CHAPTER 1: GENERAL PROVISIONS OF OBLIGATION while an act or omission is felonious because it punished by law, the criminal

act gives rise to civil liability as it caused damage to another.

Civil code art.1156-1304 OBLIGATION
Civil code art.1305-1422CONTRACTS Civil liability arising from delicts
 Restitution which is the restoration of or returning the object of the crime
What is obligation? to the injured party
It is a juridical necessity to give, to do, or not to do (Art.1156)  Reparation which is the payment by the offender of the value of the
Distinction between obligation and contract object of the crime, when such object cannot be returned to the injured
 contract is a bilateral (both parties has obligation to each other) while obligation party
is a unilateral obligation (only one party has an obligation)  Indemnification the consequential damages which includes the payment
All contract are obligations while not all obligations are contracts of other damages that may have been caused to the injured party
ELEMENTS OF OBLIGATION 4) Quasi-delicts as a source of obligation. It is one where by act or omission
 An active subject who has the power to demand the prestation, known as causes damage to another, their being fault of negligence, is obliged to pay for
the creditor or obligee the damages done. Such fault of negligence, if there is no pre-existing
 A passive subject who is bound to perform the prestation, known as the contractual relation between the parties (Art.2176).
debtor or obligor  The obligation imposed by Art.2176 is demandable not only for one’s
 An object or the prestation which may consist the act of giving, doing, or own act or omission, but also for those of person for whom one is
not doing something responsible.
 The vinculum or the juridical tie between the two subjects by reason of
which the debtor is bound in favor of the creditor to perform the prestation
SOURCE OF OBLIGATIONS CHAPTER 2: NATURE AND EFFECT OF OBLIGATION
1) Law refers to legal obligations or obligation imposed by a specific provision
of law which means that obligation arising from law are not presume and that NATURE AND EFFECT OF OBLIGATIONS
to be demandable must be clearly provided for, expressly or implied in the law Types of obligation according to its prestation:
2) Contract as defined in the art. 1305, NCC is the meeting of minds between 1. Real obligation obligation to give
two person whereby one bound himself with respect to other 2. Personal obligation obligation to do or not to do
3) Quasi-contract is the juridical relation resulting from a lawful, voluntary and
unilateral act which has for its purpose the payment of indemnity to the end REAL OBLIGATION
that no one shall unjustly enrich or benefited at the expense of another  Specific thing- particularly designated
(Art.2142, NCC) - physically designated
2 kinds of Quasi-contract  Generic thing- can be substituted by any
(a) Solutio indebiti (payment by mistakes)
(b) Negotiorum gestio (unauthorized management of another’s PERSONAL OBLIGATION
property)  Positive personal obligation (to do)
Other quasi-contract- when, without the knowledge of the person obliged to give  Negative personal obligation (not to do)
support, it is given by a stranger, the latter shall have a right to claim the same
from the former, unless it appear that he gave it out of pity and without intention of
being paid.
4) Delicts or act of omission punished by law as a source of obligation
 acts or omission punished by law is known as delicts or felony or crime
OBLIGATION OF THE DEBTOR AND RIGHTS AND REMEDIES OF e) To pay damages if guilty of fraud, negligence, dealy or
CREDITORS contravention of the term of the obligation (Art.1170)
Obligation of the debtor Rights of the creditor  OBLIGATION IN OBLIGATION DELIVER A GENERIC THING
Obligation to give a specific thing Principal rights a) To deliver thing
Obligation to give a generic thing Subsidiary rights b) To bear the expenses of having someone else to comply with the
Obligation to do obligation (Art.1165 par.2)
Obligation not to do c) To pay damages if guilty of fraud, negligence, delay or
contravention of the terms of the obligation (Art.1170)

RIGHTS OF CREDITOR OVER A THING  OBLIGATION IN OBLIGATION TO DO

Enforceable When Civil code a) To do the obligation
against acquired? provision b) To bear the expenses of having someone else to comply with the
whom? obligation (Art.1167 par.1)
Personal A specific From the time Art. 1164. c) To undo what has been poorly done (Art.1167 par.2)
passive subject obligation to The creditor d) To bear the expenses of having someone else undo what has been
deliver arises has a right to poorly done (Art.1167 par.2)
the fruit of e) To pay damages if guilty of fraud, negligence, delay or
the thing contravention of the terms of the obligation (Art.1178)
from the time
the  OBLIGATION IN OBLIGATION NOT TO DO
obligation to a) Not to do of what has been forbidden
deliver it b) To undo what has been done that is forbidden (Art.1168)
arises. c) To bear the expenses of having someone else undo what has been
However, he done that is forbidden (Art.1168)
shall acquire d) To pay damage of guilty of fraud, negligence, delay or
no rea; right contravention of the term of the obligation (Art.1178)
over iy until
the same has RIGHTS AND REMEDIES OF THE CREDITOR
been Principal right/remedies
delivered to  Ask specific performanceobligation to give specific thing
him.  Ask performance obligation to give generic thing and
Real Anyone Delivery -same above- obligation to do

 OBLIGATIONS IN OBLIGATION TO DELIVER A SPECIFIC THING  Ask substitute performanceobligation to give generic thing
a) To deliver the thing and obligation to do
b) To take care of the thing before deliver (Art.1163)  Ask damagesall obligations
c) To deliver the fruits of the thing (Art.1164)  Recession specific scenarios only
d) To deliver accessories although they were not mentioned  Attachmentexecution of debtors properties—usually the last
(Art.1166) remedies
 Subsidiary rights/remedies Unilateral obligation Reciprocal obligation
General rule: General rule:
 Accion subrogatoriaexercise all the rights of the debtor No demand, no delay Delay occurs from the moment
 Accion paulianato implign contract that were to defraud the one party fulfils his undertaking,
creditor while the other does not comply in
a proper manner with what is
Different types of breaches in obligation incumbent upon him.
Art.1170. Those who in the performance of their obligation are guilty of fraud, Exceptions: Exceptions:
negligence, delay and those who in any manner contravene the tenor thereof, are 1. The law or obligation so Different dates for the
liable for damages. declare performance of respective
2. Time is the controlling obligations are fixed by the parties.
Fraud motive for the
1. Casual fraud (dolo causante)- fraud in obtaining consent establishment of obligation
2. Incidental fraud (dolo incidente)- fraud in the performance of the 3. Demand would be useless
obligation
Note: there can also be incidental fraud while obtaining consent
FORTUITOUS EVENT (Caso fortuito)
Negligence Requisites:
1. Culpa aquilliana (quasi-delict) 1. The cause of the breach is independent of the debtor’s will
2. Culpa contractual (contract) 2. The event is unforeseeable or unavoidable
3. Culpa criminal (delict) 3. The event is such as to render it impossible for the debtor to fulfill his
obligation in a normal manner
Delay 4. The debtor did not take part in causing the injury to the creditor
1. Mora solvendi- delay of debtor General rule: No one is liable for fortuitous event
2. Mora accipendi- delay of creditor Exceptions:
3. Compensation morae- delay of both debtor and creditor (no delay) 1. Law or stipulation expressly so declare
 A possessor in bad faith shall be liable for deterioration or loss in
Fraud (dolo) Negligence (culpa) every case, even if caused by a fortuitous event. (Art.552)
Deliberate intent to cause damage Lack or insufficiency of diligence  The bailee in commodatum is liable for the loss of the thing, even
or injury to another required in a given situation if it should be through a fortuitous event for certain instances.
Liability cannot be mitigated by the Liability can be mitigated by the (Art.1942)
court court  The officious manager in negotiorum gestio shall be liable for any
Waiver of action for future fraud is Waiver of action for future fortuitous event in certain instances. (Art.2147)
void negligence may be valid 2. Nature of the obligation requires the assumption of risk
3. Obligation is other than obligation to give a specific thing
When is negligence equivalent to fraud? 4. Debtor is already in delay
when there is gross negligence. Damages:
1. Actual or compulsoryneed proof of pecuniary loss (e.g.,
copyright infringement Art.2199)
2. Moral (e.g., physical suffering, fright, serious anxiety etc.
Art.2217)
 3. Nominate (to vindicate or recognize a right Art.2221) TYPES OF OBLIGATIONS
4. Temperate or moderate (pecuniary loss cannot be proved with According to effect on obligation According to whose will it depend
certainty Art.2224) Suspensive- cause the birth of Potestative condition-
5. Exemplary or corrective (imposed to set an example for the public the obligation—(effective fulfilment depend upon the
good Art.2229) when the condition is done) will of one of the parties (may
6. Liquidated (damages agreed upon by parties to a contract be potestative on the part of
Art.2226) creditor or debtor)
Resolutory- condition that Casual condition- fulfilment
Presumptions- a rule of law which permits a court to assume a fact is true until cause the extinguishment of depends upon chance and or
such time as there is a preponderance (greater weight) of evidence which disproves the obligation—(directly will of a third person
or outweighs (rebuts) the presumption effective)
Mixed condition- fulfilment
2 kinds of presumption depends partly upon the will
1. Conclusive presumption- cannot be rebutted by additional evidence or of one of the parties and and
argument partly upon chance and or will
2. Disputable presumption- can be rebutted by additional evidence or of a third person
argument
 The receipt of the principal by the creditor, without reservation IMPOSSIBLE OBLIGATION
with respect to the interest, shall give rise to the presumption that Two types:
said interest has been paid. 1. Physically impossible condition- naturally impossible (ex: fly to the moon)
 The receipt of a later installment of a debt without reservation as 2. Legally impossible- naturally possible to happen/fulfilment is contrary to
to prior installments have been paid. law, morals, good custom, public order or public service (ex: kill, stole,
etc.)
Transmissibility of Rights
General Rule: All rights acquired in virtue of an obligation are transmissible Positive Condition- will do or will give
Exceptions: Negative Condition- will not, will not to do, will not give
1. Exempted by law (Right to vote during elections)
2. Exempted by stipulation (Scholarships that are not transferrable) (Article 1186) The conditions shall be deemed fulfilled when the obligor
3. Not transmissible by nature (Right to attend your own wedding voluntarily prevents its fulfillment (1119)
ceremony)
Constructive fulfillment of suspensive condition
Requisites:
CHAPTER 3: DIFFERENT KINDS OF OBLIGATIONS  The condition is suspensive
 The obligor actually prevents the fulfillment of the obligation; and
Sec.1 PURE AND CONDITIONAL OBLIGATION  He acts voluntarily
Pure obligationsobligation whose performance is not dependent upon a o The law does not require that the obligor acts with malice or fraud as long
condition or period. as his purpose is to prevent the fulfillment of the condition. He shoukd not
demandable at once be allowed to profit from his own fault or bad faith
Conditional obligationsobligations whose performance depends upon:
 Future and uncertain events; or
 Upon past events unknown to the parties
Constructive fulfillment of resolutory condition Through Debtor is Creditor may choose  Debtor may
Article 1186 applies also to an obligation subject to a resolutory condition with debtor’s liable for between: remove
respect to the debtor who is bound to return what he has received upon the fault/action damages 1. Rescission and improvement
fulfillment of the obligation. (Art.1190) damages; or provided that
2. Fulfillment and the thing will
Retroactive effects in suspensive condition (Art.1187) damages not be
 To give damaged by
 To do/not to do reason of
Retroactive effects as fruits and interests in obligations to give removal; or
(Art.1187) In Unilateral Obligation- fruits and interest received appropriate by the  He can offset
debtor. any
Reciprocal obligations- fruits and interest deemed mutually compensated. improvement
to damages
he may pay
RIGHTS OF THE CREDITOR & DEBTOR IN A COLLATERAL by reason of
OBLIGGATION (Art.1188) deterioration
of the thing
Lost, deterioration, and improvement of a thing during the pendency of the through his
obligation fault

Sec.2 OBLIGATION WITH A PERIOD Right of the Debtor in an Obligation with a period
2 types: Art.1195 “Anything paid or delivered before the arrival of the period, the obligor
 Suspensive Period (Ex Die)- period that makes the obligation demandable being unaware of the period or believing that the obligation has become due and
 Resolutory Period (In Diem)- period that terminates an obligation demandable, may be recovered, with the fruits and interests.”

CONDITION PERIOD Benefit of the period

 An uncertain event  Certain event Art.1196 “Whenever in an obligation a period is designated, it is presumed to
 Affects the existence of  Affects the demandability have been established for the benefit of both the creditor and the debtor, unless
obligation  Has no retroactive effect from the tenor of the same or other circumstances it should appear that the period
 Has retroactive effect  A suspensive period left to the has been established in favor of one or of the other.”
 A suspensive condition left to will of the debtor is makes the
the will of the debtor is makes obligation still valid Debtor losses benefit of the period
the obligation void  Refer only to future date Art..1198 The debtor shall lose every right to make use of the period:
1) When after the obligation has been contracted, he becomes insolvent,
Lost, deterioration, and improvement during pendency of a period unless he gives a guaranty or security for the debt;
Lost Deterioration Improvement 2) When does not furnish to the creditor the guaranties or securities which he
Through Debtor’s Borne by the creditor Inure to creditor’s has promised;
fortuitous liability is benefit 3) When by his own act he has impaired said guaranties or securities after
event/nature extinguished their establishment, when through a fortuitous event they disappear,
unless he immediately gives new ones equally satisfactory;
 4) When the debtor violates any undertaking, in consideration of which the The indemnity shall be fixed taking as a basis of the value of the last thing which
creditor agreed to the period; disappeared, or that of the service which last became impossible.
5) When the debtor attempts to abscond.
Damages other than the value of the last thing or service may also be awarded.
When court may fix period (Art.1204)
 if the obligation does not fix a period, but from its nature and
circumstances, it can be inferred that a period was intended When the choice has been expressly given to the creditor, the obligation shall
 if the period is void, such as when it depends upon the will of the debtor cease to be alternative from the day when the selection has been communicated to
 if the debtor bind himself when his means permit him to do so (Art.1180) the debtor.

Sec.3 ALTERNATIVE OBLIGATIONS Until the responsibility of the debtor shall be governed by the following rules:
Kinds of obligation according to number of prestation 1. If one of the things is lost through a fortuitous event, he shall perform the
1. Simple obligation- only one prestation obligation by delivering that which the creditor should choose from among
2. Compound obligation- two or more prestation the remainder, or that which remains if only one subsist;
a) Conjunctive obligation- all prestation must be fulfilled to 2. If the loss of one of the things occurs through the fault of the debtor, the
extinguish the obligation creditor may claim any of those subsisting, or the price of that which,
b) Alternative obligation- only one prestation must be fulfilled to through the fault of the former, has disappeared with a right to damages.
extinguish the obligation 3. If all the things are lost through the fault of the debtor, the choice by the
creditor shall fall upon the price of any one of them, also with indemnity
The right of choice belongs to debtor unless it has been expressly granted to the for damages.
creditor. The same rule shall be applied to obligations to do or not to do in case one, some
or all of the prestations should become impossible. (Art.1205)
The debtor shall have no right to choose those prestation which are impossible,
unlawful or which could not have been the object of the obligation (Art.1200) Facultative obligation- a variant of alternative obligation. An obligation with one
prestation but the debtor may render another in substitution.
The choice shall produce no effect except from the time it has been communicated.
(Art.1201) Loss or Deterioration of Prestation and Substitute
1. If loss/ deterioration of the prestation (principal prestation) happened
The debtor shall lose the right of choice when among the prestation whereby he is before substitution, debtor is liable if he is the cause of loss/deterioration.
alternatively bound, only one is practicable. Art1202 *from an alternative If the loss/deterioration of the substitute happened before substitution,
obligation, it is automatically a simple obligation. debtor is not liable even if he is the cause of loss.
2. If loss/deterioration of the prestation happened after substitution, debtor is
If through the creditor’s acts the debtor cannot make a choice according to the the cause of loss/deterioration. If the loss/deterioration of the substitute
terms of the obligation, the latter may rescind the contract with damages happened after substitution, debtor is liable if he is the cause of loss.
(Art.1203)
*if the prestation are lost via fortuitous events, generally the obligation is
extinguished, whether the rights of choice fell upon the debtor or the creditor Alternative Facultative
Two or more prestation Only one prestation
The creditor shall have a right to indemnity for damages when, through the fault of Debtor or the creditor Only debtor has the right
debtor, all the things which are alternatively the object of the obligation have been may have the right of of substitution
lost, or the compliance of the obligation has become impossible choice
 The illegality The
/impossibility of one illegality/impossibility Sec.5 DIVISIBLE AND INDIVISIBLE OBLIGATION (Art.1223-1225)
prestation does not of the prestation
invalidate the whole invalidates the whole The divisibility or indivisibility of the thing that are the object of the obligations in
obligation as long as obligation even if the which there is only one debtor and only one creditor does not alter or modify the
there are remaining valid substitute is valid. provisions of chapter 2 of this title. (Art.1223)
prestation.
A joint indivisible obligation gives rise to indemnity for damages from the time
anyone of the debtors does not comply with his undertaking. The debtors who may
Sec.4 JOINT AND SOLIDARITY OBLIGATIONS (Art.1207-1222) have been ready to fulfill their promises shall not contribute to the indemnity
The concurrence of two or more creditors or of two or more debtors in one and the beyond the corresponding portion of the price of the thing or of the value of the
same obligation does not imply that each one of the latter is bound to render, entire service in which the obligation consists. (Art.1224)
compliance with the prestation. There is a solidarity liability only when the
obligation expressly so states, or when the law or the nature of the obligation For the purpose of the preceding articles, obligations to give definite things and
requires solidarity. (Art.1207) those which are not susceptible of partial performance shall be deemed to be
 Refers to the juridical tie of the debtors or creditors indivisible.
 Concurrence of multiple creditors or debtors or both in one and same
obligation When the obligation has for its object the execution of a certain number of days of
work, the accomplishment of work by metrical units, or analogous things which by
their nature are susceptible of partial performance, it shall be divisible.
General rule: Identify whether the problem is joint or solidarity debtor/creditor the,
divide the shares as many as the creditors or debtors. If the problem is silent or not However, even though the object or service may be physically divisible, an
clear, then it is a joint obligation. obligation is indivisible if so provided by law or intended by the character of the
prestation in each particular case. (Art.1225)
Solidary- each one of the creditors has Joint- each one of the creditors has a
right to demand entire compliance right to demand compliance with Sec. OBLIGATION WITH A PENAL CLAUSE (Art.1226-1230)
with prestation; while each one of the prestation with regards to his share;
debtors has an obligation to render while each one of the debtors has an In obligations with a penal clause, the penalty shall substitute the indemnity for
entire compliance with the prestation. obligation to render compliance with damages and the payment of interests in case of noncompliance, if there is no
the prestation with regards to his stipulation to the contrary. Nevertheless, damages shall be paid if the obligor
share. refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

Other terms for: The penalty may be enforced only when it is demandable in accordance with the
Joint Solidary provisions of this code. (Art.1226)
 Jointly  joint and severally
General rule: Penalty serves as substitute to damages and interest
 Conjoint  In solidum
Exception:
 Mancomunada simple  Mancomunada solidaria
 Stipulation to contrary
 Pro rata  Juntos o separadamente
 Debtor refuses to pay penalty
 Proportionate  Individually and collectively
 Debtor is guilty of fraud
The debtor cannot exempt himself from the performance of the obligation by CHAPTER 4: EXTINGUISHMENT OF OBLIGATION
paying the penalty, save in the case where this right has been expressly reserved
for him. Neither can the creditor demand the fulfillment of the obligation and the PAYMENT OR PERFORMANCE
satisfaction of the penalty at the same time, unless this right has been clearly Who can pay?
granted him. However, if after the creditor has decided to require the fulfillment of Generally:
the obligation, the performance thereof should become impossible without his  Debtor
fault, the penalty may be enforced. (Art.1227)  Authorized agent Valid Payment
 Successor in interest
Proof of the actual damages suffered by the creditor is not necessary in order that
the penalty may be demanded. (Art.1228) 3rd Person:
Doesn’t intend to
The judge shall equitably reduce the penalty when the principal obligation has be reimbursed
been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the court if it is iniquitous or Key point:
unconscionable. (Art.1229) Interest in Not interested  Can refuse
fulfillment of in the With consent of the debtor
The nullity of the penal clause does not carry with it that of the principal the obligation fulfillment of  3rd person subrogated
obligation. The nullity of the principal obligation carries with it that of the penal the obligation Without consent of the debtor
clause.  Reimburse
 Not subrogated

Key points:
There will be valid payment and
 The creditor cannot refuse payment
 The debtor shall fully reimburse 3rd person
 The 3rd person is subrogated to the rights of the creditor

Interested person;
 Guarantor
 Sureties
 Preferred creditor
 Owner of securities

Who can pay?

Doesn’t intend to be reimburse
Key points:
 Creditor can refuse
 If debtor consent to payment it is deemed to be a donation
If debtor doesn’t consent
 The debtor shall reimburse the 3rd person
  The 3rd person is not subrogated to the right of creditor  creditor waives complete performance (Aart.1235)
 contrary stipulation
Who to pay? (creditor)  partly liquidated
Generally:
 Debtor
 Authorized agent Debtor may recover as if there
Substantial
 Successor interest had been complete
performance in good
What if incapacitated? fulfillment- less damages
faith (Art.1234)
General rule: Invalid payment suffered by creditor
Exception:
1. Kept the thing delivered
2. Payment benefits him Where to pay?

3rd person
 Valid if 3rd person proves that benefit rebounded to creditor General rule:
Benefit need not be proven on the following con: Wherever the thing
1. After the payment the 3rd person acquire the rights of the creditor Stipulation of parties Obligation to was at the moment
2. If the creditor ratifies the payment to the 3rd person give a specific obligation was
3. If by the creditor’s conduct, the debtor has been led to believe that the thing constituted
3rd person had authority to receive the payment
If no stipulation
What to pay? / What is to be paid?
 To give specific thing- debtor cannot compel the creditor to receive Any other type of Domicile of the
different thing even the latter has the same value or more valuable than obligation debtor
due (Art.1244)
 To give generic thing- creditor cannot demand superior quality; debtor
cannot deliver a thing of inferior quality unless quality and circumstances
have not been stated so the purpose of the obligation and other
UPON DEMAND
circumstances shall be taken into consideration (Art.1246)
 Obligation to do or not to do- an ac or forbearance cannot be substitute by
another act or forbearance against the blige’s will. (Art.1244 par.2)
 Obligation to give money the payment of debts in money shall be made
in thr currency stipulated and if it is not possible to deliver such currency,
then in the currency which legal tender in the Philippines. (Art.1249) When obligation is due and demandable but
debtor may pay before due date if period is
How to pay? for benefit of debtor
General rule:
 payment must be complete (Art.1233). The creditor or debtor cannot be
compelled to accept or make partial payment.
Exception:
SPECIAL MODES OF PAYMENT 1. When the creditor is absent or unknown, or does not appear at the
A. APPLICATION OF PAYMENT place of payment;
Requisites: 2. When he is incapacitated to receive the payment at the time it is
a) At least 2 debts or due due;
b) 1 debtor and 1 creditor only 3. When, without just cause, he refuse to give a receipt;
c) Application of payment can be made only on debts that are due 4. When two or more persons claim the same right to collect;
d) Payment cannot cover all debts due 5. When the title of the obligation has been lost.
e) Application can be made only to debts of the same kind Tender of Payment and Consignation
Requisites:
PAYMENTS BY CESSION vs. DATION IN PAYMENT 1. Debt is already due
B. Payment By Cession C. Dation In Payment 2. Tender of payment made but creditor refuse to accept payment without
valid cause
Debtor must be insolvent Debtor may or may not be insolvent 3. Notice of consignation to interested person is given (Art.1257)
4. Actual consignation of the sum due (Art.1258 par.1)
5. Notice to interested person that consignation was made must be given
Two or more creditor Plurality of creditors not required (Art.1258 par.2)

LOSS OF THE THING

Affects all properties of debtor except Affects only a specific property Related articles:
those exempted by law Article 1262
An obligation which consists in the delivery of a determinate thing shall be
extinguished if it should be lost or destroyed without the fault of the debtor, and
Right to sell passes to the creditor Ownership passes to the creditor before he has incurred in delay.

Obligation is fully extinguished When by law of stipulation, the obligor is liable even for fortuitous events, the loss
Obligation is extinguished up to the regardless of the existence of of the thing does not extinguish the obligation, and he shall be responsible for
extend of the proceeds from the deficiency in proceeds from the damages. The same rule applies when the nature of obligation requires the
properties property. Furthermore, the creditor is assumption of risk. (18882a)
not required to sell the property
Article 1263
D. TENDER OF PAYMENT AND CONSIGNATION In an obligation to deliver a generic thing, the loss or destruction of anything of
Tender of Payment- act of debtor showing intention of complying with his the same kind does not extinguish the obligation. (n)
obligation. In this section, tender of payments is valid if you are tendering a legal
tender. Article 1264
Legal tender- these are bills and coins issued by BSP. The courts shall determine whether, under the circumstances, the partial loss of
Consignation- made by depositing the things due at the disposal of juridical the object of the obligation is so important as to extinguish the obligation. (n)
authority before whom the tender of payment shall be proved in a proper case, and
the announcement of the consignation in other cases (Art.1258) Article 1265
Whenever the thing is lost the possession of the debtor, it shall be presumed that
General rule: There can be no consignation without a valid tender of payment the loss was due to his fault, unless there is a proof to the contrary, and without
Exception:
prejudice to the provisions of article 1165. This presumption does not apply in If in order to nullify this waiver it should be claimed to be inofficious, the debtor
case of earthquake, flood, storm, or other natural calamity. (1183a) and his heirs mays uphold it by proving that the delivery of the document was
made in virtue of payment of the debt. (1188)
Article 1266
The debtor in obligations to do shall be released when the prestation becomes Article 1272
legally or physically impossible without the fault of the obligor. (1184a) Whenever the private document in which the debt appears is found in the
possession of the debtor, it shall be presumed that the creditor delivered it
Article 1267 voluntarily, unless the contrary is proved. (1189)
When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole Article 1273
or in part. (n) The renunciation of the principal debt shall extinguish the accessory obligation;
but the waiver of the latter shall leave the former in force. (1190)

Article 1274
Article 1268 It is presumed that the accessory obligation of pledge, after its delivery to the
When the debt of a thing certain and determinate proceeds from a criminal creditor, is found in the possession of the debtor, or of a third person who owns
offense, the debtor shall not be exempted from the payment of its price, whatever the thing. (1191a)
may be the cause for the loss, unless the thing having been offered by him to the
person who should receive it, the latter refused without justification to accept it. CONFUSION OR MERGER OF RIGHTS
(1185) Related articles:
Article 1275 The obligation is extinguished from the time the characters of
Article 1269 creditor and debtor are merged in the same person
The obligation having been extinguished by the loss of the thing, the creditor shall Article 1276 “Merger which takes place in the person of the principal debtor or
have all the rights of action which the debtor may have against third person by creditor benefits the guarantors. Confusion which takes place in the person of any
reason of the loss. (1186) of the latter does not extinguish the obligation”
Article 1277 “Confusion does not extinguish a joint obligation except as regards
CONDONATION OR REMISSION OF THE DEBT the share corresponding to the creditor or debtor in whom the two characters
Related articles: concur”
Article 1270
Condonation or remission is essentially gratuitous, and requires the acceptance by COMPENSATION
the obligor. It may be made expressly or impliedly.
1) Legal Compensation
One and the other kind shall be subject to the rules which govern inofficious - Compensation that takes effect by operation of law, and extinguishes
donations. Express condonation shall, furthermore, comply with the forms of both debts to the concurrent amount, even though the creditors and
donation. (1187) debtors are not aware of the compensation (Art. 1290)
In order that compensation may be proper, it is necessary:
Article 1271  That each one of the obligors be bound principally, and that he be at the
The delivery of a private document evidencing a credit, made voluntarily by the same time a principal creditor of the other;
creditor to the debtor, implies the renunciation of the action which the former had  That both debts consist in a sum of money, or if the things due are
against the latter. consumable, they be of the same kind, and also of the same qualify if the
latter has been stated;
  That the two debts be due; Compensation in Assigned Debts
 That they be liquidated and demandable; How assigned? Extent of Compensation
 That over neither of them there be any retention or controversy by third With debtor’s consent- with Can setup compensation as to any
persons and communicated in due time to the debtor. reservation to compensation debts due
With debtor’s consent- without Cannot setup compensation as to any
Article 1280. Notwithstanding the provisions of the preceding article, the reservation to compensation debts due
guarantor may set up compensation as regards what the creditor may owe the Without debtor’s consent Can setup compensation as to debts
principal debtor. due prior to assignment
Without debtor’s knowledge Can setup compensation as to debts
2) Conventional or voluntary Compensation due prior to debtor gaining knowledge
Article 1282. The parties may agree upon the compensation of debts which are of assignment
not yet due.

3) Facultative Compensation 4) Judicial Compensation

(1) One of the debts arises from depositum or from the obligations of Article 1283. If one of the parties to a suit over an obligation has a claim for
a depositary or of a bailee in commodatum. (Art. 1287 par.1) damages against the other, the former may set it off by proving his right to said
(2) Up against a creditor who has a claim for support due by damages and the amount thereof.
gratuitous title (Art. 1287 par.2)
(3) One of the debts consists in civil liability arising from a penal KINDS OF NOVATION (Art. 1291)
offense. (Art. 1288) 1) Real Novation
2) Personal Novation
Article 1284. When one or both debts are rescissible or voidable, they may be I. Substitution (Debtor)
compensated against each other before they are judicially rescinded or avoided. a) Expromission
b) Delegacion
Article 1285. The debtor who has consented to the assignment of rights made by a II. Subrogation (Creditor)
creditor in favor of a third person, cannot set up against the assignee the a) Legal Subrogation
compensation which would pertain to him against the assignor, unless the b) Conventional Subrogation
assignor was notified by the debtor at the time he gave his consent, that he
deserved his right to the compensation.

If the creditor communicated the cession to him but the debtor did not consent
thereto, the latter may set up the compensation of debts previous to the cession,
but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the same and also later ones until he had
knowledge of the assignment.

Compensation takes place by operation of law, even thought the debts may be
payable at different places, but there shall be an indemnity for expenses of
exchange or transportation to the place of payment
Effects of Novation If the new obligation is void, the guarantors or possessors of mortgages, subject to stipulation in a conventional
original one shall subsist unless subrogation.
General rule: Old the parties intended that the
obligation is extinguished former relation should be Legal Subrogation
If new
and replaced by the new extinguished in any event. Happens when the following pays the creditor:
obligation is
one stipulated. (Art.1292) (Art.1297) 1) When a creditor pays another creditor who is preferred, even without the
void
debtor’s knowledge;
2) When a third person, not interested in the obligation, pays with the express
or tacit approval of the debtor;
3) When, even without the knowledge of the debtor, a person interested in the
Novation is void if the original obligation was void if the fulfillment of the obligation pays, without prejudice to the effects of
original obligation is voidable, effective if contract is confusion as to the latter’s share. (Art. 1302)
If the original
ratified before novation or annulment can only be
obligation is void Conventional Subrogation
claimed by the debtor (Art.1298)
Conventional subrogation of a third person requires the consent of the original
parties and of the third person. (Art.1301)

Effect of Novation on Accessory Obligation Partial Subrogation

When the principal obligation is extinguished in consequence of a novation, A creditor, to whom partial payment has been made, may exercise his right for the
accessory obligations may subsist only insofar as they may be benefit third persons remainder, and he shall be preferred to the person who has been subrogated in his
who did not give their consent. (Art.1296) place in virtue of the partial payment of the same credit. (Art.1304)

Substitution
Novation which consists in substituting a new debtor in the place of the original
one, may be made even without the knowledge or against the will of the latter, but
not without the consent of the creditor. Payment by the new debtor gives him the
rights mentioned in articles 1235 and 1237. (Art.1293)

Delegacion- when old debtor’s debt can be revived?

1) New debtor’s insolvency exists before or during the delegacion
2) The old debtor has knowledge of insolvency or if he has none, the new
debtor’s insolvency is of public knowledge.
- Article 1295

Expromission- when old debtor’s debt can be revived?

1) No revival (Article 1294)
2) There may be revival if old debtor is an accomplice of the new debtor

Subrogation
Subrogation transfers to the person subrogated the credit with all the rights thereto
appertaining, either against the debtor or against the third persons, be they
 CHAPTER 1: GENERAL PROVISION OF CONTRACTS 4) Custom of the place
(5) According to risks:
Contract- is a meeting of minds between two persons whereby one binds himself, (a) Cumulative- when the undertaking of one party is considered
with respect to other, to give something or to render some service. the equivalent of that of the other
(b) Aleatory- when it depends upon an uncertain event or
ELEMENTS contingency both as to benefit or loss
(4) Essential Elements (Art. 1318-1355) (6) According to cause:
(a) Consent (a) Onerous- cause has valuable consideration
(b) Object (b) Gratuitous- cause is purely generosity
(c) Cause (c) Remuneratory- cause based on services or benefits is already
(5) Natural Elements (e.g., warranty against eviction and hidden received
defects in case of sales) (7) According to binding force:
(6) Accidental Elements (e.g., stipulation such as interest in loan) (a) Valid
(b) Rescissible
CLASSIFICATIONS (c) Voidable
(1) According to perfections (d) Unenforceable
(a) Consensual- perfect by consent, object, cause (COC) (e.g., (e) Void
sales, partnership, real mortgage)
(b) Real- perfected by COC +delivery (e.g., pledge, loan, deposit) STAGES
(c) Formal or Solemn- perfected by COC + formalities required 1) Preparation/Conception/Generation/Negotiation
by law (e.g., donation of real property, chattel mortgage, 2) /perfection/Birth/Formation
antichresis) 3) Consummation/Death/Extinguishment
(2) According to relation to other contract:
(a) Principal- can exist on its own CHARACTERISTICS (MARCO)
(b) Accessory- existence depends upon a principal contract 1) Mutuality
(c) Preparatory- needed for the formation of subsequent contracts  the contract must bind both contracting parties; its validity or
(3) According to parties obliged: compliance cannot be left to the will of one of them. (Art.1308)
(a) Unilateral only one party is obliged  the determination of the performance may be left to a third person,
(b) Bilateral – both parties whose decision shall not be binding until it has been made know to
(4) According to name: both contracting parties. (Art.1309)
(a) Nominate- the law gives it a special name or designation  The determination shall not be obligatory if it is evidently inequitable.
(b) Innominate- the law doe not give it a special name or In such case, the courts shall decide what is the equitable under the
designation circumstances. (Art.1310)
i. Do ut des: I give that you may give
ii. Do ut facias: I give that you may do 2) Autonomy/Liberty of contracts- or freedom to stipulate in contracts
iii. Facio ut facias: I do that you may do  The contracting parties may establish such stipulations, clauses, terms
iv. Facio ut des: I do that you may give and conditions as they may deem convenient, provided they are not
When dealing with innominate Contrats contrary to law, morals, good customs, public order, or public policy.
1) Stipulation of the parties (Art.1306)
2) Rules governing law on obligations and contracts
3) Rules governing the most analogous contract
3) Relativity of contracts
 Contracts take effect only between the parties, their assigns and heirs, CHAPTER 2: DIFFERENT ESSENTIAL REQUISITES OF CONTRACTS
except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by There is no contract unless the following requisites concur:
provision of law. The heir is not liable beyond the value of the 1. Consent of the contracting parties
property he received from the decent. (Art.1131 par.1) Requisites:
 Contracts take effect between the parties in the contract (with  It must be manifested by the concurrence of the offer and acceptance
exceptions) (Art. 1319-1326)
 Contracts are generally transmissible except: Offer- a specific proposal to enter an agreement with
 Law another must be intentional and certain (Art. 1319 par.1)
 Stipulation Special cases of offers:
 Nature  The person making the offer may fix the time, place, and
The heir is not liable beyond the value of the property he manner of acceptance, all of which must be complied
received from the decedent. with (Art. 1321)
Exceptions:  An offer made through an agent is accepted from the time
o Stipulation Pour Autrui (Art.1311 par.2) acceptance is communicated to him (Art. 1322)
Requisites:  An offer becomes ineffective upon the death, civil
a) There must be a stipulation in favor of a third person interdiction, insanity, or insolvency of either party before
b) The stipulation must be part, not the whole of the contract acceptance is conveyed (Art. 1323)
c) The contracting parties must have clearly and deliberately  Advertisement for bidders are simply invitations to make
conferred a favor upon a third person, NOT a mere incidental offers (Art. 1326)
benefit or interest. Acceptance- agreeing verbally or in writing to the terms of a
d) The third person must have communicated his acceptance to the contract, which is one of the requirements to show there was a
obligor before its revocation contract
e) No relation of agency exists between any of the parties and the  An acceptance must be absolute (Art. 1319)
third person favored  Communicated to the offeror (Art. 1319 par.2 & 1322)
o Third persons is possession creating real rights (Art.1312)  May be expressed/implied
o Contract is entered to defraud creditor. (Art.1313)
o Third person induced a party to a contract to violate the contract. PROMISES IN OFFER AND ACCEPTANCE
(Art.1314) Promise Binding Perfected Contract
4) Consensuality of contracts Unilateral Promise No None
5) Obligatory force of contracts- arising from contracts have the force of law unaccepted
between the contracting parties and should be complied with in good faith. Unilateral Promise Binding if promise is Option contract only
(Art.1159) accepted supported by
consideration
Bilateral promise Yes Binding contract of
promise to enter into a
contract
  The contracting parties must possess the necessary legal capacity (Art. the promise of the
1327-1329) thing or service by
2 kinds of incapacity: other party.
Absolute incapacity
Absolutely incapacitated: 1.) Existing
1) Unemancipated minors 2.) Lawful
 Except for contracts involving necessary 3.) True
 Where minor mispresented his age
2) Insane or demented person CHAPTER 3: FORMS OF CONTRACTS
 Lucid interval
3) Deaf-mutes who do not know how to write Why contracts need to be in certain forms?
Relative incapacity Needed for:
Relatively incapacitated: 1) Validity of the contract
 Those under Civil interdiction for transactions 2) Enforceability of the contract
inter vivos (RCP Art. 34) 3) Convenience of the parties
 Undischarged insolvents (Insolvency Law, Sec.
24) CONTRACTS THAT NEEDS TO BE IN CERTAIN FORMS FOR THEIR
 Husband and wife: cannot donate (Art. 123 FC) VALIDITY
to each other, nor sell if the marriage is under Contract Formality
ACP (Art. 1490) Donation of personal property whose Must be in writing
 It must be intelligent, free, spontaneous, and real (not vitiated) (Art. value exceeds P500 (Art. 748)
1330-1346) donation of real property (Art. 749) must be in public instrument
Vices of consent: Partnership where immovables are Must be in public instrument with
Violence contributed (Art. 1773) inventory of immovables contributed
Intimidation Sale of a piece of land or any interest Contract of agency must be in writing
Mistake therein through an agent (Art. 1874)
Fraud Antichresis (Art. 2134) Must be in writing
Undue influence Chattel mortgage (Art. 2140) Must be registered
2. Object certain which is the subject matter of the contract; Agreements regarding payment if Payment of interest must be in writing
 Lawful: Not contrary to law, morals, good customs, public order or interests in contracts of loans
public policy (Art.2314)
 Actual or possible
 Transmissible: Within the commerce of man CONTRACTS THAT NEEDS TO BE IN CERTAIN FORMS FOR THEIR
 Determinate or determinable ENFORCEABILITY
3. Cause of the obligation which is established
Onerous Gratuitous Remuneratory 1) An agreement that by its terms is not to be performed within a year from the
As to each of the The service or Mere liberality making thereof;
contracting parties benefit which of the 2) A special promise to answer for the debt, default, or miscarriage of another
is understood to be is remunerated benefactor 3) An agreement made in consideration of marriage, other than a mutual promise
the undertaking or to marry;
4) An agreement for the sale of goods, chattels or things in action, at a price not CHAPETER 4: REFORMATION OF CONTRACTS
less than five hundred pesos, unless the buyer accept and receive part of such
goods and chattels, or the evidences, or some of them, of such things in action, A remedy whereby a written instrument to the contract is amended to conform to
or pay at the time some part of the purchase money; but when a sales is made the true intentions of the parties.
by auction and entry is made by the auctioneer in his sales book, at the time of
the sale, of the amount and kind of property sold, terms of sale, price, names of Requisites:
the purchasers and person on whose account the sale is made, it is a sufficient 1) There is a valid contract
memorandum; 2) The written instrument does not confirm the true intention of the parties
5) An agreement for the leasing for a longer period than one year, or for the sale 3) The non-conformity is due to mistake, fraud, inequitable conduct accident
of real property or of an interest therein; - Article 1359 par.1
6) A representation ass to the credit of a third person.
-Article 1403 par.2
MISTAKE, FRAUD, & INEQUITABLE CONDUCT IN REFORMATION
CONTRACTS THAT NEEDS TO BE IN CERTAIN FORMS FOR VS. VOIDABLE CONTRACTS
CONVENIENCE OF THE PARTIES
 
1) Acts and contracts which have for their object the creation, transmission, Consent of Parties Perfected Contract Instrument --- REFORMATION
modification or extinguishment of real rights over immovable property; sales 
of real property or of an interest therein are governed by articles 1403, No. 2, Consent of Parties Perfect Contract Instrument ------- ANNULMENT
and 1405
2) The cession, repudiation or renunciation of hereditary rights or of those of the Contracts that cannot be reformed
conjugal partnership of gains; 1) Simple donations inter vivos wherein no condition is imposed
3) The power to administer property, or any other power which has for its object 2) Wills
an act appearing or which should appear in a public document, or should 3) When the real agreement is void
prejudice a third person;
4) The cession of actions or rights proceeding from an act appearing in a public When a person cannot seek reformation
document. A party who enforces the instrument representing the contract cannot subsequently
ask for its reformation. (Art. 1367)
All other contracts where the amount involved exceeds five hundred pesos must
appear in writing, even a private one. But sales of goods, chattels or things in Who may seek reformation?
action are governed by articles 1403, No. 2 and 1405. (1280a) Reformation may be ordered at the instances of either party of his successor in
interest, if the mistake was mutual; otherwise, upon petition of the injured party, or
his heirs and assign. (Art.1368)
 CHAPTER 5: INTERPRETATION If the doubts are cast upon the principal object of the contract in such a way that it
cannot be known what may have been the intention or will of the parties, the
- Is the act of making intelligible that was not before understood, ambiguous, or contract shall be null and void.
not obvious.
- The intention of the parties always prevail over the words that appear in the DEFECTIVE CONTRACTS
instrument or a contract. (Art. 1370) Based on their binding force:
- In judging the intention, subsequent acts of parties are considered (Art. 1371) Rescissible
Voidable
Article 1372 Unenforceable
However general the terms of a contract may be, they shall not be understood to Void
comprehend things that are distinct and cases that are different from those upon
which the parties intended to agree. Valid Binding Enforceable
Rescissible   
Article 1373 Voidable   
If some stipulation of any contract should admit of several meanings, it shall be Unenforceable   
understood as bearing that import which is most adequate to render it effectual. Void   

Article 1374
The various stipulations of a contract shall be interpreted together, attributing to Rescissible Voidable Unenforceable Void
the doubtful ones that sense which may result from all of the taken jointly. Why Causes Consent is Lack of Missing
defective? damage to defective authority or essential
Article 1375 third persons form element/s
Words which may have different significations shall be understood in that which is Can be Yes Yes Yes Yes
most in keeping with the nature and object of the contract. ratified?
Applicable Art. 1381 Art. 1390 Art. 1403 Art. 1409
Article 1376 provisions
The usage or custom of the place shall be borne in mind in the interpretation of the Remedy to Rescission Annulment N/A N/A
ambiguities of a contract, and shall fill the omission of stipulations which are avoid
ordinary established.

Article 1377
CHAPTER 6: RESCISSIBLE CONTRACTS
The interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity.
Article 1381
The following contracts are rescissible:
Article 1378
1) Those which are entered into by guardians whenever the wards whom they
When it is absolutely impossible to settle doubts by the rules established in the
represent suffer lesion by one more than-one-fourth of the value of the things
preceding articles, and the doubts refer to incidental circumstances of a gratuitous
which are the object thereof;
contract, the least transmission of rights and interests shall prevail. If the contract
2) Those agreed upon in representation of absentees, if the latter suffer the lesion
is onerous, the doubt shall be settled in favor of the greatest reciprocity of
stated in the preceding number;
interests.
3) Those undertaken in fraud of creditors when the latter cannot in any other Contracts presumed to be rescissible
manner collect the claims due them; Article 1387 par.1 All contracts by virtue of which the debtor alienates property
4) Those which refer to things under litigation if they have been entered into by by gratuitous title are presumed to have been entered into in fraud of creditors,
the defendant without the knowledge and approval of the litigants or of when the door did not reserve sufficient property to pay all debts contracted
competent judicial authority; before the donation.
5) All other contacts specially declared by law to be subject to rescission.
Article 1387 par.2&3
Rescissible Contract VS. Rescissible Payment Alienations by onerous title are presumed fraudulent when made by persons
Payments made in a state of insolvency for obligations to whose fulfillment the against whom some judgment has been rendered in any instance or some writ of
debtor could not be compelled at the time they were effected, are also rescissible. attachment has been issued. The decision or attachment need not refer to the
property alienated, and need not have been obtained by the party seeking the
Article 1382 rescission.

Rescission In addition to these presumptions, the design to defraud creditors may be proved
The action for rescission is subsidiary, it cannot be instituted except when the in any other manner recognized by the law of evidence.
party suffering damage has no other legal means to obtain reparation for the
same. Article 1383 Acquisition of third person in bad faith
Article 1388
Extent of Rescission Whoever acquires in bad faith the things alienated in fraud of creditors, shall
Rescission shall be only to the extent necessary to cover the damages caused. indemnify the latter for damages suffered by them on account of alienation,
Article 1384 whenever, due to any cause, it should be impossible for him to return them.

For rescission to be possible If there are two or more alienations, the first acquirer shall be liable first, and so
Article 1385 on successively.
Rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest; consequently, it Prescription of rescission
can be carried out only when he who demands rescission can return whatever he Article 1389
may be obliged to restore. The action to claim rescission must be commenced within four years.
For person under guardianship and for absentees, the period of four years shall
Neither shall rescission take place when the things which are the object of the not begin until the termination of the former’s incapacity, or until the domicile of
contract are legally in the possession of third persons who did not act in bad faith. the latter is known.

In this case, indemnity for damages may be demanded from the person causing the CHAPTER 7: VOIDABLE CONTRACTS
loss.
I. What are voidable contracts? (Art. 1390)
Rescission not possible for contracts approved by court 1) When one of the parties is incapable of giving consent (absolute incapacity)
Rescission referred to in Nos.1 and 2 of article 1381 shall not take place with Exception: when contract involves necessaries
respect to contracts approved by the courts. Article 1386 2) When one or more of the vices of consent is present
A. Violence- when in order to wrest consent, serious or irresistible force is
employed
 B. Intimidation- when one of the contracting parties is compelled by a Annulment vs. Rescission
reasonable and well-grounded fear of an imminent and gave evil upon his Annulment Rescission
person or property, or upon the person or property of his spouse, Used to invalidate a voidable contract Used to invalidate a rescissible
descendants or ascendants, to give his consent. contract
C. Mistake- refer to the substance of the objects, identity/qualification of a Principal remedy Subsidiary remedy
person, or conditions that have principally moved one or both parties to Annulment is availed by parties to a Rescission is availed by injured person
enter into the contract. contract even if not a party to a contract
Mistake of law
Art. 3- ignorance of the law excuses no one from compliance therewith. RATIFICATION OF VOIDABLE CONTRACTS
Exception: art. 1334- mutual error as to the legal effect of an agreement Who may ratify?
when the real purpose of the parties is frustrated, may vitiate consent. The party who can annul a voidable contract
D. Fraud- through insidious word or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, How to ratify?
he would not have agreed to. Ratification can be done orally, in writing or may be implied.
 Dolo incidente (incidental fraud)
 Dolo causante (causal fraud)
E. Undue influence- when a person takes improper advantage of his power CHAPTER 8: UNENFORCEABLE CONTRACT
over the will of another, depriving the latter of a reasonable freedom of
choice. What makes a contract unenforceable?
1) Unauthorized contracts
ANNULMENT OF A VOIDABLE CONTRACTS 2) Both parties are incapacitated
voidable contracts are valid until annulled 3) Transactions under statute of frauds

When annulment cannot proceed? Statute of Frauds

1) When the object of the contract is lost through the fault of the person who 1.) Contacts not to be performed within a year
may annul the contract 2.) A special promise to answer for the debt, default, or miscarriage of another
2) When the contract is ratified 3.) Agreement in consideration of marriage
4.) Sale of personal property for 500 pesos or more
When can annul voidable contracts? 5.) Lease of real property for more than 1 year
1) Incapacitated persons (upon ceasing of incapacity) 6.) A representation as to the credit of a third person
2) Persons whose consent were vitiated 7.) Sale of real property (Art. 1358)
Exception: partially executed contracts

CHAPTER 9: VOID OR INEXISTENT CONTRACTS

When can it be annulled?
1) Within four years after guardianship of minors or incapacitated person Article 1409. the following contracts are inexistent and void from the beginning:
ceases 1) Those whose cause, object or purpose is contrary to law, morals, good
2) Within four years after intimidation, violence or undue influence cease customs, public order or public policy;
3) Within four years from the time of discovery of mistake or fraud 2) Those which are absolutely simulated or fictitious;
3) Those whose cause are object did not exist at the time of the transaction;
4) Those whose object is outside the commerce of men;
 5) Those which contemplate an impossible services; c) Purchase of property by persons who are specially disqualified by
6) Those where the intention of the parties relative to the principal object of law (e.g., guardians, agents, executors, administrator, public
the contract cannot be ascertained; officers, and employees, judges, lawyers, etc.)
7) Those expressly prohibited or declared void by the law. d) “Every donation between the spouses during the marriage shall be
void except moderate gifts which the spouses may give each other
These contracts cannot be ratified neither can the right to set up the defense of on the occasion of any family rejoicing.” (Art. 87, Family Code)
illegality be waived. e) “Testamentary provision in favor of a disqualified person, even
though made under the guise of an onerous contract, or made
Void Contracts are those which, because of certain defects, generally produce no through an intermediary, shall be void.” (Art.1031)
effect at all. f) “Any stipulation that household service is without compensation
shall be void.” (Art. 1689)
Inexistent Contract refer to agreements which lack one or some or all of the g) Under the Constitution (Sec.14, Art.VI thereof.), members of
elements (i.e., consent, object and cause) or do not comply with formalities which Congress are prohibited from being financially interested, directly
are essential for the existence of a contract. or indirectly, in any contract with the government or any
subdivision or instrumentality thereof
An illegal contract may produce effects under certain circumstances where the
parties are not equal guilt. (art. 1411-1412) Article 1410. The action or defense for the declaration of the inexistence of a
contract does not prescribe.
Characteristics of a void or inexistent contract
1) Generally, it produces no force and effect whatsoever; Action or defense is imprescriptible
2) It cannot be ratified (Art. 1409 par.2) Article 1411. When the nullity proceeds from the illegality of the cause or object
3) The right to set up the defense of illegality cannot be waived of the contract, and the act constitutes a criminal offense, both parties being in
4) The action or defense for the declaration of the inexistence does not pari delicto, they shall have no action against each other, and both shall be
prescribe (Art. 1410); prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of
5) The defense of illegality is not available to third persons whose interests effects or instruments of a crime shall be applicable to the things or the price of
are directly affected (Art. 1421) the contract.
6) It cannot give rise to a valid contract (Art. 1422.)
This rule shall be applicable when only one of the parties is guilty; but the
Instances of void or inexistent contracts innocent one may claim what he has given, and shall not be bound to comply with
1) Contract whose cause, object or purpose is contrary to law, etc. his promise. (1305)
2) Contracts which are absolutely simulated with fictious
3) Contract without cause or object Rules where contract is illegal and the act constitutes a criminal offense
4) Contracts whose object is outside the commerce of men 1) Where both parties are pari delicto
5) Consent which contemplate an impossible service a) The parties shall have no action against each other;
6) Contracts where the intention of the parties relative to the object cannot be b) Both shall be prosecuted; and
ascertained c) The things or the price of the contract, as the effects or instruments
7) Contracts expressly prohibited or declared void by law of the crime, shall be confiscated in favor of the government.
a) Contracts upon future inheritance except in cases expressly (Art.48 par.1, Revised Penal Code)
authorized by law. (Art.1347) 2) When only one party is guilty
b) Sale of property between husband and wife except when there is a Article 1412. If the act in which the unlawful or forbidden cause consists does not
separation of property. (Art. 1490) constitute a criminal offense, the following rules shall be observed:
  when the fault is on the part of both contracting parties, neither may accomplished, or before any damage has been caused to a third person. In such
recover what he has given by virtue of the contract, or demand the case, the court may, if the public interest will thus be subserved, allow the party
performance of the other undertaking; repudiating the contract to recover the money or property.
 when only one of the contracting parties is at adult, he cannot recover
what he has given by reason of the contract, or ask for the fulfillment of Recovery where contract entered into for illegal purpose
what has been promised him. The other, who is not at fault may demand Requisites:
the return of what he has given without any obligation to comply with his 1) The contract is for an illegal purpose;
promise. (1306) 2) The contract is repudiated before the purpose has been accomplished or
before any damage has been cause to a third person; and
Rules where contract is illegal but the act does not constitute a criminal 3) The court considers that public interest will be subserved by allowing
offense recovery.
1. Where both parties are in pare delicto
Rules: Article 1415. Where one of the parties to an illegal contract is incapable of
a) Neither party may recover what he has given by virtue of the contract; and giving consent, the court may, if the interest of justice so demands, allow recovery
b) Neither party may demand the performance of the other’s undertaking of money or property delivered by the incapacitated person.

2. Where only party is guilty Recovery by an incapacitated person

Rules: This article is another exception to the in pari delicto rule in Articles 1411-1412.
a) The guilty party loses what he has given by reason of the contract; Recovery can be allowed if one of the parties is incapacitated and the interest of
b) The guilty party cannot ask for the fulfillment of the other’s undertaking; justice so demands.
c) The innocent party may demand the return of what he has given; and
d) The innocent party cannot be compelled to comply with his promise. Article 1416. When the agreement is not illegal per se but is merely prohibited,
and the prohibition by the law is designed for the protection of the plaintiff, he
Article 1411 and 1412 embody the general principle that when both parties are in may, if public policy thereby enhanced, recover what he has paid or delivered.
pari delicto, the law refuses them every remedy and leaves them where they are.
However, there are exceptions to this rule, some of which are contained in articles Recovery where contract not illegal per se.
1413 to 1419. Article 1416 is another exception to the rule that where both parties are in pare
delicto, they will be left where they are without relief. Recovery is permitted,
Article 1413. Interest paid in excess of the interest allowed by the usury laws may provided:
be recovered by the debtor, with interest thereon from the date of the payment. 1) The agreement is not illegal per se but is merely prohibited;
2) The agreement is designed for the protection of the plaintiff; and
Recovery of usurious interest 3) Public policy would be enhanced by allowing the plaintiff to recover what
Article 1413. Any rate of interest in excess of the maximum allowed under the he has paid or delivered.
Usury Law is usurious and if paid, may be recovered together with interest
thereon from the date of payment in a proper action of the same.
A stipulation for the payment of usurious interest is void. The person paying the Prohibited sale of land
usurious interest can recover in a civil action not only the interest in excess of that 1) A land sold in violation of the constitutional prohibition against the
allowed by law, but the whole interest paid. transfer of lands to aliens [see secs. 3, 7, Art. XII, Constitution of the
Philippines.] may be recovered. The public policy to conserved lands for
Article 1414. When money is paid or property delivered for an illegal purpose, the the Filipinos would be defeated and its continued violation sanctioned if
contract may be repudiated by one of the parties before the purpose has been instead of setting the contract aside and ordering the restoration of the
 property, the general rule on pari delicto would be applied. And the parties 7.) Workers who are paid by results
will not be permitted to resort to another transaction for the purpose of
disguising the violation of the Constitution. Article 1419 When the law sets, or authorizes the setting of minimum wage for
laborers, and a contract is agreed upon by which a laborer accepts a lower wage,
Accordingly, a contact whereby an alien is given not only a lease but also he shall be entitled to recover the deficiency.
an option to buy a parcel of land by virtue of which the Filipino owner
cannot sell or otherwise dispose of his property, this to last for 50 years, is Recovery of amount of wages less than minimum fixed
a virtual transfer of ownership and circumvents the constitutional ban If an employee receives less than the minimum wage rate, he can still recover the
against alien landholding. deficiency with legal interest and the employer shall be criminally liable.

2) The principle of in pari delicto is not applicable to a homestead which has Article 1420 in case of a divisible contract, if the illegal terms can be separated
been illegally sold within the prohibited period of five years in violation of from the legal ones, the latter may be enforced.
the homestead law.
Article 1417. When the price of any article of commodity is determined by statute, Effect of illegality where contract indivisible/divisible
or by authority of law, any person paying any amount in excess of the maximum 1.) When the consideration is entire and single, the contract is indivisible so
price allowed may recover such excess that if part of such consideration is illegal, the whole contract is void and
unenforceable.
Recovery of amount paid in excess of ceiling price 2.) Where the contract is divisible or severable, that is, the consideration is
A statute fixing the maximum price of any article or commodity is usually known made up of several parts, and the illegal ones can be separated from the
as ceiling law. It can also be determined by authority of law, as by Executive Order legal portions, the latter may be enforced. This rule, however, is subject to
of the President. Its purpose is to curb the evils of profiteering or black marketing. the contrary intention of the parties.

Article 1418. When the law fixes, or authorizes the fixing of the maximum number Divisible contract distinguished from divisible obligation
of hours labor, and contract is entered into whereby a laborer undertakes to work It must be noted that Article 1420 speaks of a divisible contract and not of a
longer than the maximum thus fixed, he may demand additional compensation for divisible obligation. (Art. 1225, 1183)
service rendered beyond the time limit.
The test of the former is divisibility of its cause while the latter, its susceptibility of
Recovery of additional compensation for service rendered beyond time limit partial fulfillment. The former, therefore, refers to the cause, while the latter, to the
Presidential Decree No. 442 (as amended), otherwise known as the Labor Code, prestation or object.
sets forth that the normal hours of work of any employee shall not exceed wight
hours a day. Article 1412. The defense of illegality of contract is not available to third persons
whose interests are not directly affected.
The law applies to employees in all establishments and undertakings, whether for
profit or not, but not to: Persons entitled to raise defense of illegality
1.) Government employees In voidable and unenforceable contracts, third persons are not allowed to bring an
2.) Managerial employees action to annul or to assail, as the case may be, said contracts. If the contract is
3.) Field personnel illegal or void, however, even third person may avail of the defense of illegality or
4.) Members of the family of the employers who are dependent upon him for set up its nullity as long as his interest is directly affected by the contract.
support
5.) Domestic helpers Article 1422. A contract which is the direct result of a previous illegal contract, is
6.) Persons in the personal service of another; and also void and existent.
Void contract cannot be novated (2) Civil obligations give a right of action in courts of justice to
The provision is based on the requisites of a valid novation. (Art. 1298) compel their performance or fulfillment (Art.1156), while natural
obligations do not grant such right of action to enforce their
For example, a contract of repurchase is dependent on the validity of the contract performance.
of sale. If the latter is itself void because the seller is not the owner, the former is
also void because it presupposes a valid contract of sale between the same parties. Enumeration not exclusive
Note that Article 1423 says “Some natural obligations, xxx.” This indicates that
the enumeration in the code is not exclusive. Thus, if the borrower pays interest
NATURAL OBLIGATIONS agreed upon orally, the provisions on natural obligations apply.
(Article 1423-1430, Civil Code)
Under the law, “no interest shall be due unless it has been expressly stipulated in
Article 1423. Obligation are civil or natural. Civil obligations give a right writing.”
of action to compel their performance. Natural obligations, not being
based on positive law but on equity and natural law, do not grant a right Article 1424. When a right to sue upon a civil obligation has lapsed by extinctive
of action to enforce their performance, but after voluntarily fulfillment by prescription, the obligor who voluntarily performs the contract cannot recover
the obligor, they authorize the retention of what has been delivered or what he has delivered or the value of the service he has rendered.
rendered by reason thereof. Some natural obligations are set forth in the Performance after civil obligation has prescribed
following articles. By prescription (acquisitive), one acquires ownership and other real rights through
the lapse of time in the manner and under the conditions laid down by law. In the
Concept of natural obligations same way, rights and action are lost by prescription (extinctive). (Art. 1106; see
The above article defines natural obligations. Art. 1218.)

“Natural obligations originated in the Roman law where they grew ART. 1425. When without the knowledge or against the will of the debtor, a third
in importance in order to temper with equity and justice the severity of the person pay a debt which the obligor is not legally bound to pay because the action
jus civile. In that ancient system of law, there were two kinds of thereon has prescribed, but the debtor later voluntarily reimburses the third
obligation: the civil and the natural. The latter could not be enforced by a person, the obligor cannot recover what he has paid.
civil action but it had certain juridical consequences.
Reimbursement of third person for debt that has prescribed
In the old Spanish law, there were many instances of natural If a third person pays the prescribed debt of the debtor without his knowledge or
obligations, among them being the cases of incapacity of one of the against his will, the latter is not legally bound to pay him. But the debtor cannot
contracting parties, and where a contract could not be sued upon because it recover what he has paid in case he voluntarily reimburses the third person.
was not in the form required by law.” (Report of the Code Commission,
p.56) Article 1426. When a minor between eighteen and twenty-one years of age who
Civil obligations and natural obligations distinguished has entered into a contract without the consent of the parent or guardian, after the
Article 1423 gives distinctions between civil obligation and natural annulment of the contract voluntarily returns the whole thing or price received,
obligation, viz.: notwithstanding the fact that he has not been benefited thereby, there is no rught
to demand the thing or price thus returned.
(1) Civil obligation arise from law, contracts, quasi-contracts, and
quasi-delicts (Art.1157), while natural obligations are based not on Restitution by minor after annulment of contract
positive law but on equity and natural law; and When a contract is annulled, a minor is not obliged to make any
restitution except insofar as he has been benefited by the thing or price received by
him. (Art. 1399) However, should be voluntarily return the thing or price received law of intestacy from the estate of the deceased, the payment is valid and cannot
although he has not been benefited thereby, he cannot recover what he has be rescinded by the payer.
returned.
Payment by heir of debt exceeding value of property inherited
Take note that this article applies only if the minor who has entered into a The heir is not personally liable beyond the value of the property he
contract without the consent of his parent or guardian is between 18 and 21 years received from the decedent. (Art. 13311, par.1) But if he voluntarily pays the
of age. The law considers that at such age, a minor has already a conscious idea of difference, the payment is valid and cannot be rescinded by him. An heir has a
what is morally just or unjust. moral duty to perform or pay obligation legally contracted by his dead relatives.

Article 1427. When a minor between 18 to 21 years of age has entered into a Article 1430. When a will is declared void because it has not been executed in
contract without the consent of the parents or guardian, voluntarily pays a sum of accordance with the formalities required by law, but one of the intestate heirs,
money or delivers a fungible thing in fulfillment of the obligation, there shall be no after the settlement of the debts of the deceased, pays a legacy in compliance with
right to recover the same from the oblige who has spent or consumed it in good a clause in the defective will, the payment is effective and irrevocable.
faith. (1160a)
Payment of legacy after will has been declared void
Delivery by minor of money or fungible thing in fulfillment of obligation Legacy is the act of disposition by the testator in separating from the
By the decree of annulment, the parties as a general rule, are obliged to make inheritance for definite purposes, things, right or a definite portion of property. It
mutual restitution. (Art.1398). However, the obligee who has spent or consumed in may be viewed also as the portion, or those things or special rights, which the
good faith the money or consumable thing voluntarily paid or delivered by the testator separates from his inheritance for a definite purpose. (6 Manresa 654). The
minor, is not bound to make restitution. purpose of the legacy is to reward friends, servants and others for services they
have rendered, to give alms, etc.
Although Article 1427 speaks of “fungible thing”, nevertheless it may also
apply to things that are nonconsumable when they have been lost without fault of If will is disallowed for non-compliance with the formalities prescribed by
the oblige or in case of alienation by him to a third person who did not act in good law (see article 805, 839 [1].), the legacy made in the will would also be void. The
faith. The oblige shall be liable for damages if he is guilty of fault or bad faith at effect is the same as if the deceased had died without a will, and, therefore, the
the time of spending or consumption. intestate heir is not legally required to pay the legacy. If, however, he still pays the
legacy, the payment is effective and irrevocable, subject to the rights of the
Article 1428. When, after an action to enforce a civil obligation has failed, the creditors of the deceased. Since, it was the intention of the testator to give the
defendant voluntarily performs the obligation, he cannot demand the return of legacy, it is the moral duty of the heir to carry it out.
what he has delivered or the payment of the value of the service he has rendered.

Performance after action to enforce civil obligation has failed

This article contemplate a situation where a debtor, who has failed to pay
his obligation, is sued by the creditor and instead of losing the case, he has won it.
If, notwithstanding this fact, the debtor voluntarily performs his obligation, he
cannot demand the return of what he has delivered or the payment of the value of
the service he has rendered. He must be deemed to have considered it his moral
duty to fulfill his obligation.

Article 1429. When a testate or intestate heir voluntarily pays a debt of the
decedent exceeding the value of the property which he received by will or by the