict. 1)​ May compel the debtor to make the delivery [Art. 1165]

Culpa Contractual Right of Creditor in a Real Generic Obligation

-​ When an act constitutes a breach of contract arises from fault or 1)​ May ask compliance at the expense of the debtor [Art. 1165]
negligence. Effect of Delay by the Debtor
1)​ He may be held liable even for fortuitous event until delivery. [Art.
1165]
QUESTION: Taxi driver driving recklessly, what is source of obli of driver
Generic Obligation: requires deliver of the quality intended, liable for
and employer and defenses available?
damages
1)​ Contract of Carriage - employer to passenger
2)​ Delict - driver to passenger
●​ Remedy in case of breach: Creditor may compel performance at the
3)​ Quasi - employer, driver to passenger
expense of debtor or the obligation will be performed by someone
else at his expense.
NATURE AND EFFECT OF OBLIGATIONS
Positive Obligations: are those which consist in an obligation to do
Determinate or Specific Obligation: the debtor acquires three accessory something.
obligations:
●​ Obligation to preserve the thing delivered, or take care of it with the ●​ Effect of Breach: The same shall be executed at his cost. [Art. 1167]
diligence of a good father of a family [Art. 1163] unless:
 OBLIGATIONS AND CONTRACTS

●​ Does not apply if there are personal qualifications considered in the ●​ Exception: (1) When the law or obligation expressly declares, (2)
constitution of the obligation, the appropriate action then would be when from the nature of the obligation it appears that a designation
for damages. of time when thing is to be delivered is a controlling motive (3)
Demand would be useless
Negative Obligations: are those which consist in an obligation not to do.
●​ Effect of Breach: It shall be undone at the debtor’s expense [Art.
GR: No person shall be responsible unforeseen, although foreseen, were
1168]
inevitable. [Art. 1174]
●​ XPN: In cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the
BREACH OF OBLIGATION obligation requires the assumption of risk (law, stipulation, risk)

-​ it is when the obligation is not performed or it is performed but in

●​ Fortuitous Event (as explained by the Court in Yobido v. CA) is
contravention of the tenor of the obligation.
possessed by the following characteristics:
-​ It could be through delay (Art. 1169), fraud (Art. 1171),
negligence (Art. 1173) thereby causing the debtor to be liable for
(a)​ the cause of the event or occurrence, or the failure of the
damages [Art. 1170]
debtor to comply must be independent of human will
(b)​ impossible to foresee to event, or if can be foreseen,
Breach or responsibility arising from: impossible to avoid
(c)​ the occurrence renders it impossible for the debtor to
fulfill his obligation
Default or delay: in Civil Code it is also referred to as Mora. It is the
(d)​ obligor must be free from any participation in the
non-performance of the obligation in accordance with time.
aggravation of the injury to the creditor

Requisites for a finding of delay Kinds of Delay

(1)​ The obligation is already due and liquidated ➢​ Mora Solvendi: delay on the part of the debtor to perform an
(2)​ Debtor delays performance obligation by reason of malice (dolo) or negligence (culpa).
(3)​ The creditor requires or demands performance judicially or
extrajudicially -​ The debtor who is guilty of delay becomes liable to the
creditor for damages [Art. 1170]
General Rule: Delay generally begins from the time the creditor demands. -​ The debtor, when guilty of delay, shall also be responsible
However, there are instances wherein demand is not required. in case of fortuitous events (loss, damage or deterioration)
[Art. 1165]
 OBLIGATIONS AND CONTRACTS

Disputable presumption [Art. 1176]

➢​ Mora Accipendi: delay on the part of the creditor in accepting the
performance of the debtor without just cause. ​ 1)​ Receipt of principal without reservation to interest
2)​ Later installment without reservation to prior installment
-​ Concept and effects are discussed in special modes of
payment or performance: Tender of Payment and Remedies of a creditor [Art. 1177]
Consignation.
1)​ Attachment/Execution upon all the properties of the debtor
➢​ Compensatio Morae: is the delay or default on the part of both 2)​ Accion Subrogatoria: exercise all rights and actions of the debtor
parties because neither has completed their part in their obligations. 3)​ Accion Pauliana: last remaining remedy, wherein there is rescission
of the contracts executed by the debtor in fraud of their rights
-​ Mutual inaction cancels out the effect of default, as if no one
is guilty of delay. There is delay when one of the parties
comply.

DIFFERENT KINDS OF OBLIGATIONS

Fraud or Dolo: It is the presence of dishonesty, malice or bad faith in
the performance (dolo incidente) or institution (dolo causante) of the
obligation. The former gives rise to an action for damages while the I.​ Pure Obligations & Conditional Obligations
latter is a ground for annulment of contract.

A.​ Pure Obligations are obligations that do not depend upon the
-​ Responsibility arising from fraud is demandable. Waiver of any happening of a future or uncertain event, or acts which have already
action for fraud is void [Art. 1171] happened but are unknown to the parties [Art. 1179]

-​ demandable at once
Negligence or Culpa: the absence of proper diligence required in the
-​ not subject to a term or period
fulfillment of the obligation. There is no deliberate intent. [Art. 1173]

B.​ Conditional Obligations are obligations wherein the acquisition

Kinds of Negligence of rights and extinguishment of those acquired depend upon the
1)​ Culpa aquilliana: refers to a negligent act or omission which results happening of the event or the condition (Art. 1181)
in damage to another.
2)​ Culpa contractual: an act or omission which is negligent in Condition - an uncertain event or happening which wields an
character, causes breach of contractual obligation. influence on a legal relation
 OBLIGATIONS AND CONTRACTS

-​ different from conditions imposed on sales wherein the ●​ Effect of Deterioration

condition is on the obligation itself or after the 3)​ Without fault of who is bound to return: Impairment borne
consummation of the contract itself by creditor
4)​ With fault of who is bound to return: Rescission or
●​ Effect of Conditions to Obligations ​ fulfillment, with indemnity
●​ Effect of Improvement:
a.​ VOID: If the fulfillment of the condition depends upon the 5)​ Nature or time: inure to benefit of who will receive
sole will of the debtor. [Art. 1182] 6)​ Expense of who is bound to return: only right to use
b.​ ANNULLED: Impossible conditions or those contrary to law,
good customs and public policy. [Art. 1183] -​ Upon fulfillment: Shall return to each other what they have received.
c.​ PARTLY VALID: Impossible conditions which are divisible
[Art. 1183] Suspensive Condition refers to the acquisition of rights upon the
d.​ NOT AGREED UPON: Condition not to do an impossible happening of a future uncertain event [Art. 1181]
thing [Art. 1183]

Classification of Conditions Prior fulfillment of suspensive condition

Effect: Parties are not yet debtor and creditor of each other
1)​ Resolutory and Suspensive Rights: [Art. 1188]
​ ​ -​ By debtor: To recover payment prior happening of condition
Resolutory Condition is a type of condition wherein the happening of the -​ By creditor: May bring appropriate action for the
event extinguishes the rights conferred arising from the obligation [Art. preservation of his right.
1181] Effect on reciprocal obligations: fruits and interests shall be deemed
-​ demandable at once [Art. 1179] to have been mutually compensated [Art. 1187]
-​ condition subsequent Effect on reciprocal obligations: It is the debtor who shall be entitled
-​ Once fulfilled, parties are required to return what they have received to the fruit and interests received.
[Art. 1187]
Effects once suspensive condition has been fulfilled: On obligations to give,
Rules on Improvement, Loss, Deterioration of specific thing due prior shall retroact to the day the obligation has been established [Art. 1187] As if
fulfillment of Resolutory Conditions [Art. 1190] it were a pure obligation on the first day.

●​ Effect of Loss: -​ Doctrine of Constructive Fulfillment of Suspensive

1)​ Without Fault of who is bound to return: EXTINGUISHED Condition: it shall be deemed fulfilled if the obligor
2)​ With Fault of who is bound to retun: LIABLE FOR
voluntarily prevents its fulfillment (Art. 1186) It
DAMAGES
 OBLIGATIONS AND CONTRACTS

presupposes a mixed condition wherein the condition -​ void only as to suspensive facultative (the obligation arises
dependent upon chance or will of third person has when the condition dependent upon the will of the debtor
already been fulfilled, what remains is the condition happens, thereby making it illusory)
-​ XPN: Resolutory Potestative (Taylor v. Uy Tieng)
dependent upon will of debtor.
-​ Example: I will take back the car I gave you, once I resign
-​ Example: D undertakes to pay C 1M if she passes
from my job.
the 2024 bar exam. However D, causes C’s inability
to take the exam.
Casual Condition depends upon chance, hazard or will of a third person
(Art. 1182 par. 2)
-​ Mixed Condition: Passes the bar exam
-​ Example: I will build your house, once I get a multi million
Prevention of fulfillment: causes C’s inability to take
project.
Effect: As if she already took the bar exam and passed

Mixed Condition depends partly on the will of third persons and partly on
Rules on Improvement, Loss, Deterioration of specific thing due
chance (Art. 1182 par. 2)
during pendency Real Suspensive Conditions [Art. 1189]
-​ the court upheld its validity in numerous cases e.g.
Hermosa v. Longara
Lost: (1) Perishes (2) Goes out of commerce (3) Disappears and
-​ Doctrine of Fulfillment of Mixed Conditional Obligation: will
cannot be recovered
of debtor + will of third parties
-​ the debtor has complied and fulfilled his part to the
●​ Effect of Loss:
best of his ability, but the part outside of his control
1)​ Without Fault of debtor: EXTINGUISHED
or those depending upon 3rd party’s will, is
2)​ With Fault of debtor: LIABLE FOR DAMAGES
unfulfilled
●​ Effect of Deterioration
-​ effect: as if condition is satisfied
3)​ Without fault of debtor: Impairment borne by creditor
4)​ With fault of debtor: Rescission or fulfillment, with indemnity
3)​ Impossible and Possible
●​ Effect of Improvement:
​
5)​ Nature or time: inure to benefit of creditor
Impossible conditions are those contrary to good ​ ​
6)​ Expense of debtor: only right to use
​ customs, public policy, and those prohibited by law ​ ​
​ (Art. 1183)
-​ shall annul the obligation that depends
2)​ Potestative, Casual and Mixed Condition
upon them (Art. 1183) = VOID
-​ if divisible, the part which is not affected
Potestative Condition depends upon the will of the debtor which is void
shall be valid
(Art. 1182 par. 1)
 OBLIGATIONS AND CONTRACTS

-​ impossible condition on a negative 7)​ Express and Implied

personal obligation (not to do) is
considered as not agreed upon (Art. 1183) Reciprocal Obligations Implied Right to Rescind [Art. 1191]
-​ XPN: Pure/Simple and -​ Requires substantial breach and must be invoked judicially.
Remuneratory/Compensatory Obligations ​ ●​ Contractual Remedies in case of breach of one:
○​ Specific Performance: fulfillment
Possible conditions are those which are valid and allowed by law. ○​ Rescission
> With payment of damages.
4)​ Positive and Negative
●​ If both parties committed infraction: liability will depend on whether it
Positive Conditions are those which require the happening of an can be determined which of them first violated the contract. [Art.
event at a determinate time. (Art. 1184) 1192]
○​ Cannot be determined: obligation is extinguished. Each
-​ the obligation is extinguished upon the expiration of time or shall bear its own damage.
when it is indubitable that it will not happen (Art. 1184)
-​ Example: I will bestow upon you all my properties if I were
to have a child.
II.​ Obligations with a Period or Term

-​ Event condition: Have another child

-​ Extinguished when: Obligor dies, menopause or happens to -​ When the effects or consequences of an obligation are subjected to
be infertile an event or day certain to happen
-​ obligation to give: happening of event retroacts to the -​ Presupposes certainty as opposed to obligations with a condition
constitution of the obligation (Art. 1187) wherein uncertainty is an essential element.
-​ creditor may bring appropriate actions to preserve -​ obligation to pay when the debtor’s means permit him to do so is
rights before fulfillment of condition (Art. 1188) one with a period (Art. 1180)
-​ loss or deterioration where the conditions are -​ Possible sources of period: (1) Legal; such as those stipulated by
imposed to suspend efficacy (Art. 1189) ​ law like annual filing of taxes (2) Conventional; those agreed by
parties such as period stipulated in a lease contract (3) Judicial; by
Negative Conditions are those which require the non-happening of an virtue of an order of the court
event at a determinate time.
-​ obligation is effective upon lapse of time (Art. 1185) A.​ Resolutory Period/Term (in diem)
-​ Obligation is demandable at once (Art. 1179)
5)​ Divisible and Indivisible -​ The arrival of term or period extinguishes the obligation
6)​ Conjunctive and Alternative
 OBLIGATIONS AND CONTRACTS

-​ Termination of the obligation upon arrival of term does not Disputable presumption of benefit [Art. 1196]​
annul the fact of its existence (non-retroactive)
-​ Presumed to be done for the benefit of both parties unless tenor of
B.​ Suspensive Period/Term (ex die) the obligation appears otherwise
-​ Demandable and enforceable only when the period or term a)​ Benefit of the creditor: cannot be compelled to accept
arrives payment
-​ Effect of delivery or payment prior arrival of period: [Art. b)​ Benefit of the debtor: obligation is not due until arrival of
1195] Requires that the payment or delivery was made period
without knowledge of period or belief that it has become ​
due or demandable When is the court authorized to fix a period? [Art. 1197]​

a)​ Sum of Money: entitled to collect sum and interest (1)​ When from nature and circumstance of the obligation, it can be
prior maturity, if recovery is made after maturity only inferred that period was intended
the interest is demandable. (2)​ When period depends upon the will of the debtor ​

b)​ To give a generic thing: entitled to recover the thing -​ Courts shall fix a period in order to determine the demandability of
due and its fruits prior maturity, if recovery is the obligation and any action brought before the court for its
performed after maturity, only the fruits borne prior fulfillment would be premature. The only action that can be
maturity may be recovered. maintained is an action to fix a period.
-​ However, when the fixing of period is a mere formality and serves
c)​ To give a specific thing: entitled to recover the thing no other purpose than delay, the action may be treated as an action
and its fruits prior maturity, if recovery is made after to enforce the performance of obligation.
maturity neither may be recovered.
The debtor loses the benefit of the period [Art. 1198]
d)​ Fruits or interests may no longer be recovered: (1) ●​ Effect: the obligation becomes immediately due and demandable
reciprocal obligation and both sides paid in ●​ Benefit is lost when:
advance (2) only the interest is paid in a loan (3) (1)​ Supervening Insolvency
period is for the benefit of the creditor (2)​ Impairment of securities or guaranties due to his fault
(3)​ Loses securities of guaranties due to fortuitous event
-​ Effect of Loss, Deterioration or Improvement prior arrival of (4)​ Violates undertaking
term: same as those mentioned under Suspensive (5)​ Attempts to abscond
Condition or Art. 1189 [Art. 1194]
 OBLIGATIONS AND CONTRACTS

AUG. 19 (3RD MEETING)

III. Alternative and Facultative Obligations

CONTENTS & CONCEPTS —

Different Kinds of Obligations Art. 1199 to 1206
●​ (a) Simple requires the fulfillment of only one obligation for its
i. Art. 1199 to 1206 - Alternative Obligations extinguishment.

●​ TWO OR MORE PRESTATIONS. ●​ (b) Compound there are various prestations

●​ COMPLETE, not in part. ○​ Conjunctive various prestations wherein all are due and
●​ RIGHT OF CHOICE belongs to the debtor, unless stipulated demandable.
otherwise. ○​ Distributive two or more prestations are due but a
●​ EFFECT OF CHOICE begins by the time such was communicated. fulfillment or performance of one, extinguishes the
●​ LOSS OF RIGHT OF CHOICE, only one of the prestations is obligation.
practicable. ■​ ALTERNATIVE
●​ CREDITOR’S ACTS, hindering debtor’s choosing according to ■​ FACULTATIVE
terms, can prompt debtor to rescind.
●​ IMPOSSIBLE OR ALL THINGS LOST = right to indemnity for (a) Alternative: several prestations are due, but performance of one is
damages. sufficient. (1 for all)
●​ VALUE - last thing or service to disappear. ​
●​ CREDITOR’S CHOICE, obligation ceases to be alternative by the Example: Billy obliges himself to give Bella either 3 cars, 3 lots or 3M
time such was communicated. worth of diamonds, if Billy gives Bella any of the prestations, then the
●​ DEBTOR’S RESPONSIBILITY before communication of creditor’s obligation is fulfilled.
choice. (1) One thing & Fortuitous (2) One thing & Fault (3) All
things & Fault
●​ Alternative obligations require that one of the prestations must
ii. Art. 1207 to 1222 - Joint and Solidary Obligations be complied completely.
iii. Art. 1223 to 1225 - Divisible and Indivisible Obligations
iv. Art. 1226 to 1230 - Obligations with a Penal Clause ​ Example: Billy cannot compel Bella to receive 1 car, 1 lot and 1M
worth of diamonds, unless Bella accepts.

●​ EFFECTIVITY - by the time the choice has been communicated to

the other party. (Art. 1201)
​
 OBLIGATIONS AND CONTRACTS

-​ Cognition Theory: comes to knowledge of the other party.

choose which to perform
(PH)
or fulfill
-​ Mailbox Rule: upon posting of notice or dropped in a
postbox. (US) All Creditor Obligation is 1262
extinguished
RIGHT OF CHOICE
●​ GR: Belongs to the debtor All Fortuitous Obligation is
XPN: Expressly granted to the creditor. Event extinguished
(1)​ Only one is practicable
●​ Limitations to Debtor’s ROC, those prestations: All Debtor Indemnity for damages Art.
(1) which are impossible of the last thing 1204
(2) unlawful
(3) which could not have been the object of obligation EFFECT OF LOSS BEFORE ELECTION — Rights of Choice Creditor
(ROC)
Loss after election - the obligation ceases to be an alternative and becomes
a simple obligation.
PREST. CAUSE EFFECT LAW

●​ Without delay with fault: obligation converts to indemnification of

One or some Fortuitous Creditor chooses from 1205
damages
Event the remainder
●​ Without delay without fault: obligation is extinguished
One or some Debtor Creditor chooses from 1205
EFFECT OF LOSS BEFORE ELECTION — Rights of Choice Debtor the remainder, or price
(ROD) of which disappeared
Conditions or recourse for loss before election: Art. 1203 - 1205 with damages

One or some Creditor No legal consequence,

PREST. CAUSE EFFECT LAW
may still choose
One or some Fortuitous Creditor chooses from
All Creditor Obligation is 1262
Event the remainder
extinguished
One or some Debtor Creditor chooses from
All Fortuitous Obligation is 1205
the remainder
Event extinguished
One or some Creditor Debtor may rescind or 1203
 OBLIGATIONS AND CONTRACTS

●​ If an obligor intends to perform the substitute, he must communicate

All Debtor Indemnity according to Art.
such in order to be bound.
the value of object 1205
chosen by the creditor
Alternative v. Facultative
plus damages
1)​ PRESTATION
●​ Alternative: Several until election
EFFECT OF LOSS AFTER ELECTION ●​ Facultative: Only one
2)​ Right of Choice
(1)​ WHAT IS DUE IS LOST ●​ Alternative: Debtor, Creditor or Third Person
(a)​ Without fault and before delay: Obligation is extinguished ●​ Facultative: Debtor
(b)​ With fault: converted to indemnification of damages. 3)​ VALIDITY
(2)​ LOST NOT DUE: no effect ●​ Alternative: If one prestation is unlawful or impossible, the
obligation is still valid.
(b) Facultative: one prestation is due, that which the obligation refers, but ●​ Facultative: If prestation is unlawful or impossible, invalid.
the debtor may substitute another.
4)​ EFFECT OF LOSS PRIOR TO ELECTION/SUBSTITUTION
​ Example: Billy obliges himself to give Bella a Tiffany necklace or ●​ Alternative: If Right of Choice belongs to creditor, loss of
a Cartier bracelet. one of the prestations due to fault of debtor, may render the
latter liable.
●​ Facultative: No effect
●​ Before substitution: loss or deterioration of the substitute does not
render the obligor liable. 5)​ EFFECT OF LOSS AFTER ELECTION OR SUBSTITUTION
●​ Once substituted: loss was on account of delay, negligence, or WITHOUT DELAY
fraud, liability for damages subsists. ●​ BOTH: Extinguished

○​ XPN (1262): Loss on account of Fortuitous Event

■​ XPN to XPN: Obligation expressly stipulated for
assumption of liability for loss even due to
Fortuitous Events

​ Example: Loss of the Cartier before substitution is ok. Loss of the

Cartier after substitution due to delay liable.
 OBLIGATIONS AND CONTRACTS

○​ ₱10k collection, A entitled to ₱5k B to ₱2500 and C to

IV. Joint and Solidary Obligations
₱2500. X and Y are debtors.
■​ A can collect ₱2500 each from X and Y
Art. 1207 to 1222 - ■​ B and C, respectively, can collect ₱1250 each from
X and ₱1250 from Y.
Joint Obligations - where there is concurrence between several debtors
or several creditors or several creditors and debtors. ●​ Words that indicate joint liability:

-​ each of the creditors are bound to demand, and each of the ○​ Mancum, Mancumunada, Pro Rata, Proportionately, Pro
debtors are bound to comply. (Art. 1207) rate jointly, We promise to pay.
-​ In absence of stipulation or proof, presumption in cases where
there are several debtors and/or creditors, default is a joint Effects of a Joint Obligation: (1208)
obligation. (1208) -​ each are distinct from one another
-​ each creditor can only demand proportionate to his share. -​ joint creditor cannot represent others
-​ mancomunada simple or mancomunada proper -​ joint debtor cannot be compelled to answer for others
-​ insolvency of one does not affect others

●​ Presumption of equal shares. (1208) Joint or equal sharing in Joint Indivisible Obligation - refers to when there is plurality of subjects,
debt if there is no stipulation. but the prestation is incapable of partial performance.
-​ rights of creditors may only be prejudiced by collective acts (1209)
○​ Rule on computation of division: The amount to be collected -​ debtor does not become liable for insolvency or non-performance of
or paid shall be according or proportionate to his share co debtor but he cannot perform only his part because prestation is
(either equal or what is stipulated) incapable of partial performance.
-​ gives rise to indemnity for damages from the time anyone of the
○​ EQUAL: ₱3000 debt. A, B and C are debtors while E, F, debtors does not comply.
and G are creditors.
■​ EFG can collect ⅓ each. ABC shall pay ⅓ each. -​ As to debtors: debt can be enforced only by proceeding
■​ E: 1k each from A,B and C against all the debtors

○​ STIPULATION: ₱10k collection. A,B,C,D and E are -​ As to creditors: Since the joint creditors are each entitled
creditors while X and Y are debtors. only to his aliquot share, which share is distinct from the
■​ Creditors can collect ⅕ each or ₱2,000 others, the collective action of all the creditors is also
■​ A can collect 1k each from X and Y. necessary in order to enforce the credit.
 OBLIGATIONS AND CONTRACTS

​ Example: Billy, Bella and Ben jointly undertake to give Buboy a

house in Makati. Billy will be in charge of the financing, Bella with the -​ requires plurality of subjects
procurement of equipments and Ben with the building or construction. If Ben -​ words of solidarity are needed, as it is not presumed.
fails to comply his undertaking, Buboy may claim for indemnity for damages
against Billy, Bella and Ben. However, Billy and Bella who was ready to fulfill ●​ Words that indicate solidary liability:
their obligation shall only contribute to the indemnity of the corresponding
portion of their obligation. (??) ○​ Joint and severally, individually and collectively, solidarily

Effect of Breach: obligation is converted into one for the payment of ​ Example: A and B jointly and severally oblige themselves to finance
indemnity for damages from time anyone of the debtors fail or does not C’s law school tuition fee until she graduates.
comply.
Indivisibility - refers to the prestation or object (to give, to do or not to do).
-​ Debtors who may have been ready to fulfill shall not contribute to If prestation is incapable of partial performance, then it is indivisible.
the indemnity beyond the corresponding portion of the price of the
thing or of the value of the service in which the obligation consists. Example: Billy obliges himself to give Bella a car.
(Art. 1224)
Solidary liability expressly provided under the law

1)​ Two or more heirs, taking possession of the estate: liable for loss or
Solidary Obligations - each debtor is liable for the entire obligation.
destruction of thing devised or bequethed.
2)​ Partnership: loss or injury by any wrongful act or omission caused
-​ the entire obligation or due, can be demanded by any of the
by any of the partners
creditors against any of the debtors.
3)​ Principal with the agent: if allowed to act as though the latter had full
-​ the obligation stipulated or expressed to be so, the law requires
powers
solidarity, or when the nature obligation requires solidarity
4)​ Two or more persons appointed an agent
-​ it is not required that the word solidary is always indicated, it is
5)​ Two or more bailees in a commodatum for a thing loaned in the
sufficient that stipulation states: “each one of the debtors can be
same contract
compelled to pay totality” or “each one is obligated to pay entire
6)​ Two or more officious managers (Art. 2146)
value”
7)​ Two or more persons liable for a quasi delict
-​ solidarity still exists even of debtors are not bound in the same
8)​ Two or more payees in solutio indebiti, the responsibility is solidary
(1) manner (2) conditions (3) term [Art. 1211]
(Art. 2157)
9)​ Principals, accomplices and accessories each within respective
●​ Art. 10 - solidarity does not mean indivisibility and vice versa. class
Solidarity - refers to the legal tie that binds the parties (source of obligation)
 OBLIGATIONS AND CONTRACTS

Conditions or Terms binding one of the Solidary Debtors [Art. 1211]​ Effect of demand by a solidary creditor
-​ GR: Debtor may pay any one or the solidary creditors (Art. 1214)
-​ obligation free of condition/term may be compelled to be performed -​ XPN: If any demand, judicial or extrajudicial, has been made by one
by any of the co-debtors of the solidary creditors, payment should be made to him
-​ part of obligation with condition or term may be compelled to be ●​ Solidary creditor who collects is liable to his co-creditors for
performed against any of the debtors upon arrival or happening of their share
the condition or term

b.​ Passive Solidarity: DEBTORS

Kinds of Solidary Obligation
-​ there is a tie or vinculum among the debtors (Mutual
Guaranty)
a.​ Active Solidarity: CREDITORS -​ there is a right to claim after the co-debtors, only the share
-​ every creditor is an agent of each other. (Mutual Agency) > XPN: corresponding to each (Art. 1217) > XPN: obligation is
Acts prejudicial to others (Art. 1212) prescribed or has been illegal (Art. 1218)
-​ each one may do whatever may be useful to the others (art. 1212)
-​ may extinguish obligation by: novation, compensation, c.​ Mixed Solidarity: DEBTORS AND CREDITORS
confusion, remission or other modes of extinguishment (Art.
1215) Extinguishment of Solidary Obligation
-​ but the creditor who executed such prejudicial act is liable to his co
creditors for the share corresponding to them(Art. 1217) -​ payment or performance by any of the solidary debtors (Art. 1217)
-​ to any of the creditors except when demand is made, then payment
must be made to the demanding creditor in order to be valid.

Effect of Insolvency of one of the Solidary Debtors

-​ Share of the insolvent debtor shall be borne by all his co-debtors in

proportion to debt of each (Art. 1217)

●​ Novation (extinctive or modificatory)

Assignment of rights
-​ Old obligation is terminated by creation of a new obligation
-​ In favor of a stranger: cannot assign without consent (Art. 1213) -​ Obligation subsists to the extent it remains compatible with
-​ In favor of a co-creditor: consent is not necessary amendatory agreement
 OBLIGATIONS AND CONTRACTS

●​ Compensation and merger

​ To all by one: remission of the whole obligation obtained by one
-​ consists of two persons who are mutually indebted to each does not entitle him to reimbursement
other
-​ if debt is of the same amount, obligation is extinguished
Inciong v. CA: Dismissal of the case against one may not be deemed as
-​ Partial there is doubt as to what part of payment it must be
having discharged all from liability as well.
applied.

●​ Remission or Condonation (Art. 1219) Remedies: Creditors may proceed against one, or some, or all of the
-​ no price or equivalent is received but the obligation is renounced. solidary debtors.
○​ remission by the creditor to one, does not release his
responsibility towards his co-debtors Difference of Solidary Debtor to Fiador in Solidum (Surety)
○​ total remission has the effect of extinguishing the -​ Solidary Debtor who effected the payment may collect or claim
obligation from his co-debtors only according to their proportional share, while
in surety, the guarantor may seek for reimbursement of the full
a.​ REMISSION BY CREDITORS amount. (Art. 2066)
​
Remission by one: becomes liable to his co-debtors for their shares LOSS OR IMPOSSIBILITY OF PRESTATION (Art. 1221)
(Art. 1215)
1)​ Without fault of the solidary debtors:
Remission by several: no action between those ​ who made it, but -​ obligation is extinguished
all of them will be liable for shares of those who did not remit
2)​ With fault on the part of any one of them:
b.​ REMISSION TO DEBTORS -​ all shall be responsible for price, damages and interest
​
​ To one: does not release the debtor from his responsibility towards 3)​ Through fortuitous event after delay:
co-debtors (Art. 1219) -​ all shall be responsible for price, damages and interest

●​ Full: he ceases to have any relation with the creditors, from whom
he is released DEFENSES AVAILABLE TO SOLIDARY DEBTORS

●​ Partial: his character as solidary debtor continues and the balance 1)​ Those derived from the nature of the obligation. Defenses which
of the debt can still be collected from him by any one of the tend to weaken or destroy the legal tie or vinculum juris. These
creditors
 OBLIGATIONS AND CONTRACTS

defenses constitute a total defense which can be availed by any

against the entire obligation.
V. Divisible and Indivisible Obligation

●​ Ex: Non- existence of the obligation because of lack of an

essential requisite or because of an illicit cause or object Art. 1223 to 1225
●​ Nullity due to incapacity to give consent on the part of all of
the debtors or due to vitiation of consent of all debtors by INDIVISIBLE OBLIGATION - is that which does not admit division, or
reason of mistake, violence, intimidation, undue influence of even though it does, neither nature of contract or intention permits it to be
fraud. fulfilled by parts.
●​ Unenforceability because of failure to comply with the
Statute of Frauds ●​ Art. 1225 - (1) obligations to give definite things, (2) those which
●​ Extinguishment of obligation such as by payment or are not susceptible to partial performance, (3) physically
remission divisible but law and (4) intention of the parties provide
●​ Non-performance of suspensive conditions otherwise.
●​ Those which may invalidate the original contract from which
the right or the action of the creditor against the debtor (1)​ Absolute Indivisibility
arises (2)​ Relative Indivisibility
(3)​ Legal Indivisibility
2)​ Those which are personal to the debtor or to his share. These (4)​ Contractual Indivisibility
defenses include capacity, consent and also those particularly
referring to his portion of obligation such as condition or term.

●​ Ex: affecting capacity or consent (minority, insanity, DIVISIBLE OBLIGATION - is an obligation wherein its obligation is a
mistake, violence, intimidation, undue influence or fraud) thing or an act which is susceptible to division. The basis is whether or
●​ Particularly referring to his portion of the obligation such as not it can be partially fulfilled.
special terms or conditions referring to his share alone
●​ Art. 1125 - obligation has for its object the execution of number of
3)​ Those which belong to his co-debtors. Defenses available to days of work, accomplishment of work by metrical units or
co-debtors whether total or partial. (Art. 1222) analogous things susceptible of partial performance

●​ defenses mentioned above personal to another, may also

be invoked in the event the latter is sued
> Classification of obligations into divisible and indivisible does not apply
●​ only as regards to that part the obligation for which the
when there is only one debtor and one creditor.
defense belongs
 OBLIGATIONS AND CONTRACTS

Exceptions: In indemnity for damages, in addition to and apart from

Kinds of Division
the penalty stipulated, may be recovered:

a)​ Qualitative - when things separated do not form a homogenous

1. When there is express stipulation to that effect;
whole (ex: inheritance)
2. When the obligor having failed to comply with the principal obligation
also refuses to pay the penalty, in which case the creditor is entitled to
b)​ Quantitative - when a homogenous whole is divided by parts or by
interest in the amount of the penalty, in accordance with Article 2209 of
fixing limits (ex of parts: movables, ex of limits: immovables)
the NCC; or
3. When the obligor is guilty of fraud in the fulfillment of the obligation.
c)​ Ideal - the thing is not materially divided but an ideal or fractional
portion is given to each person as in co-ownership
PENALTY AS SUBSTITUTE TO PRINCIPAL OBLIGATION

General Rule: The debtor cannot exempt himself from the performance
VI. Obligations with a Penal Clause of the obligation by paying the penalty. (Art. 1227)
Exception: Where this right has been expressly reserved for the debtor.

Art. 1226 to 1230

General Rule: The creditor cannot demand the fulfillment of the obligation
​ Concept: It is one with an accessory undertaking by virtue of
and the satisfaction of the penalty at the same time.
which the obligor assumes a greater liability in case of breach of the
Exception: When the right has been clearly granted to the creditor.
obligation.

​ If principal obligation becomes impossible: If after the creditor has

​ Penal Clause: An accessory obligation which the parties attach
decided to require the fulfillment of the obligation, the performance thereof
to a principal obligation for the purpose of insuring the performance
should become impossible without his fault, the penalty may be enforced.
thereof by imposing on the debtor a special prestation in case of
obligation is not fulfilled or is irregularly or inadequately fulfilled.
No need for proof of actual damages: The creditor is not necessary in order
that the penalty may be demanded. (Art. 1228)

PENALTY AS SUBSTITUTE FOR DAMAGES AND INTEREST When penalty may be reduced by the court:
• When the principal obligation has been partly or irregularly complied with
by the debtor; or
General Rule: The penalty takes place of the indemnity for damages and
• When even if there has been no performance, if the penalty is iniquitous or
the payment of interest. (Art. 1226)
unconscionable. [Art. 1229]
 OBLIGATIONS AND CONTRACTS

EXTINGUISHMENT OF OBLIGATIONS RULES FOR VALID PAYMENT UNDER CIVIL CODE

Obligations are extinguished (Art. 1231)

Integrity

1)​ Payment or Performance

Art. 1233 to 1235
2)​ Loss of the thing due
3)​ Condonation or Remission of the debt
-​ requires that the obligation has been completely delivered or
4)​ Confusion or Merger of rights of debtor and creditor
rendered [Art. 1233]
5)​ Compensation
6)​ Novation
●​ XPN:
○​ Substantial performance or when the obligation
Other causes: annulment, rescission, fulfillment of a resolutory condition,
has been substantially complied in good faith [Art.
and prescription.
1234]
○​ Waiver of defect or when the creditor accepts the
Other modes not specified under Art. 1231: death, compromise,
performance knowing its incompleteness and
resolutory period, mutual dissent, withdrawal in certain classes of
impairment and without protest or objection [Art.
contracts by will of one of the parties such as agency, change of civil
1235]
status and happening of an unforeseen event.

-​ the creditor cannot be compelled to accept partial payment, neither

can the debtor be compelled to render such

I.​ PAYMENT OR PERFORMANCE

●​ XPN: (1) Stipulation; (2) Obligation is partly liquidated and
unliquidated; (3) Different terms or conditions to different
-​ consists in either the delivery of a sum of money or performance
prestations
of pecuniary obligations
-​ payment is performance
●​ Substantial performance: when all the material elements of the
obligation has been complied or performed in good faith, except for
​ Burden of proof: Debtor has the burden of proving payment rather mere techinical elements which cause no harm
than the creditor of non-payment. After proof has been introduced, the -​ the creditor is not precluded from recovering damages
burden of going forward with the evidence shifts to the creditor corresponding to the value of the unfulfilled portion
 OBLIGATIONS AND CONTRACTS

Who may make payment

●​ Incapacitated person making payment: payment is not valid. It must
be made by a person having free disposal and capacity to alienate
Art. 1236 to 1239 the thing due.

Who may compel creditor to accept payment or performance

Whom payment should be made

1)​ The debtor, his heirs and assignees

2)​ Those authorized by stipulation Art. 1240 to 1243
3)​ Third person interested in the fulfillment
●​ XPN: (Intuitu personae) Qualification and circumstances of Payment should be made to: [Art. 1240]
the debtor have been taken into account in establishing the
obligation (1)​ Original creditor or the person whose favor the obligation has
●​ Interest in fulfillment: is present when the non-fulfillment of been constituted
debtor’s obligation will make him or his property liable. (2)​ Successors in interest
(3)​ Authorized person (by law or by creditors)
●​ Third person without interest: cannot compel the creditor to accept
payment or performance [Art. 1236] ●​ General Rule: If payment is made to the wrong person, the
○​ XPN: Express stipulation to the contrary obligation is not extinguished. [Art. 1241]
■​ If accepted by the creditor, without the consent of
the debtor: Right to reimbursement. The ○​ XPNs:
payment/performance is valid to the extent of what (1) Payment to third person redounds to the benefit of the
has been beneficial to the debtor [Art. 1236] creditor
■​ If accepted by creditor, with knowledge and consent -​ the debtor has the burden to prove that there was
by debtor: Right to reimbursement and subrogation indeed a benefit. [Art. 1241]
to the rights of the creditor [Art. 1237 and 1302 (2)] ■​ Benefit is presumed when:
1) Creditor’s rights were acquired by third person
●​ Third person with interest: has right to compel creditor’s acceptance after payment
of his payment or performance. 2) Creditor ratifies payment
○​ Effect: He is also subrogated to the rights of the creditor 3) Creditor’s conduct has led to believe that third
[Art. 1303] person was authorized

●​ Third person without intention to be reimbursed: the law requires (2) Payment to possessor of credit in good faith
the debtor’s consent as it is deemed to be a donation.
 OBLIGATIONS AND CONTRACTS

-​ if the debtor is making payment without knowledge

compelled to receive a different
that the instrument of credit was in possession due
one
to it being stolen or any other cause which does not
give him the character of legitimate creditor or Indeterminate Obli Delivery of a In accordance with quality and
representative thing of same circumstances agreed. If
genus there’s no agreement, not
​ ​ (3) Payment to assignor of credit in good faith superior nor inferior quality
-​ when by virtue of assignment, or the owner of credit
(assignor), through legal cause such as sale, dation Personal Obli Act agreed upon Not against creditor’s will
in payment, or exchange or donation, transfer’s that
credit and its accessory rights to another.
Rules on Payment of Debts in Money [Art. 1249]

Payment of debtor after judicially ordered to retain the debt: is not valid.
1)​ Shall be made in currency stipulated
-​ The reckoning of ”after” shall be the time of receipt of the notice of
2)​ In the absence of stipulation or if it is not possible, then it must be in
judicial order
the currency which is legal tender in the Philippines
a)​ Philippine Peso
Identity of the prestation b)​ Coins: If centavos ₱200, If peso then ₱2000
3)​ Payment through notes, bills and other mercantile documents:
effect of payment when encashed or impaired through the fault of
Art. 1244 to 1246, 1249 to 1250
the creditor

The very thing due must be delivered or released.

Extraordinary Inflation or Deflation: refers to a decrease or increase in the
purchasing power of the Philippine currency that is highly unusual which
-​ the creditor of what is due cannot be compelled to receive a
could not have been reasonably foreseen or was manifestly beyond the
different one, although the latter be of the same value or a superior
contemplation of the parties.
one [Art. 1244 (1)]
-​ obligations to do cannot be substituted by an act or forbearance
●​ Requisites [Equitable PCI Bank v. Ng Sheung Ngor]
against the creditor’s will

1)​ Official declaration of extraordinary inflation or deflation by

Prestation What must be Rules/Condition the BSP
paid/performed 2)​ Obligation was contractual
3)​ The parties expressly agreed to consider the effects of
Determinate Obli Specific thing The creditor cannot be
extraordinary inflation or deflation
 OBLIGATIONS AND CONTRACTS

●​ Effect: the payment of an obligation shall be based on the value of SPECIAL MODES OF PAYMENT
the currency at the time of establishment of obligation 1)​ Dation en Pago: the alienation or transfer of ownership of property
-​ XPN: if there is a stipulation to the contrary, then the basis to the creditor in satisfaction of a debt in money. [Art. 1245]
would be the currency at the time of payment -​ governed by law on sales
-​ property referred to also includes real right
●​ Requisites: [Rockville Excel International Exim Corp v.
Application of expenses
Culla]
(1)​ Existence of a money obligation
Art. 1247 (2)​ Alienation to the creditor of a property
(3)​ Satisfaction of the money obligation
A.​ Extrajudicial Expenses: consist of expenses arising from normal
fulfillment of obligation. 2)​ Payment by Cession: the debtor transfers possession or assigns
his property to his creditors to sell, in order that the proceeds from
●​ Who shall bear? sale be applied to the satisfaction of their credits. [Art. 1255]
-​ According to who is stipulated -​ agreements made on the effect of the cession shall be
-​ In absence of stipulation governed by special laws

B.​ Judicial Expenses: consist of expenses arising from judicial

Point of Difference Dacion en Pago Payment by Cession
proceedings and is governed by the Rules of Court.
As to operation transfer of ownership transfer of possession
Proper place of payment
As to multiplicity of X ✔️
creditors
Art. 1251
As to number of specific thing or totality of property
General Rule: Payment shall be made in the place designated in the property property
obligation.
As to solvency of immaterial requires
●​ When there is no stipulation debtor
○​ In determinate obligation: wherever the thing might be at
the moment As to extent may totally extinguish only in accordance with
○​ In other cases (indeterminate or personal obli): domicile of the obligation the net proceeds, unless
the debtor stipulated
 OBLIGATIONS AND CONTRACTS

3)​ Application of Payments: payment made by a debtor who has

various debts of the same kind to one and same creditor may 4)​ Tender of Payment and Consignation: creditor refuses to accept
declare to which debt it must be applied. [Art. 1252] debtor’s tender of payment without just cause, debtor is released
●​ XPN: Debtor accepts a receipt of application of payment from responsibility upon consignation [Art. 1255]
from the creditor [Art. 1252]
●​ When parties did not apply: Apply to the debt which is most -​ Operation: creditor refuses tender of payment without just
onerous to the debtor among those due [Art. 1254] cause, and debtor submits consignation to the court
○​ If same nature and burden, to all of them -​ Effect: debtor is release from responsibility
proportionately
A.​ Tender of Payment - constitutes an act evidencing willingness and
●​ Requisites for this special form of payment to apply: readiness to pay accompanied by actual payment or delivery
1)​ There be several debts ​
2)​ Debts are owed by one debtor to one creditor ​ Requisites of a valid tender of payment
3)​ Same kind of debts
4)​ All debts are due 1)​ must be for entire prestation
> XPN: (a) the parties stipulated (b) there is a term, 2)​ must be made by the debtor or his representatives or any
and the application of payment was made by the third person interested in the fulfillment
party benefited by the term [Art. 1252] 3)​ must be made to the creditor or his successors in interest or
5)​ Payment is not sufficient to cover all debts authorized representative or third person allowed under art.
1241
●​ Limitation to debtor’s right to apply payment [according to 4)​ must be of the very thing due, if in money must be of legal
jurisprudence] tender unless accepted
1)​ Application will violate the agreement 5)​ must be due at the time of tender of payment
2)​ Application will violate the prohibition against partial 6)​ must be made at the proper place
payments under Art. 1248 7)​ must be unconditional
3)​ Application will violate the rule on application of
payments to debts with stipulated interest under B. Consignation - act of depositing the thing due with the court due to
Art. 1253 the creditor's unjust refusal of payment.
​
●​ Application of payment to debts with interest [Art. 1253] Effect of valid Tender of Payment without Consignation: does not
-​ payments shall first be applied to interests before the produce legal payment in the context of extinguishing an obligation
principal -​ debtor is exempt from compensatory interest only
-​ monetary interest and interest for default
 OBLIGATIONS AND CONTRACTS

> Effect of invalid Tender of Payment without consignation:

II. LOSS OF THE THING DUE
monetary interest & compensatory interest [Llamas v. Abaya]

1)​ Loss in Obligations to give

●​ When tender of payment can be dispensed with (only consignation
2)​ Loss in Obligation to do or not to do
is needed) [Art. 1256]

1)​ Creditor is absent, unknown or does not appear at the place LOSS IN OBLIGATIONS TO GIVE A DETERMINATE THING
of payment
2)​ Creditor is incapacitated when it is due 1)​ Loss of the determinate thing due without fault of the debtor and
3)​ Creditor refuses to give receipt without just cause before delay [Art. 1262]
4)​ 2 or more claim the same right to collect ●​ Effect: Obligation is extinguished
○​ Debtor is still liable when:
Requisites of a valid consignation ○​ (1) Law dictates
○​ (2) express stipulation
1)​ There was a debt due ○​ (3) nature of obligation requires
2)​ Valid cause of consignation (there was unjust refusal or those ●​ If caused by a third person, the creditor has the right of
mentioned under Art. 1256) action to claim indemnity for the extinguished obligation.
3)​ Prior notice of consignation [Art. 1269]
4)​ Thing due is placed at the disposal of the court
5)​ Post notice 2)​ Loss of the determinate thing due by causes attributable to debtor
or after delay
Effect of Valid Consignation ●​ Effect: [Art. 1189 (2)] Debtor is liable for damages

1)​ The debtor may ask the judge to order cancellation of obligation 3)​ Loss of determinate things arising from crime, due to fortuitous
[Art. 1260] events (such as moral damages arising from delict) [Art. 1268]
2)​ Creditor should authorize the debtor to withdraw the same, thereby ●​ Effect: Does not extinguish the obligation
losing every preference he may have over the thing [Art. 1261] ○​ XPN: Offer by the debtor was unjustly refused by
person who should receive it
Expenses of consignation: charged against the creditor. [Art. 1259]
Effect of Partial Loss: if important, courts may declare the extinguishment of
obligation. [Art. 1264]

Presumption of loss caused by debtor: When the thing in possession of the

debtor is lost, it shall be presumed to be his fault [Art. 1265]
 OBLIGATIONS AND CONTRACTS

​ > XPN: (1) Proof to the contrary (2) Earthquake, flood, storm, or
III. CONDONATION OR REMISSION OF DEBT
other natural calamity
-​ is an act of liberality by the creditor who receives no price or
equivalent, and releases the debtor from the obligation in whole
LOSS IN OBLIGATIONS TO GIVE AN INDETERMINATE THING
or in part
-​ essentially gratuitous and requires consent by the debtor
-​ there is no extinguishment arising from loss of obligation to give an
impliedly or expressly [Art. 1270]
indeterminate or generic thing
-​ genus nunquan perit: generic can never perish
●​ XPN: Limited Generic Requisites:
(1)​ Parties must have capacity
LOSS IN OBLIGATIONS TO DO (a)​ Inter Vivos: effective during creditor’s lifetime
-​ creditor: make donation, debtor: accept donation
1)​ Impossibility of Performance [Art. 1266]
-​ Concept: Prestation become legally or physically impossible to do (b)​ Mortis Causa: effective after creditor’s death
without the fault of debtor -​ creditor: make will, debtor: inherit
-​ Effect: Obligation is extinguished (2)​ Must be gratuitous
(3)​ Must be accepted by debtor
a.​ Legal Impossibility: when a subsequent law prohibits the act (4)​ Must not amount to inofficious donation or legacy
or omission (5)​ Must comply with forms of donation (IV) or formalities of a will (MC)
b.​ Physical Impossibility: when the act by reason for its nature
cannot be accomplished Operation: The delivery of a private document evidencing credit made
​ ​ > Example: Obligation to install a motor in a ship that is ​ voluntarily by the creditor, implies renunciation [Art. 1271]
​ lost after perfection of contract -​ Possession gives rise to presumption that the document was
delivered by the creditor voluntarily. [Art. 1272]
2)​ Doctrine of Unforeseen Events [Art. 1267]
​ > Nullity: Claim or declaration as inofficious donation or proving that
-​ Concept: service has become so difficult as to be manifestly beyond delivery was made in virtue of payment [Art. 1271]
contemplation of the parties
-​ Requisites: (1) Event or change in circumstances could not have Principal and Accessory Obligations
been foreseen
-​ (2) the performance becomes extremely difficult but not impossible ●​ Renunciation of principal includes extinguishment of accessory
-​ (3) not due to any act by the parties obligations (whole or total), while renunciation of accessory
-​ (4) contract is for a future prestation obligations does not produce the same effect (partial) [Art. 1273]
 OBLIGATIONS AND CONTRACTS

●​ Accessory obligation is presumed to be remitted when the principal

V. COMPENSATION
is found in the possession of the debtor or third person who owns
-​Takes place when two or more persons are creditors and debtors
the thing [Art. 1274]
of each other [Art. 1278]
-​ It is a mode of extinguishing to the concurrent amount the
obligations of persons who are reciprocally debtors and creditors
IV. CONFUSION OR MERGER OF RIGHTS of each other.
Kinds of Compensation
-​ refers to the merging of characters of debtor and creditor in the a.​ As to cause: Legal, Voluntary or Conventional, Judicial and
same person. Facultative
-​ one person is both the creditor and debtor b.​ As to effect: Total or Partial

Effect: As to effect:
a)​ Merger in principal debtor or creditor: extinguishment of obligation
also as to the guarantors [Art. 1276] I.​ Total Compensation [Art. 1281]
b)​ Merger in guarantor and principal creditor: does not extinguish the -​ When debts are of the same amount
obligation [Art. 1276] -​ The obligation is totally extinguished

Effect in Joint Obligation: does not extinguish obligation except as to the II.​ Partial Compensation [Art. 1281]
share of concurring debtor or creditor. [Art. 1277] -​ When debts are of different amounts
-​ Balance remains

As to cause:

I.​ Legal Compensation [Art. 1279]

-​ When all the requisites are present, the obligation is extinguished
by operation of law, even without the knowledge of both the debtor
and creditor [Art. 1290]​

●​ Requisites: [Art. 1279]

1)​ Parties are principally and mutually creditors and debtors of
each other ​
 OBLIGATIONS AND CONTRACTS

2)​ Both debts consist in a sum of money or consumable of the c.​ Claims for support due by gratuitous title
same kind or quality d.​ Debts consisting in civil liability arising from a penal offense.
> Note: Same kind and quality limits compensation to
generic things only, and does not apply to debts involving II. Voluntary or Conventional Compensation
determinate or specific things.​ -​ Operates by agreement of the parties regardless of absence of
some requisites under Art. 1279
3)​ Both debts are due
-​ Allows compensation as to debts that are not yet due provided that
-​ Material element: Maturity date. If on demand,
the parties agree [Art. 1282]
presence of demand is required.
-​ Suspensive condition or term cannot be III. Judicial Compensation
compensated prior fulfillment or arrival of such. ​ -​ Takes place by virtue of order of the court where the counterclaim of
​ defendant is allowed to be set-off against the claim of the plaintiff
> Note: Compensation may still take place on debts that
-​ Claim for damages by one of the parties may be set off by proving
are not due if the parties so agree, this in turn is defined
existence and amount thereof [Art. 1283]
as a voluntary or conventional compensation under [Art.
1282]​
> Exception: Civil damages arising from penal offenses [Art.
1288]
4)​ Both debts are liquidated and demandable
a)​ Liquidated: determined existence and amount IV. Facultative Compensation
> Note: Art. 1283 presupposes that there can be -​ The compensation is claimed by the prejudiced party as those
compensation of unliquidated amounts where one of the provided under Art. 1287 and Art. 1288
parties has a claim for damages by proving its existence -​ Debts arising from contracts in depositum
and amount. -​ Debts arising from contracts of commodatum
b)​ Demandable: valid and enforceable -​ Claims for support due to gratuitous title
> Note: Art. 1284 allows compensation as to rescissible -​ Debts consisting in civil liability arising from penal offenses
or voidable debts, provided that compensation is
done prior to rescission or debt being avoided.
Effect of Assignment by creditor to third person as to Compensation ​

5)​ There is no retention nor controversy over both parties

1.​ Assignment After Compensation​
commenced and communicated by a third person in due time

> Effect: the debtor’s obligation is extinguished by virtue of valid

-​ When Legal Compensation may not take place, as stipulated under
compensation ​
Art. 1287 and Art. 1288:
> Exception: debtor has consented and failed to reserve his right to
●​ Exception: Creditor sets up the compensation
compensation
a.​ Debts arising from contracts in depositum
b.​ Debts arising from contracts of commodatum
 OBLIGATIONS AND CONTRACTS

2.​ Assignment Prior Compensation [Art. 1285]​

VI. NOVATION ​
​
A. With consent by the debtor -​ Is a mode of extinguishing obligation by substitution or change
> Effect: Debtor cannot set up compensation against of an existing valid obligation by a subsequent valid one.
-​ Modifies obligations by: (1) changing the object, cause or
assignee
conditions, (2) substituting the person of the debtor; or (3)
​ > XPN: Debtor reserved his right to compensation subrogating the rights of the creditor.

B. Without consent by the debtor Kinds of Novation

​ > Effect: Debtor may set up compensation to debts previous ●​ Total, Partial, Express, Implied, Real or Objective, Personal or
to the cession to the assignor, not to subsequent one. Subjective and Mixed.
​
> Debts due
a)​ If previous to cession: Assignor Requisites of Novation
b)​ If subsequent to cession: Assignee (1)​ There must be previous valid obligation
(2)​ There must be an agreement concerned to a new contract
C. Without knowledge of the debtor (3)​ There must be extinguishment of the old contract
​ > Effect: Debtor may set up compensation against the assignee all (4)​ There must be a new valid contract
credits he have against assignor provided they are due and demandable
prior notice As to Extent

Several debts susceptible to compensation: application of payments I.​ Total Novation: old obligation is terminated by the creation of new
shall apply to order of compensation [Art. 1252 and 1254]​ one.
II.​ Partial Novation: old obligation subsist to the extent that it is
1)​ Debtor may declare compatible with the new one.
2)​ Creditor submits proposal through receipt requires debtor’s express
or implied consent As to Form or Constitution ​
3)​ To most onerous debt
I.​ Express: for an old obligation to be extinguished through novation,
it requires that it be so declared in unequivocal terms [Art. 1292]
II.​ Implied: when the old or new are incompatible with each other. [Art.
1292]
●​ Test of Incompatibility: whether two obligations can stand
together [Jurisprudence]
 OBLIGATIONS AND CONTRACTS

●​ Incompatible elements: (1) juridical tie (2) object, cause, (b) Subrogation of Creditor [Art. 1300 to 1304] is the change in the
conditions (3) subjects person of the creditor

As to Essence ●​ Kinds of Subrogation

1)​ Conventional Subrogation: requires agreement of the
I.​ Real or Objective Novation: changing object, cause or conditions parties (creditor, debtor and new creditor) [Art. 1301]
of obligations 2)​ Legal Subrogation: is not presumed unless [Art. 1300]
-​ If obligation is conditional (suspensive or a)​ Creditor pays a preferred creditor
resolutory), new obligation is subject to the same b)​ Third person not interested pays with consent of the
conditions unless otherwise stipulated [Art. 1299] debtor
c)​ Third person interested pays even without consent
II.​ Personal Novation: consists in either (a) substitution of debtor, or of the debtor
(2) subrogation of creditor
●​ Subrogation as to extent
(a)​ Substitution of Debtor [Art. 1293 to 1295] is the substitution of a new 1)​ Total Subrogation: all rights against debtors or third
debtor in the place of the original. persons are transferred [Art. 1303]
-​ Operates: Even without knowledge or against the will of the 2)​ Partial Subrogation: there is only partial payment.
debtor, but requires consent of the creditor [Art. 1293] [Art. 1304]
●​ Effect: Creditor may exercise his right for
●​ Modes of substitution the remainder and shall be preferred in
1)​ Expromision: wherein a third person initiates for the case of insolvency of debtor. [Art. 1304]
assumption of the obligation even without the knowledge of ●​ The debtor will have two creditors.
the debtor
2)​ Delegacion: the debtor proposes for the third person’s III.​ Mixed Novation: combination of real/objective novation and
assumption of the obligation, and the latter consents. personal/subjective novation.

●​ Insolvent new debtor Effects of Novation

1)​ If substitution is without knowledge of the debtor: DEBTOR
IS NOT LIABLE. As to Principal and Accessory Obligations:
2)​ If the insolvency is known to the debtor or public knowledge Rule: If principal obligation is extinguished, the accessory obligation is also
or already existing by the time of substitution: DEBTOR IS extinguished.
LIABLE. ​ > XPN [Art. 1296]:
(1)​ Accessory obligation is for the benefit of a third person, and he did
not consent.
 OBLIGATIONS AND CONTRACTS

(2)​ Guarantors and sureties agree to be bound to the new obligation.

CONTRACTS
As to Void/Voidable
1.​ If the new obligation is void [Art. 1297]: original one subsists unless
Contract - meeting of minds between two persons whereby one
the parties intended it to be extinguished.
binds himself with respect to the other to give something or to render some
2.​ If the old obligation is void [Art. 1298]: novation is void unless
service. [Art. 1305]
annulment may be claimed by the debtor or voidable acts were
ratified.
STAGES OF CONTRACTS

1.​ Negotiation - begins when the contracting parties manifest their

interest. Consists of: a) offer and b) acceptance
CASES CONCEPTS
2.​ Perfection - when there is concurrence of offer and acceptance of
Espina v. CA Application of Payments: Art. 1254, unless the object and cause. Offer must be certain and acceptance must
there is stipulation by parties, payments be absolute.
should be applied to the most onerous. 3.​ Consummation - refers to the fulfillment of the terms and obligations
Rental arrears more onerous than payment and agreed upon.
of property in installment. ​
Novation: Novation is not presumed, it must
Characteristics of Contracts
be clearly stipulated or implied when old and
new obligation are irreconcilable or
incompatible.
1.​ Obligatory force of contracts: Contracts have the force of law
Bognot v. RRI Lending Payment ​ and should be complied in good faith. [Art. 1159]
Novation
General Rule: Contracts are perfected upon consent and which binds
parties to the fulfillment and to performance in good faith [Art. 1315]

Exception:
(1)​ Real contracts which require delivery for perfection
(2)​ Contracts of Option which are preparatory contracts and are still
valid and enforceable
 OBLIGATIONS AND CONTRACTS

Perfected Contracts: when there is concurrence as to the offer and ○​ Non-impairment protection is only applicable to
acceptance between the parties. laws that derogate prior acts (retroactive)

2.​ Autonomy of Contracts (Art. 1306)

3.​ Mutuality of Contracts [Art. 1308]
-​ Refers to the liberality and freedom of parties to establish such
stipulations, clauses, terms and conditions provided they are not General Rule: Contracts must bind both and not one of the contracting
contrary to law, morals, good customs, public order or public parties, validity or compliance cannot be left to one of them. ​
policy ​
Exception:
-​ Example: 5% interest rate per month which would
amount to 60% pa it is considered as void for being (1)​ If there is a finding of essential equality of parties to the contract,
contrary to morals it is still valid.
-​ Example: Contract of Adhesion wherein one party
-​ As a constitutionally protected right: imposes a ready made form of contract which the other
party may either accept or reject but not modify. It is only
●​ Due Process Clause [Art. 3, Sec. 1] A person’s right to void when the other party is completely deprived of
freedom to contract cannot be deprived without due opportunity to bargain on equal footing. ​
process of law.
○​ Also allows deprivation of liberty to contract (2)​ Determination may be left to a third person as long as it has been
when general welfare requires by virtue of police made known to both contracting parties [Art. 1310]
power. -​ It shall not be obligatory provided it is not inequitable.
[Art. 1311]
●​ Non-Impairment Clause [Art. 3, Sec. 10] To safeguard ​
the integrity of contracts against unwarranted Effect: An escalation clause which grants the creditor unbridled right to
interference of the State. adjust interest independently completely depriving the debtor of the right
○​ Contracts must not be impaired by subsequent to assent is void. [196 SCRA 536]
laws that would change or modify the rights of
the parties.
○​ Impairment must be substantial: law which
diminishes the efficacy of the contract.
 OBLIGATIONS AND CONTRACTS

4.​ Relativity of Contracts [Art. 1311] (5)​ Interference with contractual relations: third person who induces
another to violate his contract shall be liable for damages [Art.
General Rule: Contracts take effect only between the parties, their 1314]
assigns and heirs.
Summary as to exception of relativity:
Exception: a.​ No effect
[RISCI] i.​ Intransmissible rights and obligations
(1)​ Intransmissible obligation and rights by nature, stipulation or
provision of law [Art. 1311] b.​ Rights
i.​ Stipulation pour autrui
➢​ Intransmissible by nature: refers to obligations which are ii.​ Creditors defrauded ​
personal in nature (Intuitu personae)
➢​ Intransmissible by stipulation: expressly established and c.​ Obligations
can be clearly inferred from the contract itself i.​ Third person in possession of object of real contract
➢​ Intransmissible by law: where the law expresses that the ii.​ Third person induces another to violate
rights or obligations are extinguished by death

(2)​ Stipulation pour autrui or a stipulation in favor of a third person

CLASSIFICATION OF CONTRACTS
➢​ Requisites:
a.​ Stipulation in favor of a third person
b.​ Stipulation is a part, not the whole Point of Distinction Contract
c.​ Favor was clearly and deliberately conferred
As to degree of dependence 1.​ Preparatory: means of
d.​ Favor is unconditional and not compensated execution of another
e.​ Third person communicated his acceptance [Art. contract (Ex: Agency,
1311] Option)
2.​ Principal: can exist
independently (Ex: Loans,
(3)​ Real Contracts wherein the object is in the possession of third Sales, Leases)
persons, such may be bound subject to provisions of Mortgage 3.​ Accessory: requires a
and Land Registration Laws [Art. 1311] ​ principal obligation (Ex:
Pledges, Mortgages,
Suretyship)
(4)​ Creditors are protected in cases of contracts intended to defraud
them [Art. 1313]​ According to perfection 1.​ Consensual: perfected by
mere consent or meeting
of the minds (Ex: Sale)
 OBLIGATIONS AND CONTRACTS

2.​ Real: requires delivery of 2.​ Convey use (Ex:

the object of the contract Commodatum, Lease)
for its perfection (Ex: 3.​ Give security (Ex: Pledge,
Deposit, Pledge, Mortgage)
Commodatum, Simple loan 4.​ Render service (Ex:
or mutuum) Agency)

According to nature of obligation 1.​ Unilateral: creates According to subject matter 1.​ Things
produced obligation on one side 2.​ Service
2.​ Bilateral: both are 3.​ Rights
obligated
According to defects 1.​ Perfectly valid: free from
According to name 1.​ Nominate: distinguished by defect
a particular or special 2.​ Rescissible: Art. 1380
name 3.​ Voidable: Art. 1390
2.​ Innominate: not specially 4.​ Unenforceable: Art. 1403
named or classified 5.​ Void or Inexistent: Art.
1409
According to cause 1.​ Onerous: cause is the
prestation or promise of a
thing or service of another Innominate Contract: a contract which the law did not provide for a name
2.​ Remuneratory: cause is or specific nomenclature. [Art. 1307]
the service or benefit which ●​ Regulated by:
remuneration is given
○​ Stipulation by the parties
3.​ Gratuitous: cause is mere
liberality ○​ Provisions of Titles I and II of Civil Code
■​ Diligence of a good father of a family
According to risk 1.​ Commutative: mutual ○​ Rules governing the most analogous nominate contracts
exchange of relative values
○​ Customs of the place
2.​ Aleatory: both bind
themselves in
consideration of happening ●​ 4 Kinds of Innominate Contracts:
of an event uncertain ○​ Do ut des
According to requirement of form 1.​ Common: does not require ○​ Do ut facias
any form ○​ Facio ut des
2.​ Special or Solemn: ○​ Facio ut facias ​
requires certain formalities

According to purpose 1.​ Transfer ownership (Ex:

Sale, Barter)
 OBLIGATIONS AND CONTRACTS

(3)​ Communication of offer - an offer that has not been

ESSENTIAL REQUISITES OF A CONTRACT
communicated or made known to the other party, is
considered to have been not made [Jurisprudence]
General Rule: There is no contract unless the following requisites concur: -​ Made through an agent is accepted from
[Art. 1318]​ acceptance is communicated to him [Art. 1332]

1.​ Consent [Art. 1319 - 1346] ❖​ Termination of Offer

2.​ Object [Art. 1347 - 1349]
3.​ Cause/Consideration [Art. 1350 - ] (1)​ Revocation - the offeror may withdraw the offer provided it
is done prior acceptance [Art. 1324]
Exception: Real Contracts which require delivery of the object for its (2)​ Rejection/Counter-Offer - an attempt to renegotiate through
perfection [Art. 1316] a counter-offer constitutes as rejection
-​ Example: Contracts of deposit, pledge and commodatum (3)​ Lapse of Time - offer is terminated upon stipulated period. If
there is none, then according to reasonable time
❖​ Effect of Incomplete Requisites: Inexistent Contracts (4)​ Ineffective Offer: upon death, civil interdiction, insanity or
➢​ It does not affect validity of the contract, it is only for the insolvency of either party prior acceptance [Art. 1323]
perfection of the contract. (5)​ Supervening Illegality - when a subsequent legislation
which makes the offer illegal
CONSENT [ART. 1319 - 1346]
→ When there is no valid offer:
a.​ Business advertisements are mere invitations, not offers
Consent is manifested by meeting of: [Art. 1319] [Art. 1325]
b.​ Advertisements for bidders [Art. 1326]
A.​ Offer
B. Acceptance of the thing and cause
❖​ Requisites of Offer
●​ Must be absolute and may be express or implied, but not qualified
(1)​ Serious intention - reflected by the offeror’s words and ●​ Persons who cannot give consent: [Art. 1327]
actions meant not only by subjective intentions of offeror
[Jurisprudence] (1)​ Unemancipated minors
(2)​ Insane or demented persons, deaf-mutes who do not know
(2)​ Certainty of offer - certain and definite as to cause, how to write
consideration and object of the offeror [Art. 1319] → Exception:
a.​ During lucid interval: valid [Art. 1328]
 OBLIGATIONS AND CONTRACTS

b.​ Drunkenness or hypnotic spell: voidable ❖​ One of the parties is unable to read, unless shown
[Art. 1329] to be fully explained [Art. 1332]
❖​ Failure to disclose facts when it is a duty [Art. 1339]
●​ Factors which preclude the existence consent ❖​ Expert opinion which the other party has relied
upon [Art. 1341]
(1)​ Mistake [Art. 1330] ❖​ Mutual substantial mistake arising from
misrepresentation of third person [Art. 1342]
❖​ It should refer to the substance of the object of the ❖​ Serious and not employed by both [Art. 1344]
contract [Art. 1331] - it must be substantial as to
defeat the object or purpose of the contract ●​ There is no preclusion of consent or validity of contract
❖​ When one party is unable to read and mistake/fraud (1)​ Mistake as to identity or qualifications of parties
is alleged [Art. 1332] ❖​ Exception: When it is the principal cause of the
❖​ Mutual error as to the legal effect of an agreement contract [Art. 1331]
[Art .1334] (2)​ No Mistake.
(a)​ When the terms of the contract are fully explained
(2)​ Violence [Art. 1330] to persons unable to read [Art. 1332]
❖​ Serious or irresistible force is employed in order to (b)​ Party alleging knew the doubt, contingency or risk
wrest consent [Art. 1335] [Art. 1333]
❖​ Employed by a third person [Art. 1336] (3)​ No Intimidation or Violence.
(a)​ Threat to enforce one’s claim if it is just or legal
(3)​ Intimidation [Art. 1330] (4)​ No Fraud
❖​ Reasonable or well-grounded fear of imminent and (a)​ Usual exaggerations in trade when the other party
grave evil [Art. 1335] had opportunity to know
❖​ Employed by a third person [Art. 1336] (b)​ Mere expressions of opinion
(c)​ Misrepresentation in good faith
(4)​ Undue Influence [Art. 1330]
❖​ Takes improper advantage of power over another’s
OBJECT
will depriving the latter of freedom of choice [Art.
1337]
i. What is a valid object of a contract?
(5)​ Fraud [Art. 1330] -​ things not outside commerce of men [1347]
❖​ Insidious words or machinations, the other is -​ rights not intransmissible
induced [Art. 1338] -​ services not contrary to law, morals, good customs, public order,
public policy
 OBLIGATIONS AND CONTRACTS

■​ For enforceability: non compliance will render it

ii. What cannot be an object of a contract? unenforceable
-​ future inheritance except those authorized by law [Art. 1347] ■​ For convenience: does not affect validity or
-​ impossible things or services [Art. 1348] enforceability

○​ Documents required to be in a public document: notarized

CAUSE OR CONSIDERATION
REFORMATION OF INSTRUMENT
[Art. 1359 - 1369]
Cause/Consideration as to Type of Contract

1)​ Onerous Contracts: prestation or promise of thing/service [MMMCC]

2)​ Gratuitous Contracts: mere liberality of the benefactor ●​ Remedy allowed by law to reform error or mistake and express
true intention
Effect of Absence or Unlawful Cause: Void or Inexistent Contract [Art. ●​ There has already been a meeting of the minds however, the true
1352] intention was not expressed in the agreement by reason of mistake,
-​ Statement of false cause also renders the contract void [Art. 1353] fraud, inequitable conduct or accident [Art. 1359]
-​ Although cause is not stated, it is presumed to be existing unless ●​ Mutual mistake also allows reformation
proven otherwise [Art. 1354] ●​ When one knew and concealed, while the other party was
mistaken [Art. 1363]
General Rule: Motive which affects only one of the contracting parties, do ●​ When through ignorance, lack of skill, negligence, bad faith an error
not affect the existence of the contract by the typist or clerk was made [Art. 1364]
Exception: When the motive also forms as the cause of the ●​ Mortgage, Pledge of Real or Personal Property with a right of
contract [Jurisprudence] repurchase [Art. 1365] ​

No reformation:
1.​ Simple donations
FORMS OF CONTRACT
2.​ Wills
3.​ Real agreement is void
●​ Obligatory in whatever form they may have been entered into 4.​ When one party has brought an action to enforce an instrument [Art.
[Art. 1356] 1367] the said party is barred
○​ XPN: Law requires that a contract should be in a specific 5.​ If mistake, fraud, inequitable conduct or accident has prevented
form meeting of the minds the proper remedy is annulment
■​ For validity: non compliance will render it void
 OBLIGATIONS AND CONTRACTS

Who may ask for reformation [Art. 1368] DEFECTIVE CONTRACTS

1.​ Injured party, heir or successors
2.​ Either party if mistake was mutual I.​ Rescissible Contract [Art. 1380 to 1389]
II.​ Voidable Contract [Art. 1390 to 1402]

a)​ Entered into a state of drunkenness or during hypnotic

spell. [Art. 1328]
INTERPRETATION OF CONTRACTS
b)​ Where consent is given through violence, intimidation,
[Art. 1370 - ]
mistake, fraud or undue influence [Art. 1330]

●​ General rule: Literal meaning of the words if terms are clear and III.​ Unenforceable Contracts [Art. 1403 to 1408]: you cannot go to
leave no doubt [Art. 1370] courts and enforce the contract unless ratified impliedly or
○​ XPN: Words appear contrary to intention, it is intention that expressly.
prevails A.​ Entered on behalf of another one without authority or legal
●​ Intention - reflected by parties’ contemporaneous and subsequent representation or beyond his powers [Art. 1317]
acts [Art. 1371]
IV.​ Void or Inexistent [Art. 1409 to 1422]
●​ Several meanings
○​ most adequate to render it effectual [Art. 1373]
●​ Various stipulations
○​ interpreted together [Art. 1374]
●​ Different signification
○​ most in keeping with the object of the contract [Art. 1375]
●​ Ambiguities
○​ Usage and custom interpreted together [Art. 1376]
●​ Obscure words
○​ shall be interpreted not in favor of the party who caused
obscurity [Art. 1377]
RESCISSIBLE
●​ Impossible to settle doubts [Art. 1378]
[ART. 1380 - 1389]
○​ Gratuitous Contract: least transmission of rights and
interests
○​ Onerous: greatest reciprocity of interest [GRCTO]
○​ Principal object: null and void ●​ Refers to validly agreed upon contracts, but due to lesion or
economic damage to a party or third persons, it may be rescinded.
 OBLIGATIONS AND CONTRACTS

●​ It is merely subsidiary, and can only be resorted to when there is 2.​ Alienation via Onerous title - when entered into despite issuance of
no other legal means to obtain reparation. [Art. 1383] judgment
○​ Action for rescission presupposes a writ of execution
●​ No rescission if the object is under the possession of a third party in
good faith [Art. 1385]

VOIDABLE
Rescissible Contracts under Art. 1381
[ART. 1390 - 1402]

1.​ Entered by guardians in behalf of wards causing lesion by more

than ¼ of the value of the object [IV]
→ Exception: When the contract was approved by the courts [Art. ●​ Refers to binding contracts, but due to (1) incapacity of the party
1386] giving consent (2) vitiation of consent, may be annulled by a proper
2.​ Representatives in behalf of absentees where the lesion is more action
than ¼ of the value of the object ●​ Susceptible of ratification [Art. 1393]
→ Exception: When the contract was approved by the courts [Art. ○​ Express - it is clearly stipulated
1386] ○​ Implied - existence of knowledge of the reason which
3.​ Defrauding of creditors when the latter has no other way to collect renders the contract voidable
4.​ Things under litigation made object to a contract without
knowledge/approval Effect of Annulment: Mutual restitution with fruits, price with interest. For
5.​ Other contracts declared by law service, the value for damages.
→ Exception: the incapacitated person not obliged to return or restore
Other rescissible contracts
6.​ Payments made during insolvency when it is still not due [Art. Ratification: does not require conformity of the contracting party who has
1383] no right to bring the action
1.​ Incapacitated persons: ratification of by the parent/guardian [Art.
❖​ Effect: Mutual restitution together with fruits, interest and price 1394]
provided that the party who demands rescission can return [Art. → Effect: cleanses the contract from all defects from its constitution
1385]
❖​ Prescription: within 4 years Prescription: action shall be brought within 4 years ​

Contracts presumed to be fraudulent ●​ Intimidation, violence or undue influence: from the time the defect of
1.​ Alienation via Gratuitous title - when there is no remaining property the consent ceases
to pay all debts ●​ Mistake or Fraud: from the time the discovery of the same
 OBLIGATIONS AND CONTRACTS

Who may institute action for annulment ●​ Contracts infringing statute of frauds may be ratified: [Art. 1405]
●​ All who are obliged principally or subsidiarily -​ failure to object to presentation of oral evidence
○​ Exception: (Incapacity) The capacitated party. (Vitiation) -​ acceptance of benefits (contracts partially consummated
The party who employed such are ratified)
-​ Contracts enforceable under SOF which requires that it must be in
a public instrument parties may avail themselves [Art. 1406]
UNENFORCEABLE
[ART 1403 - 1408]
VOID or INEXISTENT CONTRACTS
[ART. 1409 - 1422]
[BUS]
●​ Refers to contracts which are valid but cannot be brought and
enforced before the courts, unless they are ratified
●​ Cannot be assailed by third persons [Art. 1408] ●​ Refers to contracts which are inexistent and thus do not have any
effect, it imposes no right nor obligation.
Unenforceable Contracts under Art. 1403 ●​ Cannot be ratified [Art. 1409]
●​ Defense of illegality cannot be waived
a.​ Unauthorized Contracts: entered in the name of another who has no ●​ No prescription [Art. 1410]
authority or acted in excess of his powers
General Rule: A void or inexistent contract imposes no right nor obligation.
b.​ Statute of Frauds: those that do not comply with the SoF, which It does not have any effect.
must be in writing [Art. 1403]
Exception: When a void or inexistent contract can have legal
i.​ Agreement not be performed within a year consequences
ii.​ Special promise in consideration of marriage
iii.​ Agreement for sale of goods, chattels or things in action ●​ Illegal contract as to incapacitated person: courts may allow
500 pesos and above him to recover [Art. 1415]
iv.​ Leasing for longer than one year ●​ Prohibited contract for protection of plaintiff: he may recover
v.​ Sale of real property [Art. 1416]
vi.​ Representation as to credit of a third person ●​ Ceiling prices of any article or commodity: a person who
paid in excess may recover [Art. 1417]
c.​ Where both parties are incapable of giving consent ●​ Maximum number of hours of labor may demand additional
●​ Express or implied ratification by one parents/guardians compensation [Art. 1418]
renders it as if only one was incapacitated (voidable) ●​ Minimum wage, contract of lower wage: may recover
deficiency [Art. 1419]]o]]]]]]][w[[wepropp[w[w[ww[w[w[ww
 OBLIGATIONS AND CONTRACTS

●​ Divisible contract: illegal may be separated from the legal 6. Expressly declared as void by law
and the latter may be enforced [Art. 1420]

Void Contracts under Art. 1409 [SUCIIE] Who may avail defense of illegality of contract: parties to the contract or
third persons whose interests are DIRECTLY affected [Art. 1421]
1.​ Unlawful/Illegal Cause, Object or Purpose: contrary to law,
morals, good customs, public order, public policy

●​ Criminal offense [Art. 1411]

a.​ if both parties are in pari delicto: no action against
each other, both shall be prosecuted
b.​ only one is guilty: innocent one may claim what he
has given, not bound to comply

●​ Not a criminal offense [Art. 1411]

a.​ only one at fault: guilty cannot demand nor recover,
while innocent may demand return and cannot be
compelled
b.​ both parties at fault: neither may recover, nor
demand performance

●​ Illegal purpose [Art. 1414]: contract may be repudiated

before purpose is accomplished, or before damage to third
person

2. Absolutely Simulated Contracts: contracts wherein the parties do not

intend to be bound at all

3. Inexistent Object/Cause: did not exist at the time of the transaction

4. Object outside Commerce of Men

5. Impossible Service