OBLIGATIONS

When considered breached

KINDS OF OBLIGATIONS 1. If debtor fails to do the obligation
Remedy: Creditor is entitled to ask another person to perform
a. Viewpoint of juridical quality and/or efficaciousness the obligation and to have the cost charged against the debtor,
in addition to right to recover damages
1. Civil obligations – Based on positive law and give a XPTN: If personal qualifications of debtor have been taken into
right of action to compel their performance consideration in the constitution of the obligation. Remedy is to
2. Natural obligations – Based on equity and natural law demand payment of damages.
and which do not grant a right of action to enforce their 2. Even if performed but it was done either in a poor manner or in
performance, but after voluntary fulfillment by the obligor, contravention of the tenor of the obligation
they authorize the retention of what has been delivered or Remedy:
rendered by reason thereof a. Same above (ask another to perform obligation and
charge cost to debtor)
b. Kind of prestation present b. Creditor has an additional remedy of demanding for the
undoing of what has been done (if still possible), at the
1. Real Obligation – obligation to give or deliver expense of debtor
i. Determinate or Specific Obligation – deliver a
determinate thing No compulsion of debtor
Creditor cannot compel debtor to perform the obligation because it
When considered determinate amounts to involuntary servitude and may amount to coercion
When it has been particularly designated or physically segregated penalized under RPC
from all others of the same class or species
ii. Negative Personal Obligation – not to do
Principal obligation of debtor
To deliver the specific or determinate thing due Nature of creditor’s right
Accessory obligations: Right not to demand an act but an omission, and its non-fulfillment
1. Obligation to preserve the thing to be delivered with the proper consists in executing the act of which the obligor is forbidden to do
diligence of a good father of a family
XPTN: Remedies
a. When the law requires another standard of care 1. Creditor may demand the undoing of what has been done at
b. Parties agree and stipulate on a difference standard of the expense of the obligor, in addition to right to recover
care damages
XPTN: To make debtor absolutely exempt from any 2. If physically or legally impossible to exercise the right to
liability arising from his own negligence. Such waiver is demand the undoing, remedy is to recover damages
contrary to public policy.
2. Obligation to deliver the fruits if the creditor is already entitled Remedies of creditor to protect and enforce his credit
to it 1. Exhaust the properties of the debtor through levying by
 Creditor acquires a right to demand for the delivery of the attachment and execution, except those exempted of execution
fruits of determinate thing due from the time the 2. Accion subrogatoria – be subrogated to all the rights and
obligation to deliver the determinate thing arises actions of the debtor, save those which are inherent in his
 Obligation to deliver arises at the time of perfection of person
contract, if contract is the source of obligation 3. Accion pauliana – impugn all of the acts which the debtor may
XPTN: If obligation is made to depend upon the have done to defraud the creditor
happening of a suspensive condition, the obligation arises TN: Second and third are subsidiary to first.
only upon the happening of the said condition
 If obligation is subject merely to a term or period, right of Breach of obligations
the creditor to the fruits begins from the moment the 1. Involuntary – causes which are independent of the will of the
vinculum attaches or upon the perfection of contract parties, such as fortuitous event and force majeure
3. Obligation to deliver the accession and accessories, even 2. Voluntary – causes which arise from the will of the parties,
though they may not have been mentioned such as
a. Mora or delay
Alternative remedies of the creditor in case of breach of b. Dolo or fraud
determinate obligation c. Culpa or negligence
1. Specific performance – Right to compel the debtor to deliver in d. Contravention of the tenor of the obligation
an action for specific performance, with a right to recover
damages Mora or Delay
2. Rescission – Right to rescind the obligation, with right to
recover damages Kinds
3. Damages – Right to recover damages where it is the only 1. Mora solvendi (debtor‟s fault)
feasible remedy  Delay in the fulfillment of an obligation, by reason of a
cause imputable to the debtor or because of dolo (malice)
ii. Indeterminate or Generic Obligation – deliver or culpa (negligence)
an indeterminate thing  Requisites
a. Obligation be demandable and already liquidated
When considered generic b. Debtor delays performance
If it has been designated merely by its class or genus c. Creditor demands the performance judicially or
extrajudicially
Alternative remedies in case of breach GR: Absent any demand, obligor does not incur delay
1. Compel delivery – right to compel delivery of generic thing, XPTN: Debtor still incurs delay even in the absence of
with a right to recover damages demand when –
2. Right to as another person to make delivery at the expense of a. Obligation or the law expressly so declares
debtor, with right to recover damages o It is not enough that the law or obligation fixes
3. Rescission – right to rescind obligation, with right to recover a period for the performance, if it does not
damages expressly add that, upon the expiration of such
period, delay shall commence. Hence, mere
2. Personal Obligation – to do or not to do expiration of period fixed by parties will not
i. Positive Personal Obligation – to do cause delay

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 b. From the nature and the circumstances of the It cannot be exercised solely on party‟s own judgment that the other
obligation it appears that the designation of the time has committed a breach of the obligation.
when the thing is to be delivered or the service is to XPTN: If there is a stipulation to the contrary.
be rendered was a controlling motive for the Where there is nothing in the contract empowering the injured party
establishment of the contract to rescind it without resort to the courts, the injured party‟s action in
o Time is of the essence: The ultimate criterion is unilaterally terminating the contract is unjustified.
the actual or apparent intention of the parties
and before time may be so regarded by a court, Right to ask rescission is not absolute
there must be a sufficient manifestation, either It cannot be demanded by an injured party who is not in a position
in the contract itself or the surrounding to return what he had received. Neither may it take place when the
circumstances of that intention. object of the contract is in the possession of a 3rd person who has
c. Demand would be useless, as when obligor has not acted in bad faith.
rendered it beyond his power to perform
 Mora may occur only in obligations to give and to do but Where non-compliance is with respect only to time, court has
not in obligation not to do, for the debtor fulfills by not discretion to refuse grant of rescission and instead fix or grant a
doing what is forbidden him period when there exists a just cause. This discretion may not be
 Demand may be in any form, provided that it can be exercised where there is refusal to perform.
proved, and the proof of the demand will be incumbent
upon the creditor Rescission will not be permitted for slight or casual breach; only for
 Effects of mora solvendi substantial and fundamental breach as to defeat the object of the
a. Debtor violates the obligation in point of time if there agreement.
is mora or delay. This may give rise to a cause of
action against the debtor. Upon demand, prescriptive Prescriptive period for resolution
period within which the obligee may bring an action a. 10 years from accrual of right of action – written contracts
against obligor shall commence to run. b. 6 years – verbal contracts
b. Debtor becomes liable for damages – if obligation
consists of payment of sum of money, indemnity for Effect of rescission under Art. 1911
damages (if no stipulation to the contrary) shall be Mutual restitution is also required
the payment of the interest agreed upon, or in the
absence of stipulation, the legal interest, which is 6% If both parties committed breach
per annum, whether constituting a loan or a. First infractor can be determined – he will be liable for
forbearance of money or not damages but shall be equitably tempered by courts
c. Debtor remains liable if the thing was lost after he b. First infractor cannot be determined – obligations are deemed
has incurred in delay even if the loss was without his extinguished and each shall bear his own damages
fault or by reason of fortuitous event
2. Mora accipiendi (creditor‟s fault) – delay on the part of the Dolo or fraud
obligee in accepting the performance of the obligation by the
obligor. Requisites Concept of fraud
a. An offer of performance by debtor who has the required Fraud is the deliberate and intentional evasion of the normal
capacity fulfillment of obligations
b. Offer must be to comply with the prestation as it should
be performed Kinds of Fraud
c. Creditor refuses the performance without just cause a. During birth/perfection of the contract
3. Compensation morae – default on the part of both parties 1. Dolo causante – ground for annulment
because neither has completed their part in their reciprocal 2. Dolo incidente – damages only
obligation b. During the performance of an already existing obligation
- Damages
Reciprocal obligations
Those which arise from the same cause, and which each party is a Prohibited waiver
debtor and a creditor of the other, such that the obligation of one is Any waiver of an action for future fraud is void
dependent upon the obligation of the other
Culpa or Negligence
“In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a manner with what is Kinds of culpa
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins.” Culpa aquiliana Culpa contractual
(Culpa extra contractual or (Breach of contract)
Rule: Simultaneous performance; mutual inaction of parties gives quasi-delict)
rise to compensation morae; No need for demand Wrongful or negligent act or Fault or negligence incident in
XPTN: This does not apply when different dates for performance are omission which creates a the performance of an obligation
fixed for the obligations. Rule on demand applies. Hence, even in vinculum juris and gives rise to which already existed, and
reciprocal obligations, if the period of fulfillment is fixed, demand is an obligation between two which increases the liability from
still necessary before obligor can be considered in default and before persons not formally bound by such already existing obligation
a cause of action will accrue. any other obligation
Source is the negligence of the Negligence in the performance
Alternative remedies in case of breach of reciprocal tortfeasor of a contractual obligation
obligations (Art. 1911) It is the basis of the action Negligence is incidental
1. Rescission + damages Negligence or fault should be What needs to be proved is only
2. Fulfillment or specific performance + damages clearly established the existence of the contract
TN: If injured party chose specific performance, he may yet seek and its breach
rescission, if former should become impossible. But if has demanded
rescission, he cannot thereafter ask for performance. Culpa or negligence
Omission of that diligence which is required by the nature of the
Right to rescind is implied obligation and corresponds with the circumstances of the persons, of
Power to rescind is implied in reciprocal ones, in case one of the the time and of the place
obligors should not comply with what is incumbent upon him.
(Resolution) Test in determining existence of negligence

Power must be invoked judicially

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Did the defendant in the performance of the alleged negligent act b. Obligations with a resolutory term or period
use reasonable care and caution which an ordinary person would
have used in the same situation? If not, he is guilty of negligence. 2. Conditional Obligation – subject to condition
Condition – an uncertain event which wields an influence
When culpa becomes dolo on a legal relation; every future and uncertain event upon
When negligence shows bad faith, it is tantamount to fraud. which an obligation or provision is made to depend
Consequently, any waiver of an action for future negligence showing
bad faith is also void. Kinds of condition

Caso fortuito or Fortuitous Event a. Suspensive – happening of which gives rise to an

An event which could not be foreseen, or which, though foreseen, is obligation
inevitable
During pendency of condition
Either be an act of God or natural occurrences, such as floods or Debtor may recover what he has paid by mistake and
typhoons, or an act of man (force majeure) such as riots, strikes, or creditor does not acquire right yet. Nevertheless,
wars creditor has an expectancy based upon the
occurrence of the condition and of which he has the
Rule: No person shall be responsible for a fortuitous event. right to protect by taking appropriate actions.
However, to exempt obligor from liability for a breach of an
obligation by reason of a fortuitous event, following requisites must Upon fulfillment or happening of suspensive
concur: condition
1. Cause of breach of obligation must be independent of the It gives birth to the right of creditor or to obligation
will of the debtor of debtor
2. Event must be either unforeseeable or unavoidable i. Obligation to give – effects of a conditional
3. Event must be such as to render it impossible for the obligation retroact to the day on which the
debtor to fulfill his obligation in a normal manner obligation was constituted; hence, it‟s as if it
4. Debtor must be free from any participation in, or were pure and simple from first day
aggravation of, the injury to the creditor  In case of reciprocal prestations, the fruits
 When negligence coincided with occurrence of and interests during the pendency of
fortuitous event and caused the loss or aggravation condition are deemed to have been
thereof, the FE cannot shield obligor from liability mutually compensated. The purpose is to
TN: Burden of proving that the loss was due to fortuitous event avoid the necessity of mutual accounting
rests on him who invokes it. of fruits and interests received
Carnapping per se may not be a fortuitous event. To be one, it  In case obligation to give is unilateral,
must be proved and established that the event was an act of debtor owns all fruits and interests
God or was done solely by 3rd parties and that neither the received up to the day the condition is
claimant nor the person alleged to be negligent has any fulfilled, unless by nature and
participation. circumstances of obligation it should be
Robbery per se is not fortuitous event. Robbery must take inferred that the intention was different
place without any concurrent fault on debtor‟s part in order to ii. Obligation to do and not to do – courts may, in
be appreciated as a fortuitous event each case, determine the retroactive effect of
XPTN: Obligor remains liable for breach by reason of fortuitous condition that has been complied with, including
event in following instances – fixing the date of such retroactive effect
1. When the law expressly so specifies
a. Obligor delays or has promised to deliver the same Effect of loss, deterioration, or improvement
thing to two or more persons who do not have the occurring during the pendency of condition (if
same interest condition is later on fulfilled)
b. Possessor in bad faith in every case i. Loss: If it occurs without fault of debtor,
c. If common carrier negligently incurs in delay in obligation is extinguished. If it occurs through
transporting the goods, a natural disaster shall not the fault of debtor, he is liable for damages to
free such carrier from responsibility the creditor upon fulfillment of condition
d. The borrower who uses the thing for a purpose TN: Thing is lost when (1) it perishes, (2) goes
different from that intended, delays its return, out of commerce, or (3) disappears in such a
receives the thing under appraisal, lends it to a 3rd way that its existence is unknown or it cannot
person, or saves his property instead of the thing be recovered.
borrowed ii. Deterioration: If without fault of debtor,
e. Depositary who uses the thing without the impairment is borne by creditor. If due to fault
depositor‟s permission, delays its return, or allows of debtor, the creditor may choose between (1)
others to use it rescission, with indemnity for damages or (2)
f. Officious manager who undertakes risky transactions, fulfillment, with indemnity for damages
prefers his interest to that of the owner, fails to iii. Improvement: If without intervention of debtor,
return the property after demand by the owner, or improvement inures to the benefit of creditor. If
assumes management in bad faith improvement is at the expense of debtor, latter
g. When the obligation to deliver a determinate thing is granted only rights of usufructuary.
proceeds from a criminal offense, unless prior to its Consequently, debtor is not entitled to demand
loss the person who should receive it refused reimbursement of his expenses but he can
acceptance without justification remove the improvements should it be possible
2. When it is otherwise declared by the parties to do so without damage to property. He may
3. When the nature of the obligation requires the assumption also set off the improvements against any
of risks damage he caused to the same.

c. Viewpoint of presence/absence of condition or term b. Resolutory – happening of which extinguishes

obligation; immediately demandable
1. Pure Obligation – obligation is not subject to any Case: When a person donates land to another on the
condition or term condition that the latter would build upon land a
Effect: This is immediately demandable school, the condition imposed was not a condition
Other obligations which are also demandable at precedent or suspensive condition but a resolutory
once one. It is not correct to say that the schoolhouse had
a. Obligations with a resolutory condition to be constructed before donation became effective,

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 otherwise, it would be invading the property rights of Condition not to do an impossible thing – considered
the donor. Donation had to be valid before fulfillment as not agreed or not written because it is useless;
of the condition. obligation is regarded as pure.
During pendency of condition
Debtor has an expectancy that the thing he delivered 3. Obligation with a term/period – those whose effects
will be eventually returned to him upon fulfillment of are subjected in one way or another to the expiration of
condition. Hence, debtor is also entitled to take said term
actions to protect his expectancy Term/period – future and certain event upon the arrival of
which the obligation (or right) subject to it either arises or
Upon fulfillment of resolutory condition is terminated. It is a day certain which must necessarily
Obligation is extinguished as though it had not come, although it may not be known when.
existed. Parties must make mutual restitution of what
they have received from each other Condition Term/Period
TN: Courts to determine the retroactive effect in In their Uncertain event Event which must
obligations to do and not to do fulfillment happen sooner or later
Effect of loss, deterioration or improvement is same Influence May cause an Does not go beyond
with suspensive condition but applies to creditor who on obligation to imposing limitation as
is bound to return obligation have or not to to time on the
have any effects, production of the
c. Potestative – depends upon will of one of the or to cause it to effects and the efficacy
parties exist or to cease of the obligation
o Potestative on the part of debtor (will of debtor) to exist No retroactive effects,
a. Potestative which is also suspensive – non- except when there is
demandable; such condition renders the special agreement
obligation dependent upon it void Will of the Obligation is void Obligation is valid but it
b. Potestative which is also resolutory – valid debtor empowers the court to
o Potestative on the part of creditor – valid; fix the period for its
creditor is interested in fulfillment of the performance
obligation
Classifications of term/period
d. Casual – depends exclusively upon chance or other a. Suspensive term (ex die) – one that must lapse
factors (such as will of 3rd persons) before the performance of the obligation can be
o Obligations made to depend on casual or mixed demanded
conditions are valid - Effect of this term is that the obligation may
only be demanded upon the arrival of the day
e. Mixed – partly upon will and partly upon chance certain fixed for its performance
o Obligation is valid - Suspensive condition affects the very existence
o As to the part that depends on the will of the of the obligation while suspensive term does not
debtor, Art. 1186 applies which states that the affect existence but only the demandability;
conditions shall be deemed fulfilled when the obligation already exists prior to arrival of day
obligor voluntarily prevents its fulfillment. certain
- In case of loss, deterioration, or improvement
f. Positive – act before arrival of period, rules on suspensive and
Positive condition that a certain event will happen resolutory condition shall be observed
within a specific period has the effect of - Anything paid or delivered before arrival of
extinguishing the obligation dependent upon such period may be recovered with fruits and
condition from the moment: interests, if the obligor was unaware of period
1. Said period lapses without the condition having or believed that the obligation had become due
been fulfilled and demandable
2. When it becomes certain that the event will not b. Resolutory term (in diem) – period after which
take place even before said period expires the obligation is terminated; obligation is valid up to
certain date
g. Negative – omission - Obligations take effect and demandable at once
Negative condition that some event will not happen but they terminate upon arrival of term
at a determinate time has the effect of rendering the - Resolutory condition results in extinguishment
obligation effective from the moment: as though the obligation had not existed while
1. Period indicated has elapsed resolutory term results in termination without
2. If it has become evident that the event cannot annulling the fact of its existence; hence, no
occur retroactive effects
c. Definite – known date or time
h. Divisible – can be performed in parts d. Indefinite – event which will necessarily happen but
i. Indivisible – cannot be performed in parts date is unknown
j. Conjunctive – requires fulfillment of all conditions TN: If uncertainty is in whether the day will come or
k. Disjunctive – requires fulfillment of one condition not, obligation is conditional
l. Express – stated e. Legal – granted by law
m. Implied – merely inferred f. Voluntary – stipulated by parties
n. Possible g. Judicial – allowed by courts
o. Impossible – physically or legally
Effect Disputable Presumption
1. If attached to a simple or remuneratory Presumed that the period is established for the benefit of
donation – Condition is considered as not both creditor and debtor
imposed and will simply be disregarded This may be overcome by proof that by the tenor of the
2. If attached to a testamentary disposition – obligation or other circumstances the term or period
considered as not imposed and disregarded appears to have been established for the benefit of one of
3. If attached to an obligation arising from the parties only.
contracts – it shall render the obligation which a. If period was established for the benefit of creditor
depends on them void. But if divisible, part not alone – he may demand performance at any time,
affected shall be valid. even before arrival of period, but debtor cannot
compel him to accept payment before it lapses

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 b. If period was established for the benefit of debtor  Debtor may not choose those prestations
alone – he may make payment at any time but he which are: (1) impossible, (2) unlawful, or
may oppose premature demand for payment (3) could not have been the object of the
- Stipulation that payment is to be made “within” obligation.
period is for the benefit of debtor only  When only one is practicable, debtor loses
right of choice and obligation becomes
Instances when debtor loses benefit of simple
term/period  Choice becomes effective only from the
1. Insolvency of debtor time that it has been communicated. No
XPTN: When he gives security or gauranty form is required and consent of the other
- Insolvency must occur after obligation was party is not necessary.
contracted  From the time the choice is communicated,
- Need not be judicially declared the obligation ceases to be alternative and
2. Failure to furnish promised guaranty or security becomes simple
3. Impairing the guaranty or security after its
establishment by debtor‟s own acts Effect of loss of prestations
- But benefit is preserved if debtor gives new Reason for loss Right of choice Right of choice
security (Debtor) (Creditor)
4. Loss or destruction of guaranty or security through All prestations are Obligation is Same
fortuitous event lost by reason of extinguished
- Absolute disappearance of guaranty is not fortuitous event
required; if it deteriorates in a way that it Only one remains Obligation becomes Same
becomes illusory, it is deemed to have while others were simple – performing
disappeared lost because of that which subsists
- But benefit is preserved if debtor gives new fortuitous event
security One or some were Obligation is still Same (creditor may
5. Violation by debtor of undertaking lost because of alternative and choose from
6. Debtor attempts to abscond fortuitous event debtor may choose remaining)
while others from remaining
Grounds for the courts to fix period remained
1. When obligation does not fix a period but the nature If one or some, but Debtor may still Creditor may
of the obligation and circumstances warrant the not all were lost by choose from (1) Claim any of
inference that a period must have been intended reason of debtor‟s remaining those subsisting
- Obligation or not payable on demand is without fault (w/o) damages
term and becomes due and demandable only (2) Price of that
upon demand; court not authorized to fix period which disappeared,
2. When duration of period depends upon the will of the with damages
debtor If all were lost by Creditor is entitled Choice of creditor
- There is existing obligation. It is only its reason of debtor‟s to recover the value shall fall upon the
performance with respect to time that is left to fault of the last thing price of any one of
the will of debtor which disappeared, the prestations
3. When the non-compliance by one of the parties in or that of the service which was lost, with
reciprocal obligations is with respect to time, the which last become damages
court may fix period if there exists a just cause impossible, with
damages
Action to fix term or period If one or some, but Debtor may choose No effect. The
Fulfillment of the obligation itself cannot be demanded not all, were lost by either to: creditor may still
until after the court has fixed the period for compliance reason of creditor‟s (1) Perform that choose from
therewith, and such period has arrived. fault which remains or remaining
XPTN: An action combining an action to fix period with choose from among prestations or, if
that of an action for specific performance may be allowed remaining (w/o) only one is
if it can be shown that a separate action for specific damages remaining the
performance would be a mere formality because no (2) Rescind the obligation becomes
additional proofs other than the admitted facts will be contract with simple
presented and would serve no purpose other than to damages, because
delay. he cannot make a
choice according to
Period fixed is final the terms of the
It becomes part of the contract and cannot be obligation by reason
subsequently changed or extended by court without of creditor‟s act
consent of both parties
If all were lost by Obligation is same
reason of creditor‟s extinguished
d. Number of prestations involved
fault
1. Simple Obligation – one prestation
b. Facultative Obligation
Only one prestation is due, that to which the
2. Compound Obligation – various prestation
obligation refers; but the debtor has the power
i. Conjuctive Obligation – prestations are demanded
to fulfill the obligation by giving or rendering
jointly or both at the same time
something else
ii. Distributive Obligation – one of various
prestations may be demanded
Alternative Facultative
a. Alternative Obligation – there are various
All things or objects of prestation Only the thing promised is
prestations which are due and the obligation is
fulfilled by performance of one of them; obligor are subject to the obligation up to subject thereto, but not the
the time the election is made other which the debtor has
cannot compel creditor to receive part of one
and part of the other reserved to himself the right
to deliver in lieu of the first
 Right of choice pertains to debtor
XPTN: When expressly granted to creditor Loss of one produces or may Only one thing is owing, the
produce deleterious influence on loss of that thing which may
the obligation be substituted does not affect
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 the juridical relations b. Individually and collectively
Right of choice may be granted not Choice to substitute lies only c. Although the contract states that the obligation is solidary,
only to debtor but also to creditor with the debtor if the judgment did not provide for solidary obligation,
Effect of loss of substitute none of them may be compelled to satisfy judgment in
a. Prior to substitution – substitution becomes full. Reason: After judgment has become final, court has
effective only from time that the same has no power to amend it.
been communicated to the creditor. Hence, 3. The nature of the obligation so requires
debtor is not liable even if loss was due to a. Some are also provided by law such as joint tortfeasors,
his fault. two officious managers and two bailees
b. After substitution – obligation of debtor is b. When several heirs of deceased partner continued with
limited to performance of substitute business and management of partnership against the will
prestation of other partner, the obligation to undertake inventory,
1. If loss was due to debtor‟s delay, render accounting and wind up partnership affairs is
negligence or fraud – he is liable for solidary by nature
damages
2. If loss was due to fortuitous event, Kinds of solidarity
without fault of debtor – obligation is
extinguished 1. Active solidarity – one that exists among the creditors; each
of them, as regards his co-creditor, is creditor only as to his
e. Joint or solidary share and, in regard to the common debtor, he represents all
of them
Joint obligation – each debtors is liable only for a proportionate
part of the debt, and the creditor is entitled to demand only a Mutual agency or representation among creditors
proportionate part of the credit from each debtor  Each one can enforce the rights of all but this does not
authorize each one of them to do anything prejudicial to
Presumption in favor of joint obligation the others. This applies only to relationship among
Incumbent upon party alleging that the obligation is solidary and to creditors but does not extend to relationship of solidary
prove it with preponderance of evidence creditors to their debtors.
 Hence, novation, compensation, confusion or remission of
Division of joint credits or debts the debt made by any of solidary creditors with any of
Established in the obligation itself solidary debtors shall extinguish the obligation.
If obligation is silent, it is presumed to be divided into as many  The creditor who may have made any of the prejudicial
equal parts as there are creditors or debtors acts shall be liable to the others for the share in the
obligation corresponding to them.
Effects of joint obligation
1. Share in credit or debt is considered distinct from one another Effect of novation
2. Extinction of debt of one of various debtors does not  Mere extension of time for payment given by creditor to
necessarily affect the debts of the others solidary debtor does not release the others from the
3. Delay on the part only one does not produce effects with obligation
respect to the others and if delay is produced through the acts  In case of substitution of debtor, the creditor who effects
of only one of the joint creditors, the others cannot take the novation shall be liable to the other creditors for the
advantage thereof latter‟s shares in the obligation
4. Interruption of prescription by judicial demand of one creditor  When novation consists in subrogation of a 3rd person in
upon debtor does not benefit the other creditors nor interrupt the rights of other creditors, the creditor who effected it is
the prescription as to the other debtors. Partial payment or liable to the other creditors for their share. But if it is
acknowledgment made by one of several joint debtors does not made not in the rights of the other creditors, but in his
stop the running of the statute of limitations as to the others place, same amounts to assignment of his right which he
5. Vices arising from a personal defect of a particular debtor or could not do without consent of the other creditors
creditor do not affect validity of other credits or debts
6. Insolvency of debtor does not increase the liability of his co- Effect of compensation
debtors Solidary creditor whose personal debt has been compensated
7. In divisible joint obligation, the defense of res judicata is not becomes liable to others
extended from one debtor to another, the reason being that no
debtor has more obligation than his own, nor may each creditor Effect of confusion
claim more right than what respectively pertains to him Solidary creditor in whom confusion has taken place remains
liable to others
Solidary obligation – each of debtor is liable for the entire
obligation, and each of creditors is entitled to demand the Effect of remission
satisfaction of the whole obligation from any or all of the debtors a. Total remission
- Has the effect of extinguishing entire obligation.
When solidary exists Creditor who made remission becomes liable to his
1. The law so provides co-creditors. Solidary debtor who obtained the
a. I promise to pay is signed by two or more persons remission is not entitled to reimbursement from co-
b. Two or more heirs take possession of the estate debtors because it is essentially gratuitous.
c. All partners are liable for wrongful act or omission of any b. Remission of full share of solidary debtor
partner in ordinary course of business - That debtor ceases to have any relation with
d. Agent exceeded his authority and principal allowed him to creditors
act as though he had full powers - XPTN: Continuation of his solidary relation is
e. Two or more bailees for a thing loaned in the same expressly reserved. In such case, he shall be surety
contract for the other debtors
f. Two or more officious managers, unless management was - Debtor will still be bound with respect to his co-
assumed to save the thing or business from imminent debtors. If one is made to pay the share of an
danger insolvent, the released debtor will still have to give
g. Two or more payees solidary in solution indebiti share in the portion of insolvent. Same rule applies
h. Joint tortfeasors in quasi-delict when debt has been totally paid by any of co-debtors
i. Principals, accomplices and accessories, each within their before remission was effected
respective class, liable severally c. Partial remission
2. The obligation expressly stipulates - His character as solidary debtor continues with
a. Jointly and severally respect to the creditors and his co-debtors

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 Assignment of rights of a solidary creditor - Total defense: personal to debtor being sued which
a. In favor of stranger – Solidary creditor cannot assign his are sufficient causes to annul consent, such as
rights without the consent of the others. If consent not minority, insanity, fraud, violence, or intimidation,
acquired, assignee cannot be a solidary creditor. Payment will serve as complete exemption of defendant from
made to such assignee would be payment to a wrong liability
person and a suit filed by assignee cannot interrupt - Partial defense: special terms or conditions affecting
prescription only his part of obligation; debtor can still be sued
b. In favor of co-creditor – consent of other solidary creditors for portions not subject to terms or conditions
is not longer necessary c. Defenses which belong to another debtor
- Defenses which personally belong to other co-debtors are also
Effect of demand by solidary creditor available to the debtor who is actually sued, but it is only as
GR: Debtor may pay any one of solidary creditors regards that part of debt for which the debtor to whom the
XPTN: If any demand, judicial or extrajudicial, has been made defense belongs is responsible
by one of the solidary creditors in which case, payment should
be made to him. If made to one who did not demand, it is 3. Mixed solidarity
deemed payment to a wrong person in so far as shares of When one creditor makes a demand upon one of the debtors,
others are concerned the latter cannot pay to any other creditor but the one who
made the demand. The prohibition, however, does not apply to
IMPT: Solidary creditor who collects debt shall be liable to others for the other debtors upon whom demand has not been served,
the share in the obligation corresponding to them. hence, they may pay to any creditors who did not make the
demand.
2. Passive solidarity – exists among debtors; mutual guaranty
f. Divisible and Indivisible Obligations
Mutual guaranty
Each one of the debtors answers not only for the portion Divisible obligation – that which has for its object a thing or an
affecting him, but also for the portion pertaining to the others. act which in its delivery or performance is susceptible of division;
whether capable of partial fulfillment
Solidary debtor Surety
Has right to recover from co- Recover full amount from Indivisible obligation – does not admit of division and even if
debtor the amount principal debtor does, neither the nature of contract nor the intention of parties
corresponding to their share in permits it to be fulfilled by parts
the obligation
Test of divisibility: Whether or not it is susceptible of partial
Effect of payment by one solidary debtor performance
 Extinguishes the obligation
 Solidary debtor who pays the entire obligation may collect When obligations to do are divisible
from his co-debtors not only the share that corresponds to a. Obligation has for its object the execution of a certain
each, but also interest from the time of the making such number of days of work
payment until he is reimbursed, provided that payment b. Obligation has for its object the accomplishment of work
was not after the debt became due and not before. by metrical units
 If payment was made after the obligation has prescribed c. Obligation has for its object analogous things which by
or becomes illegal, debtor who paid shall not be entitled their nature are susceptible of partial performance
to reimbursement from co-debtors
 If after payment, one debtor becomes insolvent, the other Indivisibility of an obligation does not necessarily give rise
debtors, including the one who paid, are proportionately to solidarity
liable for insolvent‟s share
 No subrogation because original obligation is extinguished Solidarity Indivisibility
and a new one is created between the debtor who paid Refers to the legal tie or Refers to the object or
and the co-debtors. vinculum that binds the parties prestation of the obligation
Requires plurality of subjects Not required
Effect of loss of thing or supervening impossibility of There should be 2 or more There can be 1 creditor and 1
prestation creditors and/or 2 or more debtor only
a. If without fault of solidary debtors – obligation is debtors
extinguished Prestation remains the same Obligation is converted into one
b. If there was fault or loss due to fortuitous event happened even in case of non- for damages in case of non-
after debtor incurred in delay – all liable to creditor; performance performance
innocent debtors have right of action to recover from the Each debtor is liable for the One debtor is not liable for the
guilty debtor the full amount of indemnity they have paid breach of other debtors breach of others
to creditor; if guilty debtor was the one who paid, he Damages can be demanded only
cannot get contribution from the debtor who was
responsible for the breach while
Defenses available to every solidary debtor the other debtors who may have
a. Defenses which arise from the nature of the obligation been ready to fulfill their parts
- Defenses which tend to weaken or destroy the legal shall not contribute to the
tie or vinculum juris indemnity beyond the
- Constitute a total defense corresponding portion of the
- Example: price of the thing or of the value
a. Contract is void or inexistent of the service in which the
b. Contract is unenforceable obligation consists.
c. Voidable due to defect in capacity or consent of Collective performance is Performance may be done by
all required one
d. Obligation is extinguished
e. Non-fulfillment of suspensive condition or non- Joint indivisible obligation
arrival of period Obligation is joint as to the parties but indivisible as to compliance
f. Res judicata, prescription and others of same
class Consequences
b. Defenses personal to the debtor being sued or pertaining As to debtors: Debt can be enforced only by proceeding against all
only to his share debtors, although they are each liable only for his part

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As to creditors: Collective action of all the creditors is necessary in Payment – means not only the delivery of money but also the
order to enforce the credit performance of the obligation

Effect of breach of a joint indivisible obligation Burden of proof

Obligation is converted into one for the payment of indemnity for One who pleads payment has the burden of proving it. Where the
damages from the time anyone of the debtors does not comply with debtor introduces some evidence of payment, the burden of going
his undertaking. forward with the evidence – as distinct from general burden of proof
Debtor responsible for the breach shall bear the liability for all – shifts to the creditor, who is then under a duty of producing some
damages suffered while those who may have been ready to fulfill evidence to show non-payment.
their promises shall not contribute because their liability is limited to
their respective share of the price of the thing or value of the service Requisites of payment

g. Obligations with penal clause 1. Payment must be complete and regular

XPTN: An incomplete or irregular payment may extinguish
One with an accessory undertaking by virtue of which the obligor debtor‟s obligation when –
assumes a greater liability in case of breach of obligation a. There is substantial performance in good faith – but
creditor may deduct damages suffered by him
Penal clause – an accessory obligation which the parties attach to b. There is waiver – expressly or impliedly, as when he
a principal obligation for the purpose of insuring the performance accepts the performance, knowing its incompleteness or
thereof by imposing on the debtor a special prestation in case the irregularity and without expressing any protest or
obligation is not fulfilled or is irregularly or inadequately fulfilled. objection

Dual function of penal clause 2. Payment must be tendered by the proper person
1. To provide for liquidated damages
2. Strengthen the coercive force of the obligation by the threat of Proper person to effect payment
greater responsibility in the event of breach a. Debtor or his duly authorized representative
b. 3rd person who has been authorized by parties to make
GR: Penalty takes the place of indemnity for damages and payment payment
of interest c. 3rd person who has an interest in the fulfillment of the
XPTN: Damages, in addition to penalty stipulated, may be recovered obligation
when –
1. There is an express stipulation to that effect Effect of payment coming from persons other than
2. Obligor having failed to comply with the principal abovementioned
obligation also refuses to pay the penalty, in which case Creditor is not bound to accept payment. But if he accepts,
the creditor is entitled to interest in the amount of the payment is valid and extinguishes obligation
penalty
3. Obligor is guilty of fraud in the fulfillment of the obligation Payment made without knowledge or against the will of
TN: Proof of such fraud is incumbent upon creditor. He is debtor
entitled only to the stipulated penalty plus the difference a. Payor can recover from debtor only insofar as such
between the proven damages and stipulated penalty. payment has been beneficial to latter
[Stipulated penalty+(proven damages-stipulated penalty)] b. Payor is not entitled to be subrogated to the rights of the
creditor
GR: Penalty is not a substitute for performance of obligation
XPTN: When foregoing right is expressly reserved for the debtor Payment was made with consent of debtor
a. Payor may demand from debtor what he has paid
GR: Creditor cannot demand both fulfillment of obligation and b. He can be subrogated to the rights of creditor
satisfaction of penalty at the same time
XPTN: If it has been clearly granted to him Payor does not intend to be reimbursed
Deemed a donation if done with consent of debtor. If without
TN: If after the creditor has decided to require fulfillment of the consent, not a donation but payment is valid. Should payor
obligation, the performance should become impossible without his change his mind, he may demand reimbursement but only
fault, the penalty may be enforced. insofar as payment has been beneficial to debtor

No need for proof of actual damages Reimbursement Subrogation

Creditor need not present proof of actual damages (to prove Covers only the refund of the Includes not only the right of
existence or amount of damages) in order that the penalty may be amount paid reimbursement but also the
demanded. Primary purpose of fixing a penalty is to avoid such rights of action against the
necessity. debtor and other 3rd persons
In this jurisdiction, there is no difference between penalty and such as guarantors
liquidated damages. Person paying has only a Not only the right to be
personal action to recover reimbursed by the rights
When penalty may be reduced by court what he paid attached to the obligation
1. When principal obligation has been partly or irregularly
complied with by the debtor (partial fulfillment) 3. Person paying must have capacity to make payment
2. Even if there has been no performance, if the penalty is If no capacity, creditor cannot be compelled to accept it;
iniquitous or unconscionable (unconscionable penalty) consignation will not be proper; in case he accepts it, payment
will not be valid
Effect of nullity In obligation to give, person must have free disposal of the
Of penal clause: Principal obligation still valid thing due and capacity to alienate it.
Of principal obligation: Penal clause is a nullity because accessory
cannot exist without the principal 4. Payment made to proper person
a. Person in whose favor the obligation has been constituted
EXTINGUISHMENT OF OBLIGATION (original creditor)
b. Successor-in-interest of original creditor
Modes of extinguishment c. Persons authorized to receive payment (authorized by
creditor or by law)
a. Principal causes TN: Payment made to those not enumerated is a payment
made to wrong person; hence, will not extinguish obligation as
1. Payment or performance to the creditor who is without fault or negligence.

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 XPTN: 2. Impaired through the fault of the creditor, such
1. If payment has redounded to the benefit of the as unreasonable delay in presentment
creditor - Mere tender of check is sufficient to compel
Proof of such benefit is incumbent upon the debtor redemption. Check may be used for the exercise of
who paid the right of redemption, the same being a right and
XPTN: No need of proof if: not an obligation. However, it is not of itself a
a. After payment, the 3rd person acquires creditor‟s payment.
rights Extraordinary inflation or deflation of currency
b. Creditor ratifies the payment to the 3rd person stipulated
c. By creditor‟s conduct, the debtor has been led Value of currency at the time of establishment of obligation
to believe that the 3rd person had authority to shall be the basis of payment, unless there is an agreement to
receive the payment the contrary. For this to affect an obligation, following
2. Payment is made in good faith to any person in requisites must be proven:
possession of the credit 1. There was an official declaration of extraordinary inflation
Requisites: or deflation from BSP
a. Payment is made to person in possession of 2. Obligation was contractual in nature
credit 3. Parties expressly agreed to consider the effects of
b. Payor acted in good faith, believing that the extraordinary inflation or deflation
person demanding payment or person in whose
name the payment is demanded, is the true 7. Payment must be tendered in the proper place
owner of the credit Payment must be made at the domicile of debtor. This applies
Example of possessor of credit even if debtor changed domicile in bad faith except that
Instrument is payable to bearer and the holder is not additional expenses in collecting credit shall be borne by debtor
entitled to the payment because there was no XPTN:
negotiation nor assignment in his favor but the 1. There is another place of payment designated in the
payment was made by the debtor in good faith obligation
because the latter was not aware of the defect or 2. In the absence of agreement and when obligation is to
flaw in the holder‟s right to demand payment deliver determinate thing, payment shall be made
3. Debtor pays the previous creditor prior to acquiring wherever the thing might be at the moment the obligation
knowledge of the assignment of credit made by latter was constituted
Creditor may validly assign credit provided notice is
given to debtor. If debtor pays such creditor prior to Special forms of payment
notice, payment is valid and releases debtor from the 1. Dation in payment (dacion en pago)
obligation - Alienation of property to the creditor in satisfaction of a
debt in money; requires delivery and transmission of
Effect of garnishment ownership
Payment made to creditor (debtor in the case) by debtor after - No dation in payment when there is no transfer of
the latter has been judicially ordered to retain the debt shall ownership.
not be valid. Debtor can be required to pay again to party who - Obligation of debtor here is to pay a debt in money. If
secured the garnishment up to the extent of the amount of original obligation is not payment of debt in money but
judgment. something else and the creditor accepts the delivery of
property in lieu of the original obligation, this is not dacion
5. Person to whom payment is made must have capacity en pago but a case of objective novation.
to receive it - Requisites:
Payment to incapacitated person is not valid 1. There must be performance of prestation in lieu of
XPTN: payment (animo solvendi)
a. If incapacitated person has kept the thing delivered 2. There must be some difference between the
b. Insofar as the payment has been beneficial to him prestation due and that which is given in substitution
(aliud pro alio)
6. Identity of prestation must be preserved 3. There must be an agreement between creditor and
a. Determinate obligation: Debtor cannot compel creditor to debtor that the obligation is immediately
receive a different one extinguished by reason of the performance of a
b. Indeterminate obligation: If quality and circumstances prestation different from that due.
have not been stated, the creditor cannot demand a thing - Effect of dation in payment: Extinguishes the obligation to
of superior quality and debtor may not deliver a thing of the extent of the value of the thing delivered. It does not
inferior quality. necessarily mean total extinguishment. It is totally
c. Personal obligation: Act or forbearance cannot be extinguished only when the parties, by agreement,
substituted by another act or forbearance against express or implied, or by their silence, consider the thing
creditor‟s will as equivalent to the obligation.
d. Obligation to pay debts in money: - Governed by law on sales
1. Payment should be made in the currency stipulated,
OW, the creditor may validly refuse tender of 2. Cession or assignment
payment - Consists in abandonment of totality of property of the
2. Absence of such stipulation or if impossible to deliver debtor in favor of the creditors in order that the same may
the currency stipulated, payment should be in the be applied for the satisfaction of their credits
currency which is legal tender in the Philippines.
Dation in payment Cession
Legal tender – currency which has been made suitable by law Transfers ownership over Only possession and
for the purpose of a tender in the payment of debts thing alienated to creditor administration are transferred
- All notes and coins issued by BSP and guaranteed by Does not require plurality Requires plurality of creditors
RP Debtor need not be insolvent Presupposes insolvency of
- For P1, P5, P10 – max P1,000 only debtor
- For 1-25 centavos – max P100 only Involves specific Involves totality of property
Checks – not a legal tender, even if manager‟s, cashier‟s or thing/property
personal check May totally extinguish Assignment only releases the
- But creditor may accept check as payment obligation debtor from responsibility for
- Delivery of checks shall produce the effect of net proceeds of thing
payment only when: assigned, unless there is
1. Encashed stipulation to the contrary

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3. Tender of payment and consignation c. Loss of the thing without fault of debtor before
Tender of payment – definitive act of offering the creditor what acceptance by creditor or approval of court should be for
is due him or her, together with the demand that the creditor the account of creditor
accept the same. d. Fruits, products or interest of thing consigned shall belong
- Involves a positive and unconditional act by obligor of to creditor from moment consignation was made
offering legal tender currency as payment to obligee for e. Expenses of consignation shall be charged against creditor
the former‟s obligation and demanding that the latter
accepts the same. Application of payment
- Tender of payment must be accompanied by consignation Process of designating the debt to which the payment made is
in order that the effects of payment may be produced applied, when the debtor has different obligations in favor of
- Effect of valid tender is merely to exempt the debtor from same creditor.
payment of interest and/or damages
Requisites of application of payment
Consignation – act of depositing the thing due with the court or 1. There exist only one debtor and one creditor and
judicial authorities whenever the creditor cannot accept or there are several obligations of the same kind
refuses to accept payment, and it generally requires a prior 2. Debts are all due
tender of payment XPTN:
a. Parties stipulate
Tender of payment Consignation b. Application is made by party for whose benefit
Antecedent of act preparatory to Necessarily judicial the term has been constituted
consignation 3. Payment made is not sufficient to cover all
May be extrajudicial obligations
Priority is to attempt to make
private settlement before Right to make application
proceeding to consignation a. Debtor – right primarily belongs to debtor; once right is
exercised, application is irrevocable and debtor has no
GR: Consignation requires prior tender of payment more right to change application
XPTN: Limitations:
1. Creditor is absent 1. If debt produces interest, payment of principal shall
2. Creditor is unknown not be deemed made until interests have been
3. Creditor does not appear at the place of payment covered
4. Creditor is incapacitated to receive the payment at the o Merely directory; when creditor applied payment
time it is due to principal instead of interest, it is deemed to
5. When, without just cause, creditor refuses to give receipt have been agreed upon by parties
6. Two or more persons claim the same right to collect 2. If partner authorized to manage collects a
7. Title of the obligation has been lost demandable sum, which was owed to him in his own
name, from a person who owed the partnership, sum
Requisites of effective consignation collected shall be applied to two credits in proportion
1. There was a debt due to their amounts, even though he may have given
- If exercise of right such as redemption, option contract, receipt for his own credit only.
no need of consignation b. Creditor – if debtor has not exercised right upon payment;
2. Valid prior tender of payment requisites are:
Creditor to whom tender of payment was made refused to 1. Creditor expresses such application in the
accept it without justifiable cause, or because he or she corresponding receipt that he issued
was absent or incapacitated, or because several persons 2. Debtor must have assented to such application
claimed to be entitled to receive amount due or because c. Law – if debtor and creditor have not specified application
the title of obligation had been lost a. Apply first to most onerous debt
3. Previous notice of consignation has been given to persons b. If debts are of same nature and burden, apply
interested in the performance of the obligation proportionately
4. Amount/thing due was placed at the disposal of the court
5. After consignation was made, persons interested were 2. Loss of the thing due
notified thereof
Fulfilled by service of summons with copy of complaint In Real Obligations
TN: Substantial compliance is not enough. Thing is lost when
1. It perishes
When debt considered extinguished 2. Goes out of commerce
1. When creditor accepts consignation without objections, or, 3. Disappears in such a way that its existence is unknown or it
2. If he objects, at the time the court declares that it has cannot be recovered
been validly made in accordance with law Necessary that the loss or destruction of the thing must be total
In case loss is partial, court shall determine whether the same is so
When creditor‟s acceptance is conditional and with important as to extinguish the obligation.
reservations, he is not deemed to have waived the claims he
reserved against debtor. Requisites
1. Obligation consists in delivery of determinate thing
Withdrawal of sum/thing deposited - Loss as a mode of extinguishment is only applicable to
Before creditor has accepted or before a judicial declaration, determinate or specific obligation and does not apply to
debtor may withdraw the thing or sum deposited. If withdrawal generic obligation
is after, debtor needs consent of creditor. If creditor authorizes, XPTN: Delimited generic obligation, such as the obligation
he loses every preference which he may have over the thing to deliver palay which is to be produced by a particular
and the co-debtors, guarantors and sureties shall be released. land; loss extinguishes obligation
2. Loss must be posterior (subsequent) to constitution of
Retroactive effect obligation
Payment is deemed to have been made at the time of deposit 3. It must have occurred without fault of debtor
or when it was placed at disposal of judicial authority - If with fault, obligation converted to damages
4. It occurs before the debtor has incurred in delay
Effects of consignation - If lost after delay, obligation converted to damages
a. Produces effect of payment, thereby releasing debtor 5. Debtor must not have obligated himself to deliver the same
b. Accrual of interest is suspended thing to two or more persons who do not have the same
interest

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Presumption of fault on debtor’s part 5. Compensation
When the thing is lost in his possession
XPTN: Does not apply in case of earthquake, flood, storm, or other Mode of extinguishing to the concurrent amounts the obligations of
natural calamity persons who, in their own right and as principals, are reciprocally
creditors and debtors of each other
When obligation to deliver a determinate thing arises from
crime Kinds of compensation
Loss of thing for any cause, including fortuitous event, does not 1. Legal – takes place ipso jure when all requisites of law are
extinguish obligation present, even though the creditors and debtors are not aware
XPTN: When prior to loss, debtor has offered to return the thing to of the compensation; operates even against their will or
person who should receive it but latter refused to accept it without without consent;
any justification, in which case, the obligation is extinguished TN: Takes effect on the very day on which all requisites are
fulfilled
In Positive Personal Obligations Requisites
1. When the prestation becomes legally or physically impossible 1. Parties must be creditors and debtors of each other in
without the fault of the debtor their own right
2. When the service has become so difficult as to be manifestly 2. Parties must be bound principally
beyond the contemplation of parties XPTN: Guarantor may set up compensation as what the
- „‟Court may release the obligor, either wholly or partially, creditor may owe the principal debtor
depending on the circumstances and intention of parties 3. Both debts consist in a sum of money or if consumable,
they are of the same kind and same quality
Remedy of creditor if loss was due to fault of 3rd person 4. Both debts must be due, liquidated and demandable
Obligation is extinguished. However, creditor acquires all the rights 5. Over neither of them there be any retention or
of action which the debtor may have against 3rd person controversy, commenced by 3rd persons and
communicated in due time to debtor
3. Condonation or remission of debt “in due time” – should mean period before legal
compensation was supposed to take place
An act of liberality by which the obligee, who receives no price or 2. Conventional or voluntary – occurs when parties agree to
equivalent thereof, renounces the enforcement of the obligation, mutual extinguishment
which is extinguished in its entirety or in part or aspect of the same Requisites:
to which the remission refers 1. Each of the parties can dispose of the credit he seeks to
compensate
2. They agree to the mutual extinguishment of their credits
Requisites 3. Judicial – takes place when court allows set off or counterclaim
1. Must be gratuitous of defendant as against claim of plaintiff
2. Obligation must be demandable at the time of remission
3. Must be accepted by obligor (debtor) Debt which may not be subject of compensation
Remission without acceptance does not extinguish obligation. It 1. When one of the debts arises from depositum
may be possible that it may be extinguished by prescription but 2. When one of the debts arises from obligations of a depositary
not by remission. or of a bailee in commodatum
4. Must not amount to an inofficious donation 3. When one of the debts arises from a claim for support due by
Obligation remitted forms part of estate of creditor upon his gratuitous title
death. Hence, if it is inofficious, it may be reduced. It is 4. When one of the debts consists in civil liability arising from a
inofficious if it impairs the legitime of compulsory heirs penal offense
5. It made expressly, it must comply with forms of donation 5. When one of the debts consists in the claim of Government for
a. If real property – remission and acceptance must be in payment of taxes
public instrument Reason: Government and taxpayer are not creditors and
b. If it involves personal property, value of which exceeds debtors of each other. Debts and taxes are different. Debts are
P5,000 – remission and acceptance must be in writing due to government in its corporate capacity while taxes are due
c. If it does not exceed P5,000 – remission and acceptance to government in sovereign capacity
may be made orally
Effect of assignment of credit to legal compensation
Presumption of remission a. If assignment made after requisites of compensation took place
Possession of private document of credit by debtor creates – assignment will not affect the debtor since his obligation
presumption that the creditor delivered it voluntarily. Such voluntary already extinguished prior to assignment. Remedy of assignee
delivery implies renunciation in the absence of proof that the is with assignor and not with debtor
document was delivered for some other reason than the gratuitous b. If made before –
waiver of debt and the complete extinction of obligation to pay. a. If with consent of debtor – he can no longer set up
XPTN: Contrary is proven against assignee the compensation, unless debtor has
notified assignor at the time that he gave his consent, that
Remission of accessory obligation he was reserving his right to compensation
Does not affect principal obligation b. If with knowledge but without consent of debtor – he may
set up compensation of debts existing previous to
4. Merger or confusion of rights assignment but not subsequent ones
c. If without knowledge of debtor – he may set up
Meeting in one person of the qualities of creditor and debtor with compensation of all credits existing prior to, or even after,
respect to the same obligation assignment, until he had knowledge of assignment

Requisites 6. Novation
1. Must take place in the person of principal creditor and principal
debtor Extinguishment by substitution or change of the obligation by a
- Will also result in release of guarantors subsequent one which extinguishes or modifies the first, either by
- Merger involving creditor and the guarantor will not changing the object or principal conditions, or by substituting
extinguish principal obligation, only the accessory another in place of the debtor, or by subrogating a 3rd person in the
obligation rights of the creditor.
2. Must be complete and definite because if not, the obligation
still subsists Dual function: (1) extinguishes obligation and (2) creates a new one
in lieu of the old

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Requisites b. 3rd person, not interested in the obligation,
1. There must be previous valid obligation pays with the express or tacit approval of
Novation is void if original obligation is void debtor
XPTN: c. Even without knowledge of debtor, a
1. When annulment may be claimed only by the debtor and person interested in fulfillment of
he consented to the novation obligation pays, without prejudice to the
2. When ratification validates acts which are voidable effects of confusion as to the latter‟s share
2. Parties concerned must agree to a new contract 2. Conventional subrogation – by agreement;
3. Old contract must be extinguished requires consent of all
4. There must be valid new contract Conventional subrogation Assignment of credit
If new one is void, original shall subsist Consent of debtor is Consent of debtor not
XPTN: Even if new obligation is void, original shall not subsist if necessary required; only notice
the parties clearly intended that the former relation should be Extinguishes old Refers to same right
extinguished in any event. obligation which passes from one
person to another
If the original obligation was subject to a suspensive or resolutory Nullity of old obligation Nullity is not remedied
condition, the new obligation shall also be under the same condition may be cured by by assignment
but the parties may stipulate otherwise. subrogation (?)

Kinds of novation c. Mixed – when change of object or principal

1. Extinctive – when an old obligation is terminated by creation of conditions of obligation occurs at the same time with
new obligation that takes the place of the former the change of either in the person of the debtor or
- Results by either: creditor
a. Changing the object or principal conditions (objective - Never presumed; there must be an express intention to
or real) novate
o Imperative that new obligation expressly - Express or Implied
declare that the old one is extinguished or that - If implied, test of incompatibility is whether the old and
the new is on every point incompatible with old new obligations can stand together, each one with its own
one independent existence; if they are irreconcilable, the
b. Substituting the person of debtor or subrogating a 3rd subsequent extinguishes the first
person in the rights of creditor (subjective or - Effects of extinctive novation upon accessory obligations
personal) a. In novation by changing the object or principal
o Necessary that the old debtor be released conditions and novation by substitution of debtor –
expressly from obligation and 3rd person or new accessory obligations are also extinguished
debtor assumes his place in the relation XPTN: If there is stipulation in favor of 3rd persons,
Substitution of debtor accessory obligations subsist insofar as they may
o It is necessary to place the third person in the benefit such 3rd person who have not given their
same position occupied by original debtor; OW, consent to the innovation
only mere co-debtorship or suretyship is created b. Novation by subrogation – accessory is not
o Old debtor must be released and new debtor extinguished but parties may modify effects of
assumes his place conventional subrogation
o Two forms 2. Modificatory – when old obligation subsists to the extent it
1. Expromision – initiative for change does remains compatible with the amendatory agreement
not come from debtor and may even be - When the change brought about by subsequent
made without his knowledge or against his agreement is merely incidental to the main obligation
will. It requires the consent of 3rd person - Case: Acceptance by creditor of new check in replacement
and creditor of dishonored check does not result in extinctive novation
If done without knowledge or against of in the absence of an express agreement that the debtor is
debtor, 3rd person is entitled to demand already discharged from his liability to pay the amount
reimbursement only up to extent that the covered by dishonored check.
payment was beneficial to debtor
2. Delegacion – debtor offers and creditor b. Other causes expressly mentioned
accepts, a 3rd person who consents to
substitution and assumes obligation. 1. Annulment
Consent of the 3 parties is necessary. 2. Rescission
o Consent of creditor in both forms is required. 3. Fulfillment of a resolutory condition
Without his consent, creditor is not bound to 4. Prescription
deal with the substitute
o GR: Insolvency of new debtor or his non- c. Other causes not expressly mentioned
fulfillment shall not give rise to liability on the
part of old debtor 1. Death, in obligations which are of a purely personal
o XPTN: When new debtor has been proposed by character
old debtor and former‟s insolvency was already 2. Arrival of resolutory period
in existence at the time of substitution and of 3. Mutual dissent
public knowledge, or known to old debtor, 4. Change of civil status, in some contracts
creditor‟s action against old debtor is revived 5. Happening of unforeseen events
Subrogation
Transfer of all rights of creditor to a 3rd person, who
substitutes him in all his rights
Kinds:
1. Legal subrogation – takes place without
agreement but by operation of law
GR: Not presumed
XPTN:
a. When creditor pays another creditor who is
preferred, even without debtor‟s
knowledge

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CONTRACTS j. According to defects
1. Valid
Contract – meeting of minds between 2 persons whereby one binds 2. Rescissible
himself, with respect to the other, to give something or to render 3. Voidable
some service 4. Unenforceable
5. Void or Inexistent
Implied contract – contract which arises where the intention of
parties is not expressed, but an agreement in fact, creating an Characteristics of contracts
obligation, is implied or presumed from their acts, or where there
are circumstances which, according to the ordinary course of dealing 1. Obligatory force or character of contracts
and the common understanding of men, show a mutual intent to Obligations arising from contracts have the force of law
contract between contracting parties and should be complied with in
good faith.
Implied contract Quasi-contract
Requires consent of parties Not predicated on consent From the moment contract is perfected, parties are bound not
Unilateral act only to the fulfillment of what has been expressly stipulated but
Basis is will of parties Basis is law to the end that also to all consequences which, according to their nature, may
there be no unjust enrichment be in keeping with good faith, usage and law.

Classification of contracts Requisite for application of this principle: Contract must be

perfected, valid, and enforceable
a. According to degree of dependence
1. Principal – can exist independently 2. Autonomy of contracts
2. Accessory – cannot exist without principal contract Contracting parties are accorded the liberality and freedom to
3. Preparatory – means for execution of another contract establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided the same are not contrary
b. According to manner of perfection to law, morals, good customs, public order or public policy.
1. Consensual – perfected by mere consent; established by
mere meeting of the minds, i.e., the concurrence of offer 3. Mutuality of contracts
and acceptance on the object and cause Contract must bind both the contracting parties; its validity or
2. Real – perfected by delivery of the object; 4 contracts compliance cannot be left to the will of one of them.
which require delivery: commodatum, mutuum, deposit, This binding effect is based on the principle that the obligations
and pledge arising from contracts have the force of law between
contracting parties and there must be mutuality between them
c. According to nature of obligation produced based essentially on their equality
1. Bilateral
2. Unilateral Determination of performance, however, may be left to 3rd
person. Decision shall be obligatory from the moment it is
d. According to their name made known to them, provided that such determination is not
1. Nominate evidently inequitable.
2. Innominate – recognized in CC but not specially named
a. Do ut des – I give that you give Contract of adhesion
b. Do ut facias – I give that you do One party prepares the stipulation in the contracts while the
c. Facio ut des – I do that you give other party merely affixes his signature or his “adhesion”
d. Facio ut facias – I do that you do thereto, giving no room for negotiation and depriving the latter
the opportunity to bargain on equal footing.
e. According to cause
1. Onerous – cause is the prestation or promise of a thing or It is generally valid because party who adheres is free to reject
service by the other it entirely. But it may be struck down as void and
2. Remuneratory – cause is the service or benefit for which unenforceable for being subversive to public policy when the
the remuneration is given weaker party is imposed upon in dealing with the dominant
3. Gratuitous – cause is mere liberality of benefactor bargaining party and is reduced to the alternative of taking it or
leaving it.
f. According to risk involved
1. Commutative – each of contracting parties gives and Construed strictly against the one who drafted it; especially
receives an equivalent or there is a mutual exchange of true where the stipulations are printed in fine letters and are
relative values hardly legible.
2. Aleatory – each or both parties reciprocally bind
themselves to give or to do something in consideration of 4. Relativity of contracts
what the other shall give or do upon happening of an Contracts can only bind parties, their assigns and heir, except
event which is uncertain, or which is to occur at an when the rights and obligations arising from the contract are
indeterminate time not transmissibly by their nature, by stipulation or by provision
Example: Contract of insurance of law.

g. According to requirement of form or solemnity Heirs are not liable beyond the value of the property he
1. Common – does not require form received from the decedent.
2. Special/Solemn – requires certain formalities XPTN: Instances when contract may include 3rd person
1. Stipulation pour autrui – stipulation in favor of 3rd
h. According to purpose person conferring a clear and deliberate favor upon
1. To transfer ownership him, and which stipulation is merely a part of a
2. To convey use contract entered into by the parties, neither of whom
3. To give security acted as agent of the 3rd person, and such 3rd person
4. To render some service may demand its fulfillment provided that he
communicates his acceptance to obligor before it is
i. According to subject matter revoked.
1. Things 2. Contracts creating real right – 3rd persons may be
2. Services affected when they come into possession of the
3. Rights object of the contract

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 3. Creditors are protected in cases of contracts intended conclude the offeror‟s words and actions meant and not by the
to defraud them – creditors may: subjective intentions or beliefs of the offeror. Understandings
a. Pursue properties in possession of debtor and beliefs are effective only if shared
b. Exercise all the rights and bring all the actions 2. Terms of the offer must be reasonably certain, definite and
of debtor, except those purely personal to such complete, so that the parties and the court can ascertain the
debtor terms of the offer
c. Impugn the acts which the debtor may have There is an offer of the contract can exist by mere acceptance
done to defraud them of offer without any further act on the part of offeror
4. Accion directa 3. Offer must be communicated by the offeror to the offeree,
Art. 1729. Those who put their labor upon or furnish resulting in the offeree‟s knowledge of the offer
materials for a piece of work undertaken by
contractor have an action against the owner up to Cases not considered offers
the amount owing from the latter to the contractor at a. Advertisement of things for sale – mere invitations to make an
the time the claim is made. However, the following offer
shall not prejudice the laborers, employees and b. Advertisement for bidders – invitations to make proposals
furnishers of materials: Advertiser is not bound to accept any bid, whether it may be
1. Payments made by owner to the contractor highest or lowest, unless the advertisement contains language
before they are due subject to the interpretation that the intention is to let the
2. Renunciation by contractor of any amount due contract to the highest or lowest bidder.
him from the owner. c. Auction sale – invitation to make proposals
5. Any 3rd person who induces another to violate his Sale is considered perfected only by when auctioneer
contract can be made liable for damages to the other announced its perfection by fall of the hammer, or in other
contracting party customary manner.
Elements of tort interference
a. Existence of valid contract Termination of offer
b. Knowledge on the part of the 3rd person of the a. By action of offeror – prior to perfection of contract, offer may
existence of contract be withdrawn or revoked
c. Interference of 3rd person is without legal XPTN: Option contract where period is given to offeree within
justification or excuse which to accept the offer and the same has a separate
consideration. Offeror cannot simply withdraw or revoke before
Stages of contracts acceptance.
1. Negotiation – begins from the time the prospective parties Revocation or withdrawal takes effect immediately after
manifest their interest in the contract and ends at the moment manifestation and not necessarily when the offeree learns of it.
of agreement of the parties b. By action of offeree – rejection of offer
2. Perfection – birth of contract; when parties agree upon Counter-offer – rejection of original offer and the simultaneous
essential elements of contract making of a new offer; example is a qualified acceptance
3. Consummation – parties fulfill or perform terms agreed upon c. By operation of law
1. Lapse of time – offeror may fix the time of acceptance.
Essential elements of contracts After lapse of time fixed and no acceptance was made,
1. Consent offer is terminated
2. Object 2. Death, civil interdiction, insanity or insolvency – If either
3. Cause offeror or offeree dies, etc, before acceptance is made
4. Delivery – additional requisite for real contracts known to offeror, offer is rendered ineffective
3. Supervening illegality of proposed contract
Natural elements – not essential; presumed to exist in certain 4. Destruction of subject matter
contracts unless there is express stipulation to the contrary; example
is warranty in case of eviction  Option contract
Preparatory contract in which one party grants to the other, for
Accidental elements – exist only when parties expressly provide for a fixed period and under specified conditions, the power to
them decide, WON to enter into a principal contract.

Consent Option contract vs. contract of sale

An option is an unaccepted offer. Optionee has the right, but not the
Elements of consent obligation, to buy.
1. Plurality of subjects
2. Capacity Contract of sale fixes definitely the relative rights and obligations of
3. Intelligent and free will both parties at the time of its execution.
4. Express or tacit manifestation of the will
5. Conformity of internal will and its manifestation When option is binding
Where a period given to offeree within which to accept offer and the
Manifestation of consent same is founded upon or supported by a separate consideration, a
By meeting of the offer and acceptance upon the thing and the contract of option is deemed perfected.
cause which are to constitute the contract
Offeror may not withdraw the offer during the period agreed upon.
Forms of consent If he withdraws, it becomes breach of contract. Remedy of offeree is
1. Express action for damages and not specific performance.
2. Implied
When option not binding
 Offer When the period is not founded or supported by a consideration.
An expression of willingness to contract on certain terms, made Offeror may withdraw offer before acceptance or if there is
with the intention that it shall become binding as soon as it is acceptance, before offeror learns about it. But withdrawal must not
accepted by person to whom it is addressed be arbitrary or whimsical. Offeror has to maintain a length of time as
to permit the offeree to decide whether to accept or not.
Requisites of effective offer
1. Offeror must have a serious intention to become bound by his Consideration in option may not be presumed
offer Rule that existence of consideration is to be presumed in contract
Objective theory of contracts does not apply to contract of option or to an accepted unilateral
Seriousness of the intention of the offeror is to be determined promise to buy or sell. Promisee has burden of proving
by what a reasonable person in the offeree‟s position would consideration.

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Earnest money Insanity
Something of value to show that the buyer was really in earnest,  Manifestation, in language or conduct, of disease or defect of
and given to seller to bind the bargain. It is considered as part of the brain, or a more or less permanently diseased or disordered
purchase price and proof of perfection of contract. condition of mentality, functional or organic, and characterized
TN: There has to be perfected contract of sale first. by perversion, inhibition, or disordered function of the sensory
or of the intellective faculties, or by implied or disorder volition.
Earnest money Option money  Merely voidable; but if contract is entered into during a period
Part of purchase prince Distinct consideration of lucid interval, the same is valid.
Given only when there is already Applies to sale not yet perfected  Not every kind of insanity will annul consent. Only the insanity
a sale which prevents a person from knowing the character of the act
Buyer is bound to pay the Offeree is not required to buy that he is performing as well as its legal effect which will be a
balance ground for annulment.
 Law presumes sanity. Burden of proving such incapacity at the
 Acceptance of offer time of execution rests upon he who alleges it.
Must be absolute; no condition or qualification
Civil interdiction
Mirror-image rule  An accessory penalty imposed upon an accused who is
Acceptance must be identical in all respects with that of the offer so sentenced to a principal penalty not lower than reclusion
as to produce consent or meeting of the minds temporal, which is a penalty ranging from 12 years and one
day to 20 years.
Manner of acceptance  Deprives offender during the time of his sentence of following
Offeror may fix the time, place and manner of acceptance, all of rights:
which must be complied with. An attempt of offeree to accept the a. Parental authority, guardianship
offer in a different manner does not bind offeror. b. Marital authority
c. Management of his property
Acceptance through agent d. Disposition of his property by any act or any conveyance
If offer is made through agent, it is deemed accepted from the time inter vivos
acceptance is communicated to said agent, since by legal fiction, the
agent is the extension of the personality of the principal. Old-age and physical infirmity
Not incapacitated, except when it impairs his mental faculties to
When acceptance binds offeror – cognition theory such extent as to prevent him from properly, intelligently, and fairly
Contract is perfected only from the time an acceptance of an offer is protecting his property rights that he is considered incapacitated.
made known to the offeror. When acceptance is made by letter or
telegram, the same does not bind the offeror except from the time it Illiteracy
came to his knowledge.  Not incapacitated
 But if illiterate alleges mistake or fraud in giving his consent,
Withdrawal of acceptance the burden is on the party interested in enforcing the contract
Only before it is made known to the offeror to prove that the terms thereof are fully explained to the
former in a language understood by him. But this provision only
 Capacity to give consent applies where the contract is merely voidable, not where there
No effective consent without capacity is complete absence of consent.
 Before this can be invoked, the party who wants to avail of the
Effect of incapacity provision must prove that he really is unable to read or that the
Contract is not void. contract is written in a language not understood by him.
a. Only one of contracting parties is incapable – voidable
b. Both parties are incapable – unenforceable Object of contracts

Persons incapable of giving consent 1. All things which are not outside the commerce of men,
1. Unemancipated minors including future things
2. Insane or demented persons 2. All rights which are not intransmissible
3. Deaf-mute who do not know how to write 3. All services which are not contrary to law, morals, good
4. Persons suffering from civil interdiction customs, public order or public policy
5. Incompetents under guardianship
Requisites of object of contracts
Presumption of capacity 1. Object must be within commerce of men
Law presumes capacity until satisfactory proof to the contrary is Should be susceptible of appropriation and should be
presented. Burden of proof is on individual asserting lack of transmissible
capacity. 2. Real or possible, either physically or legally
a. Absolute impossibility – nobody can perform it; nullifies
Minority the contract
 State of person who is under the age of legal majority b. Relative impossibility – impossible due to special
 Below 18 years old conditions or qualifications of debtor it cannot be
 Contract entered into by minor is merely voidable. Minor has performed.
right to annul contract upon his attainment of age of majority 1. If temporary – does not nullify contract
but he must bring action within 4 years from his attainment of 2. If permanent – nullifies contract
age of majority. He may also ratify upon reaching age of 3. Should be licit, or not contrary to law, morals, good customs,
majority. public order or public policy
 Effect of misrepresentation by minor 4. Object should be determinate or determinable, as to its kind
a. Active misrepresentation – document signed by minor
specifically stated that he was of age Object must be in existence at the time of perfection of contract, or
Minor cannot, upon reaching the age of majority, annul at least, it has possibility or potentiality of coming into existence.
the contract on the ground of minority inasmuch as he is
already in estoppel. Future things may be object of contract
b. Constructive or passive misrepresentation – document XPTN: Donation cannot comprehend future things because it is a
signed by him did not contain such statement mode of transferring ownership, hence, donor is required to have
Minor can still annul contracts right to transfer ownership at the time of perfection of donation.
XPTN to XPTN: Donation propter nuptias between future spouses
but this is considered as disposition mortis causa

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Future inheritance  Authority of agent should be in writing
GR: Contract entered into is void 6. Stipulation limiting common carrier‟s liability for loss,
XPTN: Law allows person to make partition to his estate by an act destruction or deterioration of goods
inter vivos, provided that the legitime is not prejudiced.  This must be in writing, signed by shipper or owner
7. Contract of antichresis
Cause of contract  Amount of principal and interest of the principal obligation
it secures should be in writing.
The why of contracts, the essential reason which moves contracting 8. Sale or transfer of large cattle
parties to enter into contract  Sale or transfer is required to be registered with
city/municipal treasurer and a certificate of transfer is
Requisites required to be issued, otherwise, the sale or transfer is
1. Must exist – without cause at time of transaction, contract is not valid. It is implicitly required that it be in a public
void document since only public docs may be accepted for
Want of cause or total absence of consideration is different registration.
from failure to pay consideration. The latter results in right to 9. Chattel mortgage contract
demand fulfillment or cancellation of obligation under an  Contract must be recorded before the chattel mortgage
existing valid contract while the former prevents existence of registry. Implicitly, it is also required that it be in public
contract document to be accepted for registration.
Cause is presumed to exist. Burden to prove the contrary rests
on the party who claims that there was no consideration. Contracts which require form for enforceability (Statute of Frauds)
2. Must be true – false cause renders contract void; if price is Agreement itself, or some note or memorandum thereof, be in
simulated, sale is void, but the act may be shown to have been writing, and subscribed by the party charged or his agent.
in reality a donation, or some other act or contract a. Note or memorandum need not be contained in a single
3. Must be licit – illicit cause renders contract void; law presumes document; nor, when contained in two or more papers, need
that the cause exists and is lawful, unless contrary is proved each paper to be sufficient as to contents and signature to
satisfy the statute. Two or more writings properly connected
Lesion or inadequacy of cause may be considered together; matters missing or uncertain by
 Does not invalidate the contract another, and their sufficiency will depend on whether, taken
XPTN: When there is fraud, mistake or undue influence together, they meet the requirement of the statute as to
 Becomes ground for rescission in following cases: contents and as to signature.
1. Ward suffers lesion by more than ¼ of the value of b. Note or memorandum must be complete in itself and cannot
property in contracts entered into by guardians on behalf rest partly in writing and partly in parol. It must contain the
of ward essential elements of contract that may be ascertained from
2. Absentee suffers lesion by more than ¼ of value of note or memo or some other writing to which it refers
property in contracts entered into by legal representatives c. It must be signed by party charged
3. In case of partition, when any of co-heirs received things
whose value is less than ¼ than the share to which he is Basic principles
entitled a. Statute of fraud is applicable only to purely executory
contracts; not to partially or totally performed
Cause vs. motive b. It is not applicable to actions which are neither for violation nor
Motives are particular reasons of a contracting party which do not for performance of contract
affect the other party. It does not affect the contract. c. Defense may not be availed by 3rd persons
XPTN: Motive may be regarded as causa when it predetermines the d. Defense may be waived by (1) failing to object to the
purpose of the contract. Motive may be regarded as the causa when presentation of oral evidence to prove contract or (2) accepting
the realization of such motive has been made a condition upon benefits under the contract
which the contract is made to depend. Hence, illegality of motive e. It is limited to specific transactions
renders the contract void because such is also the cause.
Specific contracts covered by Statute of Frauds
Form of contracts 1. Agreement that by its terms is not to be performed within a
year
Contracts which require form for validity  Test to determine whether oral contract falls under one-
1. Donation of personal property where the value exceeds P5,000 year rule is whether performance is possible within a year
 Both donation and acceptance are required to be made in from the making thereof. If so, contract is outside Statute.
writing. Fact that performance may have taken more than one
 If it does not exceed P5,000, no form required but an oral year after making of the contract is immaterial as long as
donation requires simultaneous delivery of thing or of performance is possible in less than a year under the
document representing the right donated. terms of contract.
2. Donation of real property  Applies only to those not to be performed on either side
 Regardless of value, both donation and acceptance are within a year
required to be embodied in a public document. Both may  To be taken out of operation of Statute of Frauds, the
be embodied in single document or in separate documents agreement must be fully performed on one side within 1
but, in case of separate docs, the donor is required to be year from making thereof.
notified thereof in authentic form and such step is to be 2. Special promise to answer for debt, default or miscarriage of
noted in both instruments another
 Non-compliance of notification and notation renders the  Covers contracts of guaranty proper and suretyship
donation void. This applies only in the absence of  If promise is original or independent, i.e., the promisor
evidence that the claimed donation had been accepted. If becomes thereby primarily liable for the payment of debt,
donor was not unaware of acceptance, Court cannot the promise is not within the statute
declare donation as ineffective.  If promise is collateral and promisor becomes merely a
3. Donation propter nuptias surety, promise must be in writing
 Rules in 1 and 2 apply. 3. Agreements in consideration of marriage
4. Contract of partnership when real property is contributed as  Example: marriage settlement
capital  Donation propter nuptias is no longer included since it is
 There must be inventory of the property, signed by governed by ordinary donations
parties, and attached to public instrument 4. Sale of goods, chattels or things in action at price not less than
 The form is intended primarily to protect 3rd persons. P500
Hence, when the case does not involve 3rd parties,  Covers both tangible and intangible personal property
partners cannot deny existence of partnership  Also covers assignment of choses in action, hence,
5. Sale of parcel of land or any interest therein by an agent assignment of credit over P500 is covered

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5. Lease of real property for more than a year and sale of real  Instrument may be reformed. However, when mutual error of
property or an interest therein parties relates to legal effect of their agreement which
 Covers renewals of lease contract frustrates the real purpose of the contract, consent is vitiated,
 Sale is a consensual contract. However, Statute of Frauds and remedy is not reformation of instrument but annulment of
includes sale of real property or interest therein, thus, it contract.
has to be in writing  In order for reformation by reason of mutual mistake be
6. Representation as to credit of 3rd persons applicable, it is necessary that –
 Representation must have been made by a stranger to the 1. Mistake should be of fact;
contract in which credit was extended. Thus, 2. Same should be proved by clear and convincing evidence;
representations as to credit of person making the and
representation are not within the Statute. 3. Mistake should be common to both parties to the
instrument
Other contracts which require some form to be enforceable
but not covered by Statute of Frauds Simulation of contracts
1. Express trust over immovable Declaration of a fictitious will, deliberately made by agreement of
 It may not be proved by parol evidence, hence, must be the parties, in order to produce, for the purpose of deception, the
in writing appearance of a juridical act which does not exist or is different from
 Implied trust may be proved by oral evidence that which was really executed
2. Agreement on payment of interest
 Must be in writing Kinds of simulation Effect
 However, if borrower pays interest voluntarily when there Absolute simulation – parties do not Contract is void or
has been no stipulation, payment is valid and creditor is have any intention to be bound at all; inexistent
authorized to retain lacks valid consent

Contract which require form only for convenience Relative simulation – parties simply Contract binds parties to
1. Acts and contracts which have for their object the creation, conceal their true agreement their real agreement
transmission, modification or extinguishment of real rights over Remedy is reformation
immovable property; but sales of real property or of interest
therein are governed by Statute of Frauds Who may demand for reformation
2. Cession, repudiation or renunciation of hereditary rights or of a. If mistake was mutual – either party or successor-in-interest
those of conjugal partnership of gains b. If not mutual – only injured party or his heirs and assigns
3. Power to administer property, or any other power which has for Rules in interpretation of contracts
its object an act appearing or which should appear in a public Cardinal rule: Intention of contracting parties should always prevail
document, or should prejudice a 3rd person because their will has the force of law between them.
4. Cession of actions or rights proceeding from an act appearing When terms are clear: Literal meaning of its stipulations shall control
in a public document When words and intention are in conflict: Intention shall prevail
TN: Registration of instrument only adversely affects 3rd parties. How to determine intention: Through the contemporaneous and
Therefore, formal requirements are for the benefit of 3rd parties. subsequent acts

Remedy granted under Article 1357 Principle of effectiveness in contract interpretation

For contracts which are required to be in a certain form, contracting Where two interpretations of same contract language are possible,
parties may compel each other to observe that form and this right one interpretation having the effect of rendering the contract
may be exercised simultaneously with the action upon the contract. meaningless while the other would give effect to the contract as a
But for this remedy to be exercised, following requisites must concur whole, the latter interpretation must be adopted. What must prevail
– is the interpretation which is most adequate to render contract
1. Contract must have already been perfected effective.
2. Contract must have been valid as to form
3. Contract must have been enforceable under the Statute of Complementary-contracts-construed-together doctrine
Frauds An accessory contract must be read in its entirety and together with
the principal agreement.
Following are not covered by Statute of Frauds
1. Agreement creating an easement of right-of-way since it is not Rescissible contracts
a sale of real property or of interest
2. Agreement for setting up of boundaries, hence, an oral Rescission
testimony to prove such agreement is admissible Remedy granted by law to contracting parties and even to 3rd
3. Oral partition of real property is enforceable since partition is persons, to secure the reparation of damages caused to them by a
not a conveyance of property but simply a segregation and contract, even if this should be valid, by restoration of things to their
designation of part of property which belongs to co-owners condition at the moment prior to the celebration of the contract.
4. RFR need not be written to be enforceable since it is not a
perfected contract of sale of real property Rescission under Rescission under
5. When one of the parties is trying to enforce the delivery of land 1191 1381
which he claims the defendant orally promised to do in Nature of Principal remedy based Subsidiary action
consideration of his services as mediator in effecting remedy on breach of faith that limited to cases of
compromise in civil case violates reciprocity rescission for lesion
6. Wills or renunciation or partition of inheritance under 1381
7. Innominate contract Cannot be instituted
except when party has
Reformation of instruments no other legal means
Remedy in equity by means of which a written instrument is made Basis or Not predicated on Cause of action is
or construed so as to express or conform to the real intention of the ground injury to economic subordinated to the
parties interests existence of lesion or
economic prejudice
Requisites Applicability to Applies exclusively to Applies to all kinds of
1. There must be meeting of minds of parties kinds of reciprocal obligations obligations
2. Instrument does not express the true intention of the parties obligations
3. Failure of instrument to express the true intention of parties is
Injured party Party to a contract only May even be a 3rd party
due to mistake, fraud, inequitable conduct, or accident
as in case of accion
pauliana
Mutual mistake of parties
Prescriptive 10 years from accrual 4 years

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period of right of action – 5. 3rd person who received the property conveyed, if it is by
written contract onerous title, has been an accomplice in the fraud
6 years – verbal 6. Conveyance must not be absolutely simulated
Extent of Court has discretion not As long as any of the
power of court to grant if there be just grounds exists, no Fraud is presumed in following instances
cause for fixing period discretion not to grant 1. Alienation of property by gratuitous title by debtor who
for performance rescission has not reserved sufficient property to pay his debts
Nature of Not defective contract Defective contract contracted before such alienation
contract 2. Alienation of property by onerous title made by debtor
against whom some judgment has been rendered in any
Characteristics of rescissible contracts under Article 1381 instance or some writ of attachment has been issued.
1. Valid and enforceable until rescinded by a competent court Decision or attachment need not refer to the property
2. While they are valid, they cause pecuniary lesion or prejudice alienated and need not have been obtained by party
to one of contracting parties or to 3rd person seeking rescission.
3. Defect may not be cured by ratification although the right of
action for rescission may be lost by way of extinctive Badges of fraud
prescription 1. Fact that the consideration is fictitious or is inadequate
4. Defect cannot be attacked collaterally. Action for rescission 2. Transfer made by debtor after suit has begun and while it
must be set up in an independent civil action and only after a is pending against him
full blown trial. 3. Sale upon credit by an insolvent debtor
4. Evidence of large indebtedness or complete insolvency
Requisites for rescission to prosper 5. Transfer of all or nearly all of his property by a debtor,
1. Action must originate from any of the causes under 1381 and especially when he is insolvent or greatly embarrassed
1382 financially
2. Party suffering damage and who is asking for rescission has no 6. Fact that the transfer is made between father and son,
other legal means to obtain reparation for damage suffered by when there are present other of the above circumstances
him 7. Failure of vendee to take exclusive possession of all
3. Person demanding rescission must be able to return what he property
may be obliged to restore if rescission is granted by the court Right of first refusal (RFR)
4. Things which are the object of the contract must not be legally A contract of sale entered into in violation of right of first
in the possession of 3rd persons who did not act in bad faith refusal of another person is rescissible because it is in fraud of
5. Action must be filed within 4 years from accrual of right of creditor, invoking 3rd paragraph of Article 1381. Status of
action creditors can be validly accorded to grantees of right of first
refusal for they have substantial interests that will be
Rescissible contracts prejudiced by conveyance of property subject matter of their
right of first refusal. Since contract is rescissible, requisites for
Article 1381(1-4) rescission must be present.
1. Contracts by guardian in behalf of ward whenever the latter
suffer lesion by more than ¼ of the value of the things which After rescission of contract in violation of grantee‟s right of first
are the object of the contract refusal, grantor may now be directed to comply with his
XPTN: When approved by the court obligation to sell the property to grantee under the same terms
Sale or encumbrance of real property of ward must be with and conditions that it had been sold to a 3rd person.
prior court approval as the guardian has no authority to sell
real estate of his ward merely by reason of his general powers. RFR is not covered by Statute of Frauds
Sale without authority is void even when no damage was It may be proved by parole evidence since it is not among
suffered by ward. those listed as unenforceable under statute of frauds. RFR is
not a perfected contract of sale of real property.
2. Contracts by representative in behalf of an absentee whenever
the latter suffer lesion by more than ¼ of value of things which RFR may not be unilaterally withdrawn if founded on
are the object of contract consideration
XPTN: When approved by court There is consideration for the grant of RFR if such grant is
Same rule with guardian when it comes to sale or encumbrance embodied in the same contract of lease. Since the stipulation
of real property forms part of the lease contract, the consideration for the lease
includes the consideration for the grant of RFR.
3. Contracts in fraud of creditors when the latter cannot in any
manner collect the claims due them Option contract vs. RFR
Aka accion pauliana Option contract requires a clear certainty on both object and
It is a remedy of last resort since it is a subsidiary remedy cause or consideration; hence, option granted is for a fixed
period and at a determined price. This is lacking in RFR. While
Absolute simulation Rescissible contract object might be made determinate, the exercise would be
No existing contract because Valid contract dependent not only on grantor‟s eventual intention to enter
it is void into contract but also on terms, such as price, that are yet to
Contract can be attacked by Contract can be assailed only be later firmed up.
any creditor (since it is void in by creditors who became
the first place) such before alienation 4. Contracts relating to things under litigation
Rescissible if they have been entered into by defendant without
Insolvency of debtor making Requires that creditor cannot
simulated transfer is not a recover in any other manner knowledge and approval of litigants or of the competent judicial
authority
prerequisite to nullity of what is due him
contract
Article 1382
Imprescriptible Prescribes in 4 years
5. Payments made in state of insolvency
Payments made to obligations whose fulfillment the debtor
Requisites of accion pauliana
could not be compelled at the time they were effected
1. Plaintiff asking for rescission has a credit prior to the
alienation, although demandable later
Article 1381(5) All other contracts specially declared by law to be
2. Debtor has made a subsequent contract conveying a
subject to rescission
patrimonial benefit to a 3rd person
6. Rescission of contract of partition on ground of lesion
3. Creditor has no other legal remedy to satisfy his claim
7. Rescission in case one of the obligors in a reciprocal obligation
4. Act being impugned is fraudulent
should not comply with what is incumbent upon him

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8. Rescission of contract with damages if through creditor‟s acts, rescission of contract which is already deemed rescinded by virtue of
debtor cannot make a choice in an alternative obligation the agreement, but in order to determine whether or not the
9. Right to rescind the sale by unpaid seller of goods rescission was proper. Here, decision would be merely declaratory.
10. Rescission by vendee when inferior value of real estate sold
exceeds 1/10 of the price agreed upon, or when the lack in Effects of rescission (Article 1191)
area be not less than 1/10 of that stated, or when vendee Mutual restitution also applies.
would not have bought had he known of its smaller area or
inferior quality Article 1191 does not apply to contract to sell
11. Rescission of contract of sale of immovable for a single price if There can be no rescission of an obligation that is non-existent,
vendee does not accede to the failure to deliver what has been considering that suspensive condition, which is payment of full
stipulated purchase price, has not yet happened. Failure to pay the price
12. Rescission on account of eviction of a substantial portion of the agreed upon prevents the obligation of vendor in contract to sell
property sold, or loss of one of the things sold jointly for a from acquiring an obligatory force.
lump sum
13. Rescission of contract of sale of an immovable if encumbered Voidable contracts
with non-apparent burden or servitude
14. Rescission of contract of lease if either the lessor or lessee Contract is voidable when all of essential requisites for perfection
should not comply with their respective obligations are present but element of consent is defective either because of
15. Rescission of adoption by adopted on any of the grounds want of capacity to contract or vitiation of consent by reason of
provided under Domestic Adoption Act MVIUF
16. If, in an obligation to give subject to a suspensive condition,
the thing deteriorates through the fault of the obligor Characteristics
1. Valid and binding and produces all its civil effects, until it is set
Prescriptive period (4 years) aside by final judgment of a competent court in an action for
a. Contracts by guardians in behalf of ward – 4 years from annulment
termination of ward‟s incapacity 2. It suffers from a defect in the form of vitiation of consent
b. Contracts by representatives in behalf of absentees – 4 years 3. May be rendered perfectly valid by ratification
from the time that the domicile of absentee is known 4. Susceptible of convalidation by prescription since the action of
c. Contracts in fraud of creditors – 4 years from the time the annulment is subject to prescription or statute of limitations
creditor discovers that he has no other legal remedy for the 5. Can be assailed only in a direct proceeding for that purpose
satisfaction of his claim against debtor other than accion and not collaterally
pauliana
Accion pauliana presupposes: Annulment
1. A judgment Contract that is annulled presupposes that it subsists but later
2. Issuance by trial court of a writ of execution for the ceases to have legal effect when it is terminated through a court
satisfaction of the judgment action. It is the judgment of the court that produces the invalidity of
3. Failure of sheriff to enforce and satisfy judgment of court the contract.

Effects of rescission (Article 1381) Annulment Rescission

Rescission creates the obligation to return the things which were the Declares inefficacy which the Produces the inefficacy which
object of contract, together with their fruits, and the price with its contract already carries in itself did not exist in the contract
interests. Mutual restitution is required in order to bring back the Defect is intrinsic Defect is external since it
parties to their original situation prior to the inception of the consists of damage or prejudice
contract, as if no contract has been made. to one of parties or to 3rd person
Based on law; it is not only a Based on equity; merely a
As a consequence this rule, it is necessary that the person remedy but also a sanction remedy
demanding rescission must be able to return whatever he may be Annullable even if there is no Not rescissible if no damage or
obliged to restore if rescission is granted by court. damage or prejudice prejudice
Nullity is based on vice of Compatible with the perfect
However, mutual restitution only applies to rescission on the ground contract validity of the contract
of lesion and not to rescission on the ground of fraud because in the Susceptible of ratification It is not
latter, there can be no obligation on the part of plaintiff-creditor to May be invoked only by May be invoked either by
restore anything since he has not received anything. contracting party contracting party or 3rd person
If object of contract is legally in the possession of 3rd persons who
Personality to file action for annulment
did not act in bad faith, rescission cannot take place. In this case, 1. Party obliged principally or subsidiarily in the contract which he
indemnity for damages may be demanded.
seeks to annul
XPTN: Person who is not party obliged principally or subsidiarily
Rescission under Article 1191 (Resolution)
may exercise and action for annulment if (1) he is prejudiced in
When obligor fails to comply with reciprocal obligation, remedies his rights with respect to one of the contracting parties and (2)
are: he can show detriment which would positively result to him
1. Specific performance from the contract in which he has no intervention.
2. Judicial rescission 2. Party suffering from incapacity to give consent or victim of
MVIUF. Those who contracted with these parties are not
Rescission will be ordered only where the breach is substantial as to allowed to use such grounds for their benefit.
defeat the object of parties and not where it is merely slight or
casual. Also, courts are given discretion to deny rescission if there is Prescriptive period (4 years)
a just cause authorizing fixing of period.
a. In case of intimidation, violence or undue influence – 4 years
from time the defect ceases
Right to rescind is implied such that absent any provision providing
b. In case of mistake or fraud – 4 years from discovery
for the right, the parties may nevertheless rescind the contract c. In case of incapacity to give consent – 4 years from time
should the other obligor fail to comply with its obligations. However,
guardianship ceases
the right must be invoked judicially.
Grounds for annulment
Extra-judicial rescission 1. One of the parties is incapable of giving consent to a contract
Parties may enter into agreement for automatic revocation which See discussion in capacity to give consent
states that violation of the terms of contract would cause its 2. Consent is vitiated by mistake, violence, intimidation, undue
cancellation even without court intervention. In such case, judicial influence or fraud
intervention is still necessary but not for the purpose of declaring

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Mistake or error Intimidation
For mistake to invalidate consent, it must refer to either: When one of the contracting parties is compelled by a reasonable
a. Substance of the thing which is the object of the contract and well-grounded fear of an imminent and grave peril upon his
Example: Substitution of specific thing contemplated by parties person or property, or upon the person or property of his spouse,
with another descendants or ascendants, to give his consent
b. Those conditions which have principally moved one or both
parties to enter into the contract Requisites
c. Those mistakes as to the identity or qualifications of one of the 1. Intimidation must be the determining cause of contract, or
parties, but only when such identity or qualifications have been must have caused the consent to be given
the principal cause of the contract 2. Threatened act be unjust or unlawful
3. The threat be real and serious, there being an evident
Mistake includes ignorance which is the absence of knowledge with disproportion between evil and the resistance which all men
respect to a thing can offer, leading to the choice of the contract as the lesser evil
4. It produces a reasonable and well-grounded fear from the fact
GR: Mistake of fact is the one which renders contract voidable. that the person from whom it comes has the necessary means
Mistake of law does not. or ability to inflict the threatened injury
XPTN: Mutual error as to the legal effect of an agreement when the
real purpose of parties is frustrated may vitiate consent. But for TN: Threat to enforce one‟s claim through competent authority, if
mutual error of law to vitiate consent, following requisites must be claim is just or legal, does not vitiate consent.
present –
1. Mistake must be with respect to legal effect of agreement Violence
2. Mistake must be mutual When in order to wrest consent, serious or irresistible force is
3. Real purpose of parties must have been frustrated employed

Fraud Rule in violence and intimidation if employed by 3rd person

Dolo causante or causal fraud – those insidious words or It may still vitiate consent and may render contract voidable
machination resorted to by one of the contracting parties to induce
the other to enter into a contract which without them he would not Undue influence
have agreed to When a person takes improper advantage of his power over the will
- Deception employed by one party prior to or simultaneous of another, depriving the latter of a reasonable freedom of choice
to the contract in order to secure the consent of the other
- This is the fraud which vitiates the contract Requisites of annulment based on undue influence
1. Person who can be influenced
Dolo incidente or incidental fraud – deceptions or misrepresentation 2. Fact that improper influence was exerted
which are not serious in character and without which the other party 3. Submission to the overwhelming effect of such unlawful
would still have entered into the contract conduct

Dolo causante or Dolo incidente or Effects of annulment of contract

causal fraud incidental fraud Mutual restitution
Serious in character Not serious As a consequence, as long as one of the contracting parties does
Cause which induces the other Not because even without it the not restore what in virtue of the decree of annulment he is bound to
contracting party to enter into a other would still have entered return, the other cannot be compelled to comply with what is
contract with the one who the contract incumbent upon him.
employed it XPTN: When the defect of contract consists in incapacity of one of
Renders contract voidable Renders person employing it the parties, the incapacitated person is not obliged to make any
only liable for damages restitution except insofar as he has been benefited by the thing or
price received by him.
Requisites of annulment based on fraud
1. Must have been employed by one contracting party upon the Effect of loss of thing which is the object of the contract
other
Not by both parties nor by 3rd person Lost by person who Lost by person
Misrepresentation by 3rd person does not vitiate consent, unless has right to annul obliged to return
such has created substantial mistake and same is mutual (plaintiff) thing (defendant)
2. Must have induced the other party to enter into the contract – Through Action for annulment is He must return the
fraud must be the determining cause of the contract his fraud or extinguished even if at fruits received and value
3. Must have been serious fault the time of loss, plaintiff of the thing at the time
4. Must have resulted in damage and injury to the party seeking still suffering from of loss, with interest
annulment incapacity from same date
Without his Contract may still be Action for annulment is
Other rules on fraud fault or annulled if plaintiff not extinguished and
a. Silence or concealment, by itself, does not constitute fraud fraud offers to pay value of defendant shall pay
XPTN: the thing at time of loss, value of the thing at the
1. There is a special duty to disclose facts, as when the as a substitute for the time of loss, but without
parties are bound by confidential relations, or thing itself, but without interest
2. According to good faith and usages of commerce, the the obligation to pay
communication should be made interest
b. Usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not fraudulent. Ratification or confirmation
c. Mere expression of opinion does not signify fraud Act of or means by virtue of which efficacy is given to a contract
XPTN: It is made by an expert and the other party has relied which suffers from a vice of curable nullity
on the former‟s special knowledge
Requisites
Burden of proof in cases of mistake or fraud 1. Contract has all essential requisites, but it is tainted with a vice
GR: Whoever alleges must substantiate his allegation since it is which is susceptible of being cured
presumed that a person takes ordinary care for his concerns and 2. It should be effected by person who is entitled to do so under
that private transactions have been fair and regular. the law. Party who has the right to ratify is the party who has
XPTN: Rule when a party to a contract is illiterate (see discussion on the right to bring action for annulment, although ratification
illiteracy) may be effected by guardian of incapacitated person
3. It should be effected with knowledge of the vice or defect

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4. Cause of nullity or defect should have already disappeared one against the other to recover what he has already given
under the contract
Manner of effecting ratification 2. Not susceptible to ratification
a. Express ratification 3. Right to set up defense of inexistence or absolute nullity cannot
b. Tacit ratification – execution of an act which necessarily implies be waived or renounced
an intention to waive the right to annul, such as accepting and 4. Action or defense for declaration of inexistence or absolute
retaining the benefits nullity does not prescribe. However, right to have contract
declared void ab initio may be barred by laches although not
Effects of ratification barred by prescription
Cleanses the contract from all defects from the moment it was 5. Inexistence or absolute nullity cannot be invoked by a person
constituted, thereby extinguishing the action to annul a voidable whose interests are not directly affected
contract
Inexistent contracts
Unenforceable contracts 1. Those which are absolutely simulated or fictitious
2. Those whose cause or object did not exist at the time of the
Nature transaction
Cannot be sued upon or enforced by proper court action, unless 3. Those where the intention of parties relative to principal object
they are ratified cannot be ascertained

3 kinds of unenforceable contracts Void contracts

1. Those entered into in the name of another person by one who 1. Those whose cause, object or purpose is contrary to law,
has been given no authority or legal representation, or who morals, good customs, public order or public policy
acted beyond his powers 2. Those whose object is outside the commerce of men
2. Those that do not comply with Statute of Frauds 3. Those which contemplate an impossible service
3. Those where both parties are incapable of giving consent 4. Those expressly prohibited or declared void by law

Characteristics When nullity proceeds from illegality of cause or object

1. Valid contracts but cannot be enforced by proper action in a. Act constitutes criminal offense
court 1. Both parties are in pari delicto – they have no cause of
2. Susceptible of ratification action against each other and both shall be prosecuted
3. Defect is of permanent nature and it will exist as long as the 2. Only one of the parties is guilty – innocent party may
contract is not ratified claim what he has given and shall not be bound to comply
4. Cannot be assailed by 3rd person with his promise
b. Act does not constitute criminal offense
First: Contracts made without or in excess of authority or 1. Both parties are at fault – neither may recover what he
Unauthorized contracts has given by virtue of the contract or demand the
performance of other„s undertaking
Although a contract made in behalf of another without authority is 2. Only one is at fault – he cannot recover what he has given
made without consent, it is not inexistent or void but unenforceable. by reason of the contract or ask fulfillment of what has
Void or inexistent contract cannot be ratified but this kind of been promised. The one without fault may demand the
contract is subject to ratification. However, there are cases where return of what he has given without any obligation to
the court declared these contracts as void, not merely comply with his promise
unenforceable.
Pari delicto rule
Second: Contracts which do not comply with statute of In void contracts where nullity proceeds from illegality of the cause
frauds or purpose of contract, whether the attendant facts constitute an
offense or misdemeanor or whether the consideration involved is
merely rendered illegal, and two parties are equally at fault, the law
Third: Contracts where both parties are incapacitated leaves them as they are and denies recovery by either one of them.
Only one is incapacitated – voidable No affirmative relief will be given.
Both parties – unenforceable XPTN:
1. Interest paid in excess of interest allowed by usury laws may
Effect of ratification be recovered, with interest from date of payment
Ratification by a parent or guardian of one of the contracting parties 2. When money is paid or property delivered for an illegal
shall give contract the same effect as if only one of them were purpose, contract may be repudiated by one of the parties
incapacitated. Thus, contract becomes voidable. before purpose has been accomplished, or before any damage
has been caused to 3rd person. In such case, courts may allow
Ratification made by parents or guardians of both contracting party repudiating to recover.
parties shall validated the contract from inception. 3. Where one of the parties in illegal contract is incapable of
giving consent, court may, if interest of justice so demands,
Void or Inexistent contracts allow recovery of money or property delivered by incapacitated
person
Void contract Inexistent contract 4. When the agreement is not illegal per se but is merely
perfected contract because all one which does not exist prohibited, and the prohibition by law is designed for the
essential requisites for existence because any of the essential protection of the plaintiff, he may, if public policy is enhanced,
of contract are present, but requisites for existence of recover what he has paid or delivered
contract is invalid from inception contract is totally wanting TN: Pari delicto should not apply to contracts which transfer
Principle of pari delicto is It is not applicable; hence, no land to foreigners, otherwise, policy of conserving land for
applicable. Hence, contract may chance of legal effect Filipinos will be defeated and its continued violation sanctioned
eventually produce legal effects 5. When the price of any article or commodity is determined by
if principle is applied statute, or by authority of law, any person paying any amount
in excess of maximum price may recover such excess
Characteristics of void or inexistent contracts 6. When the law fixes, or authorizes the fixing of maximum
1. They produce no effect either against or in favor of anyone number of hours of labor, and a contract is entered into
following the principle “quod nullum est nullum producit whereby a laborer undertakes to work longer than the
effectum” maximum thus fixed, he may demand additional compensation
XPTN: For void contracts where nullity proceeds from illegality for service rendered beyond the time limit
of cause or object, when executed (in which case pari delicto
applies), the same will produce effect of baring any action by

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7. When the law sets, or authorizes the setting of a minimum  Donation may be subject to suspensive and resolutory
wage and contract is agreed upon by which a laborer accepts a condition.
lower wage, he shall be entitled to recover deficiency
b. As to whether there is a condition or term
TN: Rule does not apply when contract is inexistent and in criminal 1. Condition or unconditional donation
cases.
2. Donation with a term or without a term
Need for filing an action c. As to the type of consideration
No need of an action to set aside a void or inexistent contract 1. Pure or simple donation
although it can be maintained and in that action, the plaintiff may 2. Remuneratory donation
recover what he has given by virtue of that contract. 3. Modal donation
a. If void contract is fully executory, no party need to bring an 4. Onerous donation
action to declare its nullity. But if any party should bring an
action to enforce it, the other party can simply set up nullity as 2. Donation
a defense. a. Nature
b. If void contract had already been executed, action to declare b. Persons who may give or receive a donation
non-existence can be maintained for the purpose of recovering c. Effects and limitations of donation
what has been given by virtue of contract; action is necessary d. Revocation and reduction
for restitution 3. Prescription
a. General provisions
Effect of declaration of absolute nullity or inexistence of b. Prescription of ownership and other real rights
contract c. Prescription of actions
GR: Since these contracts produce no effect, parties are entitled to
recover what they may have given by virtue of the contract in an
action to declare its absolute nullity or inexistence
XPTN: No right to recover when –
1. Principle of pari delicto is applicable
2. Action is declared barred by laches

DONATIONS

Donation – an act of liberality whereby a person disposes

gratuitously of a thing or right in favor of another who accepts it.

Requisites
1. Donor must have capacity to make the donation at the time it
was made
2. Donor must have donative intent (animus donandi)
3. In certain cases, the donation must comply with certain formal
requirements
4. Thing donated must be delivered
5. Donee must accept the donation

Elements
1. Reduction of patrimony of the donor
2. Increase in patrimony of donee
3. Intent to do an act of liberality or animus donandi

Perfection
From the moment the donor knows of the acceptance by donee

Classification
a. As to time it takes effect
1. Donation inter vivos
2. Donation mortis causa

Donation inter vivos Donation mortis causa

Takes effect during lifetime Takes effect only upon death
of donor of donor
Formalities of simple Formalities of a will should
donation should be followed be followed
Generally irrevocable Revocable during the lifetime
of the donor upon will of the
donor (ad nutum)
Must be accepted during the Acceptance is made after the
lifetime of the donor death of the donor
Donee becomes the owner Donee becomes the owner
of the property and can of the property only after the
exercise the rights of an death of the donor
owner during the lifetime of
the donor
Donation is not affected Transfer is void if the donor
even if the donor survives survives the donee
the donee

 There can be donation inter vivos even if property will not

be delivered until death of donor; donee shall become
owner and fruits shall pertain to him unless OW provided.

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