Obligations and Contracts

Grading System
1/3 – Recitation1
1/3 – Mid-Term Examination
1/3 – Final Examination

Classroom Policies

School policy, including policies on attendance, dress code, etc. shall be strictly implemented.

A. Attendance
• Students who are not present when called for recitation shall be given a grade of 60%.
• Leaving the classroom without permission is not tolerated.
• Perfect attendance may merit a grade incentive.

B. Use of Mobile Phones, Laptops and other Gadgets

• Mobile phones, laptops, and other gadgets should be turned off or placed on silent mode
during class. Each offense shall merit a grade of 60% in recitation.
• Students are prohibited from using mobile phones, laptops, and other gadgets except for
class purposes. Each offense shall merit a grade of 60% in recitation.

C. Exam
• NO make up exam shall be given, except for highly meritorious cases and upon approval by
the dean.

Schedule

Class Schedule: Tuesday – 6:00 pm – 7:30 pm

Thursday – 6:00 pm – 7:30 pm
Friday – 6:00 pm – 8:00 pm

Consultation Hours: by prior arrangement through email (paudeveraturda@gmail.com)

1
Grading system for recitation shall be as follows:
1 = 100%
2 = 90%
3 = 80%
4 = 70%
5 = 60%

1
 OUTLINE ON
OBLIGATIONS AND CONTRACTS

Title One: OBLIGATIONS

Chapter 1. General Provisions

I. Definition – Art. 1156

A. Elements
1. Active subject (obligor)
2. Passive subject (obligee)
3. Prestation (object of obligation – to give, to do, not to do)
4. Efficient cause or juridical tie (“vinculum juris”)

B. Distinction between natural (Art. 1423-1430) and civil obligations (Art. 1156-1304)

C. Classification of Obligations

1. Primary classification under the Civil Code

a. Pure or conditional (Art. 1179-1192)
b. With a period or term (Art. 1193-1198)
c. Alternative or facultative (Art. 1199-1206)
d. Joint or solidary (Art. 1207-1222)
e. Divisible or indivisible (Art. 1223-1225)
f. With a penal clause (Art. 1226-1230)

2. Secondary Classification
a. Legal (Art. 1158), conventional (Art. 1159), and penal (Art. 1161)
b. Real (to give) and personal (to do or not to do)
c. Determinate and generic (as to subject matter of obligation)
d. Positive (to give, to do) and negative (not to give, not to do)
e. Unilateral and bilateral
f. Individual and collective
g. Accessory and principal
h. As to object or presentation: simple, multiple, conjunctive, distributive,
alternative, facultative
i. Possible and impossible

II. Sources of Obligations – Art. 1157

CASE:
Sagrada Orden de Predicadores del Santisimo Rosario Filipinas vs. National Coconut
Corporation, 91 SCRA 503 (1952)

A. Law – Art. 1158

B. Contracts – Art. 1159, 1305

C. Quasi-contracts – Art. 1160, 2142

1. Negotiorum gestio (officious management) – Art. 2144 – 2153
2. Solutio indebiti (payment not due/payment by mistake) – Art. 2154-2163

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 3. Other quasi-contracts (support by strangers) – Art. 2164-2175

D. Acts or omissions punished by law - Art. 1161, 2177; Art. 100, Revised Penal Code;
Rule 111, Rules of Criminal Procedure

CASES:
Casupanan v. Laroya, G.R. No. 145391, August 26, 2002
Mendoza vs. Arrieta, 91 SCRA 113 (1975)
San Ildefonso Lines, Inc. v. Court of Appeals, G.R. No. 119771, April 24, 1998
Heirs of Simon v. Chan, G.R. No. 157547, February 23, 2011
Rodriquez v. People, G.R. No. 155531-34, July 29, 2005
Daluraya v. Oliva, G.R. No. 210148, December 8, 2014
Lumantas v. Calapiz, G.R. No. 163753, January 15, 2014
Asilo vs. Bombasi, G.R. Nos. 159017-18, March 9, 2011
People vs. Amistoso, G.R. No. 201447, August 28, 2013

E. Quasi-delict – Art. 1162, 2176

Note: Liability for fault of others (doctrine of vicarious liability/imputed negligence) –

Art. 2180; Art. 218, 219, Family Code

CASES:
Mendoza v. Sps. Gomez, G.R. No. 160110, June 18, 2014
PSBA vs. CA, 205 SCRA 729 (1992)
Amadora vs. CA, 160 SCRA 315 (1988)

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Chapter 2. Nature and Effect of Obligations

I. Kinds of Prestation (to give, to do, not to do)

A. Obligation to give (real)

1. Specific/determinate thing
a. Obligations of the obligor – Art. 1244, 1163, 1164, 1166
b. Rights of the obligee – Art. 1165
2. Generic/indeterminate thing – Art. 1246
B. Obligation to do (personal) – Art. 1244, par. 2
C. Obligation not to do (personal) – Art. 1244, par. 2

II. Breach of Obligation

A. Concept of breach

CASES:
Spouses Guanio vs. Makati Shangri-la, G.R. No. 190601, February 7, 2011

Note: Breach of obligation with liability for damages (Art. 1170) and breach of
obligation without liability for damages (fortuitous event)

B. Modes of breach with liability for damages (mora, dolo, culpa, contravention of tenor)
– Art. 1170

1. Delay (mora) – Art. 1169

a. Mora solvendi (delay of the debtor)

Note: Demand by creditor to incur delay is necessary subject to

exceptions - Art. 1169

b. Mora accipiendi (delay of the creditor)

c. Compensatio morae (delay of parties in reciprocal obligations)

CASES:
Social Security System v. Moonwalk Development & Housing Corporation, G.R.
No. 73345, April 7, 1993
Santos Ventura Hocorma Foundation, Inc. vs. Santos, G.R. No. 153004,
November 4, 2004
Pantaleon v. American Express International, Inc. G.R. No. 174269, May 8, 2009
Solar Harvest, Inc. v. Davao Corrugated Carton Corporation, G.R. No. 176868,
July 26, 2010

2. Fraud (dolo)
a. Concept
i. Fraud in the performance of obligation – Art. 1171
ii. Fraud in the constitution/creation of the obligation – dolo
incidente/dolo causante
b. Waiver of future fraud – Art. 1171

CASE:

4
 Tankeh v. Development Bank of the Philippines, G.R. No. 171428, 11 November
2013

3. Negligence (culpa)
a. Concept – Art. 1173, par. 1
i. Culpa aquiliana vs. culpa contractual

CASES:
Gutierrez vs. Gutierrez, 56 Phil 177, G.R. No. 34840, 23 September 1931
Vazquez vs. De Borja, 74 Phil 560, G. R. No. L-48930, 23 February1944
Radio Communications of the Philippines v. Verchez, G.R No. 164349, 31
January 2006

ii. Liability may be regulated by courts according to circumstances

(Art. 1172)
iii. Applicable provision when there is bad faith - Art. 1173

b. Standard of care required

i. Generally: ordinary diligence or “diligence of a good father of a
family”– Art. 1173 par. 2
ii. Exceptions: law or contract states diligence to be observed

CASES:
Francisco v. CBCI, G.R. 193577, September 7, 2011
Loadmasters Customs Services, Inc. v. Glodel Brokerage Corporation, G.R. No.
179446, 10 January 10, 2011
Crisostomo vs. CA, 409 SCRA 528 (2003)
Sarmiento vs. Sps. Cabrido, 401 SCRA 122 (2003)
Metro Manila Transit Corporation v. Court of Appeals, G.R. No. 104408, 21 June
1993
Spouses Teodoro v. Perena, G.R. No.157917, 29 August 2012
Reyes v. Puyat-Reyes, G.R. No. 118492. August 15, 2001

4. Contravention of the Tenor

CASE:
Chaves vs. Gonzales, 32 SCRA 547, G.R. No. 27454, 30 April 1970

C. Breach Due to Fortuitous Event – Article 1174

1. Concept of fortuitous event – act of God; act of man
2. Requisites
3. Effect of fortuitous event
a. General rule: extinguishment of liability
b. Exceptions: liability is not extinguished (Art. 1174)
i. In cases specified by law (Examples: Arts. 1165 par. 3, 1942,
1979, 2001, 2147, 552)
ii. When otherwise declared by stipulation
iii. When the nature of the obligation requires the assumption of
risk
4. Effect of concurrent fault

CASES:
Juan Nakpil & Sons vs. Court of Appeals, 144 SCRA 597, G.R. No. L-47851, October 3,
1986

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 National Power Corporation vs. Court of Appeals, 161 SCRA 334, G.R. No. L-47379, May
16, 1988
Republic vs. Luzon Stevedoring Corporation, 21 SCRA 279, G.R. No. L-21749,
September 29, 1967
Philcomsat vs. Globe Telecom, 429 SCRA 153, G.R. No. 147324, May 25, 2004
Yobido vs. Court of Appeals, 281 SCRA 1, G.R. No. 113003, October 17, 1997
Bacolod-Murcia Milling vs. Court of Appeals, 182 SCRA 24, G.R. Nos. 81100-01,
February 7, 1990
Austria vs. Court of Appeals, 31 SCRA 527, G.R. No. L-29640, June 10, 1971

III. Remedies of Parties for Breach/Enforcement of Right

A. Specific performance (obligation to give specific thing) – Art. 1165 par. 1; Substitute
performance (obligation to give generic objection/obligation to do) – Art. 1165, par. 2,
Art. 1167; Undoing in obligation not to do – Art . 1168

B. Rescission – Art. 1191, 1192 (See discussions on Chapter 3 – Art. 1191, infra)

C. Damages – Art. 1170

D. Subsidiary Remedies
1. Accion subrogatoria - Art. 1177
a. Concept
b. Requisites
c. Exceptions – rights which purely personal to the debtor/inherent rights
of debtor (e.g., Art. 772 on inofficious donation; action for support
under the Family Code)
2. Accion pauliana (contracts entered in fraud of creditors)–Art. 1177,1381 par. 3
3. Accion directa – Art. 1652, 1608, 1729, 1893

CASES:
Khe Hong Cheng vs. Court of Appeals, 355 SCRA 701, G.R. No. 144169, March 20, 2001.
Siguan vs. Lim, 318 SCRA 725, G.R. No. 134685, November 19, 1999.

IV. Usurious Transactions – Article 1175, 1413, 1961

CASES:
Eastern Shipping Lines, Inc. vs. Court of Appeals, GR No. 97412, July 12, 1994.
Nacar vs. Gallery Frames and/or Felipe Bordey, Jr., GR No. 189871, August 13, 2013
Sps. Andal vs. Philippine National Bank, et al., GR No. 194201, November 27, 2013.
Advocates for Truth in Lending Act, et al. vs. Bangko Sentral Monetary Board, GR No.
192986, January 15, 2013
Secretary v. Sps. Tecson, G.R. No. 179334, April 25, 2014

V. Presumptions in Payment of Obligations – Art. 1176

VI. Transmissibility of Rights – Art. 1178

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Chapter 3. Different Kinds of Obligations

I. Pure and Conditional Obligations

A. Pure obligations- Art. 1179, par. 1

B. Conditional obligations – Art. 1180, Art. 1181
1. Concept of condition (vs. term/period)
2. Debtor’s promise to pay when he can is not a conditional obligation – Art.
1180
3. Kinds of Conditions
a. Suspensive (condition precedent) – Art. 1181

CASES:
Gaite vs. Fonacier, 2 SCRA 831, G.R. No. L-11827. July 31, 1961.
Gonzales vs. Heirs of Thomas and Paula Cruz, 314 SCRA 585, G.R. No. L-
131784. September 16, 1999.
Coronel vs. Court of Appeals, 263 SCRA 15, G.R. No. 103577, October 7, 1996
Commissioner of Internal Revenue vs. Petron Corporation, G.R. No. 185568,
March 2, 2012

b. Resolutory (condition subsequent) – Art. 1179, 1181

CASES:
Central Philippine University vs. Court of Appeals, 246 SCRA 511
Quijada vs. Court of Appeals, 299 SCRA 695, G.R. No. 126444, December 4, 1998

c. Potestative, casual, mixed – Art. 1182

i. Obligation is void if fulfillment of condition is dependent on the
sole will of the debtor (potestative suspensive condition) – Art.
1182
1. Applies only if potestative suspensive condition is
imposed on the birth (perfection) of the obligation
2. Not apply if condition imposed on fulfillment
(performance) of pre-existing obligation, or if potestative
resolutory condition

CASES:
Lao Lim vs. Court of Appeals, 191 SCRA 151, G.R. No. 87047, October 31, 1990
M. D. Taylor vs. Uy Tieng Piao and Tan Liuan Tan Liuan & Company, 43 Phil.
873, G.R. No. 16109, October 2, 1922
Rustan Pulp & Paper Mills, Incorporated vs. IAC, 214 SCRA 665, G.R. No. 70789.
October 19, 1992
Romero vs. Court of Appeals, 250 SCRA 223, G.R. No. 107207. November 23,
1995

d. Impossible and illegal conditions – Art. 1183

i. Distinguish effect if condition is imposed on contract and on
donation (Art. 727)
e. Positive and negative conditions – Art. 1184-1185
4. Constructive fulfillment – Art. 1186

CASES

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 M. D. Taylor vs. Uy Tieng Piao and Tan Liuan Tan Liuan & Company, 43 Phil.
873, G.R. No. 16109, October 2, 1922
PLDT v. Jeturian, 97 Phil 981, G.R. L-7756, July 30, 1955

5. Effect of fulfillment of conditions

a. Effect if suspensive condition is fulfilled – Art. 1187
b. Effect if resolutory condition is fulfilled – Art. 1190
6. Remedy of creditor before fulfillment of condition – Art. 1188

CASES:
PLDT v. Jeturian, 97 Phil 981, G.R. L-7756, July 30, 1955

7. Rules in case of loss, deterioration or improvement pending the happening of

the condition – Art. 1189
a. Effect of loss and deterioration with or without debtor’s fault; Meaning
of loss
b. Effect of improvement by nature/time or debtor’s expense

8. Rescission – Art. 1191-1192

a. Concept of rescission (resolution)
i. Implied in reciprocal obligations – Art. 1191, par. 1

CASES:
Boysaw vs. Interphil Promotions, 148 SCRA 365, G.R. No. L-22590, March 20,
1987

ii. Alternative remedies of injured party – Art. 1191, par. 2

iii. Judicial discretion to decree rescission - Art. 1191, par. 3
iv. Effect on third persons - Art. 1191, par. 4
ii. Distinguished from rescission under Art. 1381 (rescissible
contracts)
b. Necessity for judicial action
i. Judicial action to rescind
ii. Extrajudicial rescission
c. Nature of breach – substantial vs. causal/slight breach
d. Effect of rescission
i. Mutual restitution
ii. Termination of contract
iii. Effect upon third person

CASES:
Deiparine, Jr. vs. Court of Appeals, 221 SCRA 503, G.R. No. 96643, April 23,
1993
EDS Manufacturing, G.R. No. 162802, October 7, 2013
Heirs of Sofia Quirong v. Development Bank of the Philippines, G.R. No. 173441,
December 9, 2009
EDS Manufacturing, G.R. No. 162802, October 7, 2013
U.P. vs. De Los Angeles, 35 SCRA 365, G.R. No. L-28602, September 29, 1970
Angeles vs. Calasanz, 135 SCRA 323, G.R. No. L-42283 March 18, 1985
Iringan vs. Court of Appeals, 366 SCRA 41, G.R. No. 129107. September 26, 2001
Vlarde, et al. vs. Court of Appeals, 361 SCRA 56 (2001)
Maglasang v. Northwestern, G.R. No. 188986, March 20, 2013

e. Rescission in contracts of sale –

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 i. Sale of real property – Art. 1592, R.A. 6552 (Maceda Law)
ii. Sale of personal property – Art, 1593, 1484-1486 (Recto Law),
1526 and 1534 (special rights of unpaid seller of goods)

II. Obligation with a Period – Art.1193, 1180

A. Period or term
1. Concept of period/term (vs. condition) – Art. 1193, 1980
2. Kinds of period/term
a. Suspensive (ex die)- Article 1193, par. 1
b. Resolutory (in diem)- Article 1193, par. 2
c. Express or implied (Art. 1197, par. 1 and 2)
d. Definite or indefinite
e. Voluntary, legal (Art. 1682, 1687), or judicial – Art. 1197
B. Rules in case of loss, deterioration or improvement before arrival of period – Art.
1194, 1189
C. Effect of payment in advance- Art. 1195
D. Benefit of a period
1. For whose benefit – Art. 1196
2. Loss of benefit of period by debtor – Art. 1198
E. When court may fix a period
1. Inferred that period was intended – Art. 1197

CASES:
Maria Lachica, etc. vs. Gregorio Araneta, Inc., 47 OG No.11 5699, August 19, 1949
Ponce de Leon vs. Santiago Syjuco Inc., 90 SCRA 311, G.R. No. L-3316. October 31,
1951
Buce vs. Court of Appeals, 332 SCRA 151, G.R. No. 136913. May 12, 2000

2. Depends on the will of the debtor (potestative term) – Art. 1197, Art. 1180
i. Distinguish potestative term and potestive suspensive condition

CASES:
Gregorio Araneta, Inc. vs. Phil. Sugar Estates Dev’t. Co. Ltd., 20 SCRA 330, G.R. No. L-
22558. May 31, 1967.
Central Philippine University vs. Court of Appeals, 246 SCRA 511, G.R. No. 112127, July
17, 1995

III. Alternative Obligations

A. Alternative Obligations – Art. 1199-1205

1. Concept – Art. 1199
2. When debtor has the right of choice – Art. 1200-1204
3. When creditor has the right of choice – Art. 1205
F. Facultative obligation- Art. 1206
1. Concept
2. Distinguished from alternative obligations
3. Effect of loss of substitute before or after substitution

IV. Joint and Solidary Obligations

A. Joint Obligations – Art.
1. Concept
a. Requisites

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 b. Words used to indicate joint obligations
2. Presumption of joint liability – Art. 1207, 1208
3. Effects – Art. 1207, 1208
a. Extent of liability of debtor
b. Extent of right of creditor
c. In case of novation, compensation, confusion (Art. 1277), remission
4. Joint indivisible obligations – Art. 1209, 1210 (See discussions on Joint
Indivisible Obligations, infra)
B. Solidary Obligations
1. Concept
a. Requisites
b. Words used to indicate solidary obligations
2. Kinds
a. Active (among creditors), passive (among debtors), or mixed (among
creditors and debtors) – Art. 1211
i. Distinguish passive solidary obligation from suretyship
b. Legal (Art. 1208, 1915, 1945; Art. 119, Revised Penal Code),
conventional (Art. 1208), or real

CASES:
Inchausti & Co. vs. Yulo, 34 Phil. 978, G.R. No. 7721. March 25, 1914
Lafarge Cement Philippines, Incorporated vs. Continental Cement Corporation, 443
SCRA 522, GR No. 155173. November 23, 2004
Inciong v. Court of Appeals, G.R. No. 96405, June 26, 1996

3. Effects
a. What acts may be done by solidary parties – Art. 1212
i. Effect of prejudicial acts as to creditors – Art. 1212
ii. Effect of novation, compensation, confusion and remission by
creditor – Art. 1215, 1219
b. Assignment of rights not allowed – Art. 1213
c. Demand and payment
i. Effect of demand by creditor - Art. 1214
ii. Effect of demand upon a debtor – Art. 1216
iii. Effect of payment of debtor – Art. 1217
d. Novation, compensation, confusion, and remission – Art. 1215
i. Effect of novation, compensation, confusion, and remission –
Art. 1215
ii. Effect of remission – Art. 1219, 1220
e. Effect of loss or impossibility of performance – Art. 1221
f. Defenses available to solidary debtor
i. Kinds
1. Those derived from the nature of the obligation
2. Personal defenses
3. Defenses pertaining to his share
4. Those personally belonging to the other co-debtors
ii. Effect

CASES:
R.F.C. vs. Court of Appeals, et al., 94 Phil. 984, G.R. No. L-5942. May 14, 1954
Quiombing vs. Court of Appeals, 189 SCRA 325
Inciong v. Court of Appeals, G.R. No. 96405, June 26, 1996
JAPRL Development Corp., et al vs. SBC 6 June 2011

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 Inchausti & Co. vs. Yulo, 34 Phil. 978, G.R. No. 7721. March 25, 1914.
Alipio vs. Court of Appeals, 341 SCRA 441, GR No. 134100. September 29, 2000

C. Joint Indivisible Obligations

1. Concept – Art. 1209, 1210
a. Joint indivisible distinguished from joint divisible obligation
b. Joint indivisible distinguished from solidarity – Art. 1210
2. Effects
a. Enforcement of rights- Art. 1209
b. Liability for damages in case of breach- Art. 1224

V. Divisible and Indivisible Obligations

A. Concept – Art. 1223

B. Joint indivisible obligations – Art. 1224 (See discussions on Joint Indivisible
Obligations, supra)
1. Enforcement of rights- Art. 1209
2. Liability for damages in case of breach- Art. 1224
C. Presumptions of indivisibility or of divisibility – Art. 1225

VI. Obligations with a Penal Clause

A. Concept
B. Kinds of penal clause
1. As to effect: subsidiary or joint/complementary
2. As to source/origin: legal or conventional
3. As to purpose: compensatory/reparatory or punitive
C. Demandability of penalty- Article 1226, par. 2
D. Effects of Penal Clause
1. Substitute for indemnity for damages and payment of interest / creditor cannot
collect other damages in addition to penalty – Art. 1226

• Exceptions - Art. 1226

2. Not exempt debtor from performance- Art. 1227

• Exceptions- Art. 1227

3. Creditor cannot demand both performance and penalty at the same time – Art.
1227
• Exceptions- Art. 1227

4. Proof of actual damages not necessary; applies if penalty is substitute for

indemnity or payment of interest under Art. 1226 – Art. 1228

E. When penalty shall be equitably reduced- Art. 1229

F. Nullity of Principal Obligation or Penal Clause; Effects – Art. 1230

CASES:
Makati Development Corporation vs. Empire Insurance Company, 20 SCRA 657, G.R.
No. L-21780. June 30, 1967
Tan vs. Court of Appeals, 367 SCRA 571, G.R. No. 116285. October 19, 2001

11
Country Bankers Insurance Corp. vs. Court of Appeals, 201 SCRA 458, G.R. No. 85161.
September 9, 1991

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Chapter 4. Extinguishment of Obligations

I. Modes of Extinguishment- Art. 1231

A. Payment or performance
B. Loss or impossibility
C. Condonation or remission
D. Confusion or merger
E. Compensation
F. Novation
G. Other causes

II. Payment or Performance

A. Concept – Art. 1232
B. Requisites
1. How payment should be made (“integrity”) – Art. 1233-1235
a. Complete delivery/performance (Art. 1233)/ partial payment is not
allowed (Art. 1248)
b. Exceptions:
i. When obligation is part liquidated and in part unliquidated –Art.
1248
ii. Substantial performance in good faith – Art. 1234
iii. Estoppel – Art. 1235
c. Presumptions in payment of interests and installments-
Art. 1176
2. Persons who may pay
a. Debtor or legal representative
b. Third person
i. Who is an interested party
1. Meaning of “interested party”
2. Effects (legal subrogation) – Art. 1302 [3]
ii. Who is not an interested party but with consent of debtor
1. Effects – Art. 1236, 1237
iii. Who is not an interested party and without knowledge or
against the will of the debtor
1. Effects- Art. 1236, par. 2; 1237
iv. Who does not intend to be reimbursed – Art. 1238
c. Payment by person who does not have free disposal of property in
obligation to give – Art. 1239, 1427
d. Payment by solidary debtor in case of active solidarity- Art. 1214
3. Person to whom payment may be made
a. Creditor, successor-in-interest, or person authorized – Art. 1240
b. Incapacitated person- Article 1241, par. 1
c. Third person- Article 1241, par. 2
i. Requisites
ii. When proof of benefit not required - Article 1241,par. 3
d. Payment in good faith to person in possession of credit – Art. 1242
e. Payment to creditor after judicial order of retention – Art. 1243
4. What must be paid (“identity”)
a. In obligations to:
i. Give a specific thing – Art. 1244, par. 1
ii. Give a generic thing – Art. 1246

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 iii. To do or not to do – Art. 1244, par. 2

b. Dation in payment – Art. 1245 (See discussions on Dation in Payment,

infra)
CASES:
Arrieta vs. National Rice and Corn Corporation, 10 SCRA 79, G.R. No.L-15645. January
31, 1964.
St. Paul Fire and Marine Insurance Company vs. Macondray and Co., Inc., 70 SCRA 122,
GR No. L-27796. March 20, 1976.

5. Expenses of making payment – Art. 1247

6. Rules in monetary obligations – Art. 1249
i. Currency of payment – R.A. 529, R.A. 8183
ii. Payment by negotiable instrument/check – Section 60, R.A.
7653 (New Central Bank Act); Art. 1249
iii. Meaning of “legal tender” – Section 49, 50, 51, R.A. 7653

CASES:
Palanca v. Court of Appeals, G.R. No. 106685, December 2, 1994
Papa vs. AU Valencia, et. al., 284 SCRA 643, GR No. 105188. January 23, 1988
PAL vs. Court of Appeals, 181 SCRA 557, GR 49188. Jan 30, 1990
Tibajia vs. Court of Appeals, G.R. No. 100290, June 4, 1993

7. Rules in case of extraordinary inflation/deflation – Art. 1250

8. Where payment is made – Art. 1251

C. Application of Payments
1. Concept – Art. 1252
2. Requisites – Art. 1252
3. Rules in application of payments – Art. 1252, 1253, 1254

CASES:
Reparations Commission vs. Universal Deep-Sea Surety & Fidelity Co., 83 SCRA 765,
G.R. Nos. L-21901 and L-21996, June 27, 1978
Paculdo vs. Regalado, 345 SCRA 134, G.R. No. 123855, November 20, 2000

D. Payment by Cession
1. Concept – Contractual (Art. 1255) and judicial (Insolvency Law)
2. Requisites
3. Effects

E. Dation in Payment – Art. 1245

1. Distinguished from “pactum commissorium” (Art. 2088), application of
payments, payment by cession
2. Requisites
3. Effects

CASE:
DBP vs. Court of Appeals, 284 SCRA 14, G.R. No. 118342. January 5, 1998
Lopez v. Court of Appeals, G.R. No. L-33157, June 29, 1982
Filinvest Credit Corp. vs. Philippine Acetylene Co., Inc., 111 SCRA 421, G.R. No. L-
50449. January 30, 1982

F. Tender of Payment and Consignation

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 1. Tender of payment – Art. 1256
a. Concept
b. Requisites of valid tender of payment
c. Effect of valid tender of payment
2. Consignation
a. Concept/Purpose
b. Requisites – Art. 1257, 1258
i. Debt is due
ii. Valid tender is unjustly refused
1. Meaning of unjust refusal
2. When tender and refusal are not required– Art. 1256,
par. 2
iii. First notice - Art. 1257, par. 1
iv. Placed at disposal of judicial authority
iv. Second notice – Art. 1258, par. 2
c. Effect of non-compliance – Art. 1258, par. 2
d. Effects of consignation when properly made
i. Expenses of consignation – Art. 1259
ii. Court approval - Art. 1260, par. 1
d. Effect of withdrawal
i. By debtor before acceptance by creditor or approval by court –
Art. 1260, par. 2
ii. By debtor after proper consignation with creditor’s approval –
Art. 1261

CASES:
De Guzman vs. Court of Appeals, 137 SCRA 730, G.R. No. L-52733. July 23, 1985.
TLG International Continental Enterprising, Inc. vs. Flores, 47 SCRA 437, G.R. No. L-
35381. October 31, 1972
McLaughlin vs. Court of Appeals, 144 SCRA 693, G.R. No. L-57552. October 10, 1986
Soco vs. Militante, 123 SCRA 160, G.R No. L-58961, 28 June 1983.
Sotto vs. Mijares, 28 SCRA 17, G.R. No. L-23563. May 8, 1982.
Meat Packing Corporation of the Philippines vs. Sandiganbayan, 359 SCRA 409, G.R.
No. 103068. June 22, 2001.
Teddy G. Pabugais vs. Dave P. Sahijwani, GR No. 156846 (2004), G.R. No. 156846.
February 23, 2004

III. Loss or Impossibility

A. Loss of thing due

1. Concept/Meaning – Art. 1189 [2]
2. Effect of loss (obligation to give)
a. In obligation to give a specific/determinate thing – Art. 1262, 1268
i. When obligation is extinguished
ii. When obligation is not extinguished
iii. Rule if obligation arises from criminal offense – Art. 1268
b. In obligation to give a generic thing- Art. 1263
c. In case of partial loss – Art. 1264
d. Action against creditor – Art. 1269
3. Presumption; when not applicable – Art. 1265, 1165

B. Impossibility of performance (obligation to do)

1. Concept/meaning of legal or physical of impossibility

15
 2. Effect of legal or physical impossibility – Art. 1266
i. Without fault of obligor – Art. 1266
1. Obligation is extinguished
2. Rule applies to supervening/subsequent impossibility, not legal
or physically impossibility existing at the time of the constitution
of the obligation (void Art. 1409 [1][5])
ii. With fault of obligor – Art. 1262, par. 2 (by analogy)

3. Effect when not impossible but “manifestly difficult beyond contemplation of

parties” (doctrine of “rebus sic stantibus”) – Art. 1267
i. Requisites
ii. In case of partial impossibility- Art. 1264 (by analogy)

CASES:
Occena vs. Jabson, 73 SCRA 637, GR No. L-44349. October 29, 1976.
Naga Telephone Co., Inc. (NATELCO) vs. Court of Appeals, 230 SCRA 351, GR
No. 107112. February 24, 1994
Philippine National Construction Corp. (PNCC) vs. Court of Appeals, GR No.
116896. May 5, 1997
Eastern Telecommunications Philippines vs. Eastern Telecoms Employees
Union, G.R. No. 185665 February 8, 2012

IV. Condonation or Remission

A. Concept – Art. 1270

B. Requisites
C. Kinds
1. As to extent: total or partial
2. As to form: express or implied
D. Governing rules
1. Extent of remission, whether express or implied; rules on inofficious donations
– Art. 1270 par. 2; Art. 750, 751, 771
2. Form of express donation; applicability of law on donation – – Art. 1270, par.
2; Art. 748, 749

CASE:
Victor Yam & Yek Sun Lent vs. Court of Appeals, G.R. No. 104726. February 11,
1999

E. Presumptions – Art. 1271, 1272, 1274

F. Effect of renunciation of principal or accessory obligation – Art. 1273; rationale

V. Confusion or Merger of Rights

A. Concept
B. Requisites
C. Effects
1. Obligation is extinguished – Art. 1275
2. In case of joint obligation – Art. 1277
3. In case of solidary obligations – Art. 1215
D. Confusion in principal or accessory obligation – Art. 1276

VI. Compensation

16
 A. Concept – Art. 1278
Note: Distinguished from confusion

B. Kinds
1. As to extent: total or partial – Art. 1281
2. As to origin: legal, conventional, judicial, facultative

C. Legal Compensation
1. Requisites- Article 1279, 1280
Note: “Due” distinguished from “demandable”

2. Effects – Art. 1290, 1289

CASE:
Gan Tion vs. Court of Appeals, et al, 28 SCRA 235, GR No. L-22490. May 21, 1969
Silahis Marketing Corp. vs. Intermediate Appellate Court, 180 SCRA 21, G.R. No. 74027.
December 7, 1989
Bank of the Philippine Islands vs. Court of Appeals, 255 SCRA 571, G.R. No. 116792.
March 29, 1996
PNB vs. Court of Appeals, 259 SCRA 174, G.R. No. 108052. July 24, 1996
Mirasol vs. Court of Appeals, 351 SCRA 44, G.R. No. 128448. February 1, 2001
Montemayor v. Millora, G.R. No. 168251, 27 July 2011

D. Conventional compensation – Art. 1282

E. Judicial compensation – Art. 1283

F. Effect of if one or both debts are rescissible or voidable– Art. 1284

G. Effects of assignment of Credit

1. With consent of debtor- Article 1285, par. 1
2. With knowledge but without the consent of the debtor- Article 1285, par. 2
3. Without knowledge of debtor- Article 1285, par. 3

H. Compensation of debts payable in different places – Art. 1286

I. When compensation is not allowed – Art. 1287, 1288

J. Rule when there are several debts – Art. 1288

VII. Novation

A. Concept – Art.1291
B. Requisites – Art. 1292

CASES:
Magdalena Estates, Inc. vs. Rodriguez, 18 SCRA 967, G.R. No. L-18411. December 17,
1966
Reyes vs. Court of Appeals, 264 SCRA 35, G.R. No. 120817. November 2, 1996
Cochingyan, Jr. vs. R & B Surety and Insurance Co., Inc., 161 SCRA 339
G.R. No. L-47369. June 30, 1987
Broadway Centrum Condominium Corporation vs. Tropical Hut Food Market, Inc., 224
SCRA 302, G.R. No. 79642. July 5, 1993.

17
 California Bus Lines, Inc. vs. State Investment House, Inc., 418 SCRA 297, G.R. No.
147950. December 11, 2003
Sime Darby Philippines. Vs. Good Year Philippines, June 8, 2011

C. Kinds
1. As to form: express or implied
2. As to object/essence: objective/real, subjective/personal (substitution or
subrogation), or mixed
3. As to effect: total or partial
E. Express or implied novation – Art. 1292
D. Objective novation – Art. 1291 [1]
1. Change in the cause
2. Change in object
3. Change in principal conditions; meaning of “principal conditions”
E. Subjective novation –
1. Substitution of the person of the debtor - Art. 1291 [2], 1293
i. Expromission (without knowledge or against the will of the original
debtor) – Art. 1294
ii. Delegacion (new debtor proposed by the original debtor) – Art. 1295

CASES:
Garcia vs. Llamas, 417 SCRA 293, G.R. No. 154127. December 8. 2003
Quinto vs. People, G.R. No. 126715. April 14, 1999

2. Subrogation of the person of the creditor – Art. 1291 [3], 1300

i. Conventional – Art. 1301
ii. Legal – Art. 1302
iii. Effect of subrogation – Art. 1303, 1304

CASE:
Licaros vs. Gatmaitan, 362 SCRA 548, G.R. No. 142838. August 9, 2001
Astro Electronics Corp. vs. Philippine Export and
Foreign Loan Guarantee Corp., 411 SCRA 422, G.R. No. 136729. Sep. 23, 2003

D. Effect
1. Principal Obligation is extinguished – Art. 1296
2. When accessory obligation may subsist – Art. 1296
3. If new obligation is void – Art. 1297
4. If original obligation is void – Art. 1298
5. If original obligation is subject to suspensive or resolutory condition – Art.
1299
6. Of subrogation of the rights of the creditor – Art. 1303, 1304

VIII. Prescription

A. General Provisions – Art. 1106-1107

1. Kinds – Art. 1106
a. Acquisitive prescription
b. Extinctive prescription
2. Persons who may acquire property by prescription (acquisitive) – Art. 1107
3. Against whom prescription (acquisitive or extinctive) may run against for or
against – Art. 1108-1111
4. Renunciation of prescription – Art. 1112, see also Art. 1114

18
 5. Objects which may be acquired by prescription (acquisitive) – Art. 1113
6. Rights of creditor or persons interested in prescription – Art. 1114
7. Governing law on prescription – Art. 1115
8. Rule on prescription running before effectivity of the Civil Code – Art. 1116

CASES:
Morales v. CFI, 97 SCRA 872.
Catholic Bishop of Balanga v. Court of Appeals, G.R. No. 112519, November 14, 1996.
Calicdan v. Cendana, G.R. No. 155080, February 5, 2004.

B. Acquisitive prescription
1. Meaning
2. Kinds of acquisitive prescription
a. Ordinary
b. extraordinary
3. Requisites
a. Ordinary acquisitive prescription

4. Possession
a. Concept of adverse possession – Art. 1118, 1119
c. When possession interrupted – Art. 1120-1125
5. Good faith; meaning – Art. 1127, 1128; 526,527,528, 529
6. Just title (titulo colorado)
a. Meaning – Art. 1129
b. True and valid – Art. 1130
c. Not presumed – Art. 1131
d. Distinguish just title required for prescription (titulo colorado) with just
title under Art. * (titulo verdado)
7. Period prescribed by law – Art. 1132, 1133, 1134, 1137, 1141
8. Rules on registered properties – Art. 1126
9. Possession by mistake – Art. 1135
10. Possession in wartime – Art. 1136
11. Rules for computation of time necessary for prescription – Art. 1138

CASES:
Heirs of Marcelina Arzadon-Crisologo v. Ranon, G.R. No. 171068, September 5, 2007.
Heirs of Spouses Tanyag v. Gabriel, G.R. No. 175763, April 11, 2012.
Ayala de Roxas v. Magalonso, 8 Phil.745.
Santiago v. Cruz, 19 Phil. 145.
Razote v. Razote, 49 Phil. 182.

C. Extinctive prescription
1. Meaning – Art. 1139
2. Action to recover movable – Art. 1140
3. Action to recover immovable – Art. 1141
4. Prescriptive period of certain actions – Art. 1142-1147;1148
5. Prescriptive period of actions not fixed by law – Art. 1149
6. When prescriptive period commences
a. All kinds of action – Art. 1150
b. When object is enforcement to pay principal with interest – Art. 1151
c. Demand fulfillment of obligation declared by judgment – Art. 1152
d. Demand accounting – Art. 1153
7. Effect of fortuitous event – Art. 1154

19
 8. When prescription is interrupted – Art. 1155

CASES:
Antonio v. Morales, G.R. No. 165552, January 23, 2007.
PLDT v. Pingol, G.R. No. 182622, September 8, 2010.
Iringan v. CA, G.R. No. 129107, September 26, 2001.
Castillo v. Torrecampo, G.R. No. 139033,December 18, 2002.
Republic of the Philippines v. Cojuangco, G.R. No. 139930, June 26, 2012.
Jadewell Parking Systems Corporation v. Lidua, G.R. No. 169588, October 7, 2013.

IX. OTHER CAUSES

20
 Title Two: CONTRACTS

Chapter 1. General Provisions

I. Definition – Art. 1305

II. Elements

A. Essential elements – Art. 1318 (See Chapter 2, infra)

1. Consent
2. Object
3. Cause
B. Natural elements
C. Accidental elements

III. Characteristics

A. Freedom or right to contract (principle of autonomy) – Art. 1306

CASES:
Gabriel vs Monte de Piedad y Caja de Ahorros, 71 Phil 497, G.R. No. 47806,
April 14, 1941
Pakistan International Airlines vs. Ople, 190 SCRA 90, G.R. No. 61594,
September 28, 1990 – principle of autonomy applied to employment contracts

1. Special disqualifications – qualifications of parties to contract

a. Article 87 of the Family Code
b. Articles 1490 and 1491 of the Civil Code
c. Article 1782 of the Civil Code
1. What parties may not stipulate – Art. 1306
a. Contrary to law, e.g.:
i. Pactum commissorium (Art. 2088)
ii. Pactum leonine (Art. 1799)
iii. Pactum de non alienado (Art. 2130)
b. Contrary to morals
c. Contrary to good customs
d. Contrary to public order

CASES:
Cui vs. Arellano University, 2 SCRA 205, G.R. No. L-15127. May 30, 1961
Arroyo vs. Berwin, 36 SCRA 387, G.R. No. 10551. March 3, 1917
Filipinas Compania de Seguros vs. Mandanas, 17 SCRA 391, G.R. No. L-
19638 June 20, 1966
Avon Cosmetics, Inc. v. Luna, G.R. No. 153674, December 20, 2006
Rivera v. Solidbank, G.R. No. 163269, April 19, 2006
Bustamante vs. Rosel, 319 SCRA 413, G.R. No. 126800. November 29,
1999 – pactum commissorium; requisites
Magbanua v. Uy, G.R. No. 161003, May 6, 2005 – compromise agreement

B. Obligatory force – Art. 1308; 1159, 1315, 1356

C. Mutuality – Art. 1308-1310 (see also Art. 1473)

21
 CASE:
GSIS vs. CA and Spouses Leuterio, 228 SCRA 183, G.R. No. 195567,
November 25, 1993 – unilateral upward adjustment of the purchase
price; no mention of the code
PS Bank vs. Spouses Castillo, et al. 30 May 2011 – unilateral adjustment
of interest rates; Art. 1308

D. Relativity

1. Persons bound by contracts

a. Parties, their assigns and heirs – Art. 1311, par. 1
b. Exceptions – Art. 1311, par. 1

CASES:
The Manila Railroad Co. vs. La Compañia Transatlantica, 38 SCRA 875,
G.R. No. 11318. October 26, 1918- ??
DKC Holdings Corporation vs. Court of Appeals, 329 SCRA 666, G.R. No.
118248, April 5, 2000

2. Effect of contracts on third persons –

a. General rule – no effect on third persons

b. Exceptions –
i. Stipulation in favor of third persons (stipulations pour autrui) –
Art. 1311, par. 2

CASES:
Florentino vs. Encarnacion, Sr., 79 SCRA 192, G.R. No. L-
27696, September 30, 1977
Coquia vs. Fieldmen’s Insurance Co., Inc., 26 SCRA 178,
G.R. No. L-23276, November 29, 1968
Constantino vs. Espiritu, 39 SCRA 206, G.R. No. L-22404,
31 May 1971
Integrated Packaging Corp. vs. Court of Appeals, 333
SCRA 170, G.R. No. 115117, June 8, 2000
Spouses Mamaril vs. BSP, et al, G.R. no. 179382 January
14, 2013

ii. Contracts creating real rights – Art. 1312

CASE:
Sps. Paderes v. Sps. Bergardo, G.R. No. 147074, July 15,
2005

iii. Contracts in fraud of creditors – Art. 1313,1380, 1381 [3]

iv. Interference by third persons (tortious interference) – Art. 1314

CASE:
Daywalt vs. Corporacion PP Augustinos Recoletos, 103
Phil 444, G.R. No. 13505. February 4, 1919

22
 So Ping Bun vs. Court of Appeals, 314 SCRA 751, G.R. No.
120554, September 21, 1999

2. No one may contract in the name of another- Article 1317

CASE:
Guiterrez Hmnos. vs. Orense, 28 Phil. 571, G.R No. 9188, 4 December
1914

IV. Parties

A. Auto-contracts
C. Freedom to contract- Article 1306

IV. Stages
A. Preparation (policitation)
B. Perfection
C. Consummation or death

Case
Swedish Match v. Court of Appeals, G.R. No. 128120, 20 October 2004

V. Classification

A. According to name
1. Nominate (e.g., sale, lease, mortgage)
2. Innominate – Art. 1307
a. Do ut des
b. Do ut facia
c. Facio ut facias
d. Facio ut des

CASE:
Caoibes v. Caoibes-Pantoja, G.R. No. 162873, July 21, 2006

B. According to perfection
1. Consensual – perfected by mere consent– Art. 1315
2. Real – perfected by delivery of the object – Art. 1316
3. Solemn – prescribed form is essential for perfection

CASE:
Limketkai Sons Milling Inc. v. Court of Appeals, G.R. No. 118509,
December 1, 1995

C. According to its relation to other contracts

1. Preparatory
2. Principal
3. Accessory

D. According to subject matter

1. Things
2. Services

23
 E. According to form
1. Common or Informal
2. Special or Formal

E. According to the nature of the vinculum produced

1. Unilateral
2. Bilateral
3. Reciprocal

F. According to cause
1. Onerous (e.g., sale)
2. Gratuitous (e.g., donation, commodatum)

G. According to risk
1. Commutative (e.g., sale)
2. Aleatory (e.g., insurance)

H. According to purpose
1. Transfer of ownership (e.g., sale)
2. Conveyance of use (e.g., commodatum)
3. Rendition of services (e.g., agency)

VII. As distinguished from a perfected promise and an imperfect promise (policitacion)

VIII. With respect to third persons

A. Stipulation in favor of third persons (stipulations pour autrui)-

Article 1311, par. 2

CASES:
Florentino vs. Encarnacion, Sr., 79 SCRA 192, G.R. No. L-27696. September 30, 1977
Coquia vs. Fieldmen’s Insurance CO., Inc., 26 SCRA 178, G.R. No. L-23276. November 29, 1968
Constantino vs. Espiritu, 39 SCRA 206, G.R No. L-22404, 31 May 1971
Integrated Packaging Corp. vs. Court of Appeals, 333 SCRA 170, G.R. No. 115117. June 8, 2000
Spouses Mamaril vs. BSP et al, 14 January 2013

B. Possession of the object of contract by third persons- Article 1312

A. Creditors of the contracting parties- Article 1313
B. Interference by third persons- Article 1314

CASES:
Daywalt vs. Corporacion PP Augustinos Recoletos, 103 Phil 444, G.R. No. 13505. February 4, 1919
So Ping Bun vs. Court of Appeals, 314 SCRA 751, G.R. No. 120554. September 21, 1999

VI. Status of contracts Entered in the Name of Another with no Authority or Acted Beyond
his Power; Unenforceable unless Ratified – Art. 1317

Read also: Art. 1403 [1] – unenforceable contracts; 1898 – agent contracts in the name of
the principal, but exceeding his power

24
Chapter 2. Essential Requisites of Contracts

I. Consent

A. Requisites - Art. 1315, 1319

1. Concurrence of the offer and acceptance – Art. 1319

CASES:
Rosenstock vs Burke, 46 Phil. 217, G.R. No. 20732. September 26, 1924
Malabrosa vs. CA, 402 SCRA 168 (2003)
CF Sharp Inc. vs. Agustin, et al., 15 February 2012
SSE Inv. vs. PRC et al., 18 January 2012
Manzano vs. Garcia, 28 November 2011

a. Offer
i. Must be certain – Art. 1319
ii. Offeror may fix time, manner, and place of acceptance – Art.
1321
iii. When made through an agent – Art. 1322
iv. Circumstance when the offeror has become ineffective – Art.
1323
v. Business advertisements of things for sale; not definite offers
but invitations to make offer – Art. 1325
vi. Advertisements for bidders; invitations to make proposals- Art.
1326

CASE:
Jardine Davies vs. Court of Appeals, 333 SCRA 684, G.R. No. 128066. June 19, 2000
PMO vs. STRADEC, G.R. No. 200402, 13 June 2013

b. Acceeptance
i. must be absolute- Article 1319
ii. kinds
• Express- Article 1320
• Implied- Article 1320
• Qualified- Article 1319
iii. if made by letter or telegram- Article 1319, par. 2
• Four theories on when the contract is perfected:
v Manifestation Theory
v Expedition Theory
v Reception Theory
v Cognition Theory
iv. Period of acceptance- Article 1324

CASE:
Sanchez vs. Rigos, 45 SCRA 369, G.R. No. L-25494. June 14, 1972

v. Contract of Option- Article 1324

CASE:

25
Adelfa Properties Inc. vs. Court of Appeals, 240 SCRA 565, G.R. No. 111238. January 25, 1995

2. Necessary legal capacity of the parties

a. Who cannot give consent- Article 1327
b. When offer and/or acceptance is made
i. during lucid interval
ii. in a state of drunkenness
iii. during a hypnotic spell
3. The consent must be intelligent, free, spontaneous, and real-
Articles 1330, 1346
a. Effect- Article 1330
b. Vices of consent
i. Mistake or error
• kinds
v Mistake of fact
Ø as to substance of the thing of the object of the
obligation
Ø as to principal conditions
Ø as to identity or qualifications of one of the
parties
Ø as to quantity, as distinguished from a simple
mistake of account

CASE:
Dumasug vs Modelo, 34 SCRA 252, G.R. No. L-10462. March 16, 1916
Hemedes vs. Court of Appeals, 316 SCRA 347, G.R. No. 107132 & 108472. October 8, 1999
Katipunan vs. Katipunan Jr., 375 SCRA 199, G.R. No. 132415. January 30, 2002

v inexcusable mistake
ii. Violence and intimidation- Article 1335
- effect- Article 336

CASE:
Martinez vs. Hongkong and Shanghai Bank, 15 SCRA 252, G.R. No. 5496 February 19, 1910

iii. Undue influence- Article 1337

iv. Fraud or dolo- Article 1338

CASES:
Hill vs. Veloso, 31 Phil 161 (1915)
Woodhouse vs. Halili, 93 Phil. 527, G.R. No. L-4811. July 31, 1953
Geraldez vs. CA, 230 SCRA 321, G.R. No. 108253. February 23,1994

• Kinds
v Dolo causante- Article 1338
v Dolo incidente- Article 1344, par. 2
• Failure to disclose facts; duty to reveal them-
Article 1339

CASES:
Tuason vs. Marquez, 45 SCRA 381, G.R. No. 20659. November 3, 1923.

26
Rural Bank of Sta. Maria, Pangasinan vs. Court of Appeals, 314 SCRA 255, G.R. No. 110672
(1999)

• Usual exaggerations in trade; opportunity to know the facts-

Article 1340

CASES:
Azarraga vs. Gay, 52 Phil. 599, G.R. No. 29449. December 29, 1928.
Trinidad vs. Intermediate Apellate Court, 204 SCRA 524, G.R. No. 65922. December 3, 1991

• Mere expression of an opinion- Article 1341

v Effects- Article 1344
v. Misrepresentation
• By a third person= Article 1342
• Made in good faith- Article 1343
• Active/ passive

CASES:
Mercado and Mercado vs. Espiritu, 37 Phil. 215, G.R. No. 11872. December 1, 191,
Braganza, et al. vs. De Villa Abrille, 105 Phil. 456, G.R. No. L-12471. April 13, 1959

vi. Simulation of contracts

CASES:
Suntay vs. Court of Appeals, 251 SCRA 431, G.R. No. 114950. December 19,1995.
J.R. Blanco vs. Quasha, 318 SCRA 373, G. R. No. 133148. November 17,1999

• Kinds- Article 1345

v Absolute
v Relative
• Effects- Article 1346
II. Object of Contracts

A. What may be the objects of contracts- Article 1347

1. All things not outsisde the commerce of man
2. All things not intransmisible
3. All services not contrary to law, morals, good customs, public order,
public policy
B. Requisite - must be determinate as to its kind- Article 1349
C. What may not be the objects of contracts
1. Future inheritance, except when authorized by law- Article 1347

CASES:
Blas vs. Santos, 1 SCRA 899, G.R. No. L – 14070
Tañedo vs. Court of Appeals, 252 SCRA 80, G.R. No. 104482. January 22, 1996

2. Impossible things or services- Article 1348

III. Cause of Contracts

A. Meaning of cause- Article 1350

1. In onerous contracts

27
 2. In renumenatory contracts
3. In contracts of pure beneficence
B. As distinguished from motive- Article 1351
C. Defective causes and their effects
1. Absence of cause and unlawful casue- Article 1352

Case:
Liguez vs. CA, 102 Phil 577

2. Statement of fa falkse cause in the contract- Article 1353

3. Lesion or inadequacy of cause- Article 1355

Cases:
Carantes vs. Court of Appeals, 76 SCRA 514, G.R. No. L-33360. April 25, 1977.
Buenaventura vs. Court of Appeals, 416 SCRA 263, G.R. No. 126376. Nov. 20, 2003

D. Presumption of the existence and lawfulness of a cause, though it is not stated in the
contract- Article 1354

i. Price certain in money or its equivalent

Note: “Manner of payment of the purchase price” is an essential element before a valid and binding
contract of sale can exist.

3
Case
San Miguel Properties Philippines v. Sps. Huang, G.R. No. 137290, 31 July 2000

Form of Contracts

I. General Rule: Contracts shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present.

II. Exception: When the law requires that a contract be in some form in order that it may be valid or
enforceable (Angllo- Amrican principle)- Article 1356, Article 1358

CASE:
Dauden-Hernaez vs. De los Angeles, 27 SCRA 1276, G.R. No. L-27010. April 30, 1969
Meneses vs. Venturozo, 19 October 2011
Sabitsana vs. Muertegui, G.R. No. 181359, 5 August 2013

III. Kinds of formalities required by law

A. Those required for thei validity of contracts, such as those referred to in Articles 748,
79, 1874, 2134, 1771, 1773
B. Those required, not for validity, but to make the contract effective as against third
persons, such as those covered by Articles 1357 and 1358
C. Those required for the purpose of providing existence of the contract, such as those
under the Statue of Frauds in Article 1403

28
Reformation of Instruments

I. Requisites- Article 1359

A. Meeting of the minds upon the contract;

B. The true intention of the parties is not expressed in the instrument; and
C. The failure of the instrument to express the true agreement is due to mistake, fraud,
inequitable conduct or accident.

CASES:
Garcia vs. Bisaya, et al., 97 Phil. 609, G.R. No. L-8060. September 28, 1955.
Rosello – Bentir vs. Leanda, 330 SCRA 591, G.R. No. 128991. April 12, 2000

II. Cases where no reformation is allowed- Article 1366

III. Implied Ratification- Article 1367

IV. Who may ask for reformation- Article 1368

V. Procedure of reformation- Article 1369

CASES:
Atilano vs. Atilano, 28 SCRA 231, G.R. No. L- 22487. May 21, 1969
Carantes vs. Court of Appeals, 76 SCRA 514, G.R. No. L-33360. April 25, 1977
Sarming vs. Dy, 383 SCRA 131, G.R. No. 133643. June 6, 2002

Interpretation of Contracts
(Compare with Rules on Statutory Construction)

I. Primacy of intention- Article 1370, 1372

CASES:
Borromeo vs. Court of Appeals, 47 SCRA 65, G.R. No. L-22962. September 28, 1972

II. How to determine intention - Article 1371

III. How to interpret a contract

A. When it contains stipulations that admit several meanings - Article 1373
B. When it contains various stipulations, some of which are doubtful-
Article 1374
C. When it contains words that have different significations- Article 1375
D. When it contains ambiguities and omission of stipulations- Article 1376
E. With respect to the party who caused the ambiguity- Article 1377
F. When it is absolutely impossible to settle doubts by rules above- Article 1378
G. When the doubts are cast upin the principal object so that the intention cannot be
known- Article 1378

IV. Applicability of Rule 123, Rules of Court (now Sections 10-19, Rule 130)

Rescissible Contracts

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I. Kinds - Article 1381

II. Characteristics
A. Their defect consists in injury or damage either to one of the contracting parties or to
third persons.
B. They are valid before rescission.
C. They can be attacked directly only and not collaterally.
D. They can be attacked only either by a contracting party or by a third person who is
injured or defrauded
C. They can be convalidated only by prescription and not by ratification.

III. Rescission- Article 1380, Article 1381

A. Definition
B. As distinguished from rescission under Article 1191

CASE:
Universal Food Corporation vs. Court of Appeals, 33 SCRA 1, G.R. No. L-29155 May 13, 1970
Ada vs. Baylon, 13 August 2012

C. Requisites
1. The contract is rescissible.
2. The party asking for rescission has no other legal means to obtain reparation.-
Article 1383
3. He is able to return whatever he may be obliged to restore if rescission is granted -
Article 1385
4. The object of the contract has not passed legally to the possession of a third
person acting in good faith - Article 1385
5. The action for rescission is brought within the prescriptive period of four years -
Article 1389

D. Effect of rescission- Article 1385

1. With respect to third persons who acquired the thing in good faith-
Article 1385, par. 2 nad par. 3
E. Extent of rescission- Article 1384
F. Presumptions of fraud- Article 1387
1. Badges of fraud

CASES:
Oria vs. McMicking, 21 Phi. 243, G.R. No. 7003. January 18, 1912
Siguan vs. Lim, 318 SCRA 725, G.R. No. 134685. November 19, 1999.
Suntay vs. Court of Appeals, 251 SCRA 431, G.R. No. 114950. December 19,1995

G. Liability of acquiring in bad faith the things alienated in fraud of creditors - Article 1388

Voidable or Annullable Contracts

I. Kinds- article 1390

II. Characteristics

A. Their defect consists in the vitiation of consent of one of the contracting parties.

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 B. They are binding until they are annulled by a competent court.
C. They are susceptible of co-validation by ratification or by prescription.

III. Annulment

A. As distinguished from rescission

B. Grounds- Article 1390
C. Who may and may not institute action for annulment- Article 1397

CASES:
Singsong vs. Isabela Sawmill, 88 SCRA 732, G.R. No. L-27343 February 28, 1979

D. Prescription- Article 1391

E. Effect
1. Mutual restitution- Articles 1398 and 1402

CASES:
Cadwallader & Co. vs. Smith, Bell & Co., 7 Phil. 461, G.R. No. 3246. February 9, 1907
Velarde, et al. vs. Court of Appeals, 361 SCRA 56, GR No. 108346. July 11, 2001

a. When one of the parties is incapacitated- Article 1399

b. When the thing is lost through the fault of the party obliged to return the
same- Article 1400

F. Extinguishment of the action

1. By ratification- Article 1392
2. When the things is lost through the fault of the person who has the right to file the
action- Article 1401

IV. Ratification

A. Requisites
1. The contarct is voidable.
2. The ratification is made with knowledge of the cause for nullity.
3. At the time of the ratification, the cause of nullity has already ceased to exist.
B. Forms
1. Express or tacit- Article 1393
2. By the parties themselves or by the guardian in behalf of an incapacitated party-
Article 1394
C. Effects
1. Action to annul is extinguished- Article 1392

CASES:
Uy Soo Lim vs. Tan Unchuan, 38 Phil. 552, G.R. No. 12605. September 7, 1918

2. The contract is cleansed retroactively from all its defects- Article 1396

Uneforceable Contracts

I. Characteristics

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 A. They cannot be enforced by a proper action in court.
B. Theya re susceptible of ratification.
C. They cannot be assailed by third persons.

II. Kinds- Article 1403

A. Unauthorized contracts
1. Governing rules- Article 1404
B. Contarcts covered by the Statute of Frauds
1. Purpose of Statute

CASES:
Philippine National Bank vs. Philippine Vegetable Oil Co., 49 SCRA 857, G.R. No. 25400. January
14, 1927
Limketkai Sons Milling, Inc. vs. Court of Appeals, 250 SCRA 523, G.R. No. 118509. December 1,
1995
Swedish Match vs. Court of Appeal, 441 SCRA 1, G.R. No. 128129. October 20, 2004

2. How ratified- Article 1405

CASE:
Carbonnel vs. Poncio, et al. , 103 Phil. 655, G.R. No. L-11231. May 12, 1958

3. right of the parties when a contract is enforceable but a public document is

necessary for its registration- Article 1406

C. Contracts executed by parties who are both incapable of giving consent to a contract
1. Effect of ratification by the parents or guardian of one of the parties-
Article 1407
2. Effect of ratification by the parents or guardian of both parties-
Article 1407

Void or Inexistent Contracts

I. Characteristics

A. Void from the beginning

B. Produces no effect whatsoever
C. Cannot be ratifies- Article 1409

II. Kinds- Article 1409

A. Contracts that are void

1. Those whose cause, object or purposes is contrary to law, morals, good customs,
public order, or public policy
a. When the act constitutes a criminal offense- Article 1411
i. in pari delicto rule

CASE:
Ubarra vs. Mapalad, 220 SCRA 224, A.M. No. MTJ-91-622. March 22, 1993

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 b. When the act is unlawful but does not constitute a criminal offense - Article
1412
i. in pari delicto rule

CASES:
Modina vs. Court of Appeals, 617 SCRA 696, G.R. No. 109355. October 29, 1999

c. When the purpose is illegal and money isa paid or property delivered
therefore- Article 1414
d. When the contract is illegal and one of the parties is incapable of giving
consent- Article 1415

CASES:
Liguez vs. Court of Appeals, 102 SCRA 579, G.R. No. L-11240. December 18, 1957
Rellosa vs. Gaw Chee Hun, 93 Phil. 827, Gr. No. L-1411 September 29, 1953

e. When the agreement is not illegal per se but is prohibited-

Article 1416

CASES:
Philippine Banking Corporation vs. Lui She, 21 SCRA 53
Alfred Fritz Frenzel vs. Ederlina Catito, 406 SCRA 55, G.R. No. L-50449. July 11, 2003

f. When the amount paid exceeds the maximum fixed by law-

Article 1417
g. When by virtue of a contract a laborer undertakes to work
longer than the maximum number of hours of work fixed by
law- Article 1418
h. When a laborer agrees to accept a lower wage than that set
by law- Article 1419
i. When the contract is divisible- Article 1420
j. When the contract is the direct result of a previous illegal
contract- Article 1422
k. Ultra vires acts
CASE:
Land Bank of the Philippines vs. Casaguran, 17 April 2013

2. Those whose object is outside the commerce of man.

3. Those which contemplate an impossible service.
4. Those where the intention of the parties relative to the principal object of
the contract cannot be ascertained.
5. Those expressly prohibited or declared void by law.
B. Contracts that are inexistent
1. Those which are absolutely simulated or fictitious (see Articles 1345 and 1346).
2. Those whose cause or object did not exist at the time of the transaction

III. Right to set up defense of illegality cannot be waived- Article 1409

IV. The action or defense for the declaration of the inexistence of a contract

A. Does not prescribe- Article 1410

B. Is not available to third persons whose interest is not directly affected-

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 Article 1421

Natural Obligations

I. Definition- Article 1423

II. As distinguished from civil obligations- Article 1423
III. As distinguished from moral obligations

CASES:
Juan F. Villarroel vs. Bernardino Estrada, 71 Phil. 140, G.R. No. 47362 December 19, 1940.
A. O. Fisher vs. John C. Robb, 69 Phil. 101, No. 46274. November 2, 1939

IV. Conversion to Civil Obligation

A. By novation
A. By ratification

V. Examples- Article 1424 to 1430

Estoppel

I. Definition- Article 1431

CASES:
Kalalo vs. Luz, 34 SCRA 337, G.R. No. L-27782. July 31, 1970
Torbela vs. Spouses Rosano and BF Savings Bank, 7 December 2011
Hojas vs. Philippines Amonah Bank, 5 June 2013

II. Kinds
A. Technical estoppel
1. By record
2. By deed- Article 1433

III. Persons bound- Article 1439

CASE:
Manila Lodge No. 761 vs. Court of Appeals, 73 SCRA 168, G.R. No. L – 410001. September 30,
1976

IV. Cases where estoppel applies- Article 1434, 1438

Trusts

General Provisions
I. Definition

II. Governing rules- Article 1442

III. Parties- Article 1440

A. Trustor

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 B. Trustee
C. Beneficiary or cestul que trust

IV. Kinds- Article 1440

CASE:
Salao vs. Salao, 70 SCRA 65, G.R. No. L-26699. March 16, 1976

A. Express Trusts
1. Proof required- Article 1443
2. Form- Article 1444
3. Want of trustee- Article 1445
4. Acceptance by the beneficiary (Article 1441)

B. Implied Trusts
1. How established- Article 1441
2. How proved- Article 1457
3. Examples- Articles 1448 to 1456

CASES:
Fabian vs. Fabian, 22 SCRA 231, G.R. No. L-20449. January 29, 1968.
Mariano Tamayo vs. Aurelio Callejo, 46 SCRA 27, G.R. No. 156846. February 23, 2004
Goyanko vs. UCPB, G.R. No. 179096, 6 February 2013
Aznar vs. PNB, 20 May 2011
Republic vs. Sandiganbayan 12 April 2011
Spouses Dico vs. Vizcaya Management Corporation 17 July 2013
Juan vs. Yap 30 March 2011

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