Oblicon Finals Reviewer PDF

Obligations and Contracts Reviewer
*Based on Atty. Mel Sta Maria’s Oblicon Book • Generic Object - any object belonging to the same kind
TITLE I OBLIGATIONS • Specific Performance - action to compel debtor to fulfill obligation/make the
CHAPTER 1 deliver
• Obligation – juridical necessity to give, to do or not to do • Fortuitous Event (force majeure) - event which could not be foreseen or
o Legal bond whereby constraint is laid on people to act or forbear on which though foreseen, were inevitable. Accident due directly and
behalf of another exclusively to natural causes without human intervention, which by no
o Juridical Necessity – rights and duties arising from an obligation amount of foresight, pains or care, reasonably to have been expected, could
which the court can be asked to order performance have been prevented
o Requisites
• Requirements:
a. Cause of breach independent of will of debtor
1. Viniculum Juris (Juridical Tie) – efficient cause established by
b. Either be unforeseeable or unavoidable
various sources of obligations
c. Renders it impossible to fulfill obligation in a normal
2. Object – prestation or conduct required to be observed
manner
3. Subject-Persons – active and passive subjects
d. Debtor free from any participation in, or aggravation of the
a. Active – oblige (creditor)
injury.
b. Passive – obligor (debtor)
o When a fortuitous event will not excuse debtor (Art. 1165)
• Sources of Obligations: (exclusive list)
o Relieves obligor from fulfilling a contractual obligation thus a
1. Law
stipulation to add years when contract was suspended upon
a. Most important
resumption would in effect be an extension of the contract (not
b. Doesn’t depend on will of parties, automatically
really suspended but actually extinguished)
incorporated into contracts
o Exemptions to rule that fortuitous events extinguishes liability
c. Cannot be presumed
a. Object of pre station is generic
2. Contracts - meeting of minds between two persons whereby one
b. Stipulation
person binds himself with respect to another to give something or
c. Nature of the obligation
render some service
d. Art. 1165
a. Obligatory Nature of Contracts – obligations arising
i. Obligor delays
from contracts have the force of law between contracting
ii. Promised to deliver same thing to 2 or more
parties and should be complied with in good faith
persons who do not have the same interests
b. Binding on parties so long as not contrary to law, morals,
e. Proceeds from a criminal offense
good cutoms, public policy or public order
f. Indemnification of respective spouse in liquidation of
3. Quasi-Contracts
conjugal partnership
a. No meeting of the minds
g. Bailee in commodatum (one who squires use of thing
4. Delicts
loaned but not the fruits; if any compensation is to be paid
5. Quasi-delicts – if there’s no pre-existing contractual relation
by him who acquires use, the contract ceases to be a
between the parties, whoever by act or omission causes damage to
commodatum) in the following cases
another, there being fault or negligence, is obliged to pay for
i. Devotes thing to any purpose different from that
damage done.
for which it was loaned
• 2 Kinds
ii. Keeps it longer than period stipulated
1. Civil Obligations
iii. Thing loaned has been delivered with appraisal of
2. Natural Obligations
its value, unless stipulated otherwise
CHAPTER 2 Nature and Effect of Obligations
iv. Lends or leases the thing to a third person not
• Real Right - an enforceable claim against the world and will prejudice
member of his household
anybody claiming the same object of the prestation. Power belonging to a
v. If, being able to save either the thing borrowed or
person over a specific thing, without a passive subject individually
his own thing, he chose to save the latter
determined, against whom such right may be personally exercised
• Delay - default (generally begins from time of demand, except in reciprocal
• Personal Right - power to demand of another, as a definite passive subject,
obligation)
the fulfillment of a prestation
o Mora solvendi = delay by debtor
Sales, D. Block A 2016 1
o Mora accipiendi = delay by creditor • Pure Obligation - unqualified obligation which is demandable immediately.
o 2 kinds of interests Does not depend upon a future or uncertain event, or past event unknown to
a. Compensatory – damages parties
b. Monetary - stipulated contractual interest • Conditional Obligation - act or event, other than lapse of time, which,
o Requisites unless the condition is excused, must occur before a duty to perform a
a. Obligation be demandable and already liquidated promise in the agreement arises or which discharges a duty of performance
b. Debtor delays performance that has already arisen
c. Creditor requires performance judicially and extrajudicially o Resolutory Condition - a future or unknown past event that would
• 2 cases where extra-judicial demand must first be made before filing a case: absolve a debtor once complied with. Obligation is resolved or
ejectment and consignment cases extinguished by operation of law. Demandable at once
• When demand by creditor is not necessary § In reciprocal obligations, the obligation of one is the
1. Obligation or law expressly declares resolutely condition of the obligation of the other.
2. From the nature and circumstances it appears the designation of o Suspensive Condition - demanded only upon happening of the
times when thing is to be delivered was a controlling motive for the future or unknown event or a past event unknown to parties, which
establishment of the contract (time is of the essence) constitutes the condition. Not demandable at once
3. Demand would be useless, as when the obligor rendered it • Contract to sell v. conditional contract of sale
impossible to perform o Both involve a suspensive condition
• Reciprocal Obligations - created and established at these same time, out o Contract to sell
of the same cause and which results in a mutual relationship of creditor and § Consent relative to transfer of ownership in exchange for
debtor between parties purchase price not present because seller expressly
o One is the resolutory condition of the obligation of the other. reserves transfer of title to prospective buyer until
o When one does not perform his part, he is not entitled to insist upon happening of suspensive condition
performance of the other. Other party doesn't incur in delay § Only a promise to sell
• 4 bases of liability: fraud, negligence, delay, or in any manner contravene the § Even upon fulfillment, no transfer although property may
tenor thereof have been previously delivered to him
• Waiver of an action for future fraud is void (like prescription) § Even after full payment, can't be deemed the buyer in bad
• Negligence - want of care required by the circumstances (liability can be faith and prospective buyer can't seek relief of
regulated by court) reconveyance
• Bad Faith - state of mind affirmatively operating with furtive desiree or with § Positive suspensive condition
some motive of ill-will = fraud o Contract of sale
• Successive measure taken by creditor before action for rescission of alleged § There is already consent although conditioned upon
fraudulent sale happening of a continent event which may or may not
1. Exhaust properties of debtor through levying by attachment and occur
execution upon all the properties of the debtor except though § Perfected upon fulfilment of condition, ownership transfers
exempt by law automatically by operation of law
2. Exercise all rights and action of the debtor except those personal to § Second buyer can't defeat first buyer's title thus first can
him seek reconveyance of property
a. Accion subrogatoria - right of creditor against rights of § Negative suspensive condition
debtor over the 3rd party debtor of the debtor • Condition Precedent - act or event, other than a lapse of time, which must
3. Seek recession of the contracts executed by debtor in fraud of their exist or occur before a duty to perform a promised performance arises.
rights • Condition Subsequent - event, existence of which, by agreement of the
a. Accion Pauliana - recession of contracts executed by parties, operates to discharge a duty of performance that has arisen
debtor in fraud of creditor's rights. Creditor must not be • Postative Suspensive Condition - when fulfillment depends upon sole will
included in the contract between debtor and 3rd party of the debtor
o All positive conditions are void = no exceptions
CHAPTER 3 DIFFERENT KINDS OF OBLIGATIONS o But when debtor binds himself to pay when means permit him to do
Section 1 - Pure and Conditional Obligations so = deemed to be with a period
o If imposed not on the birth of obligation but on on fulfilment, only § There must be a breach of faith
condition is avoided, leaving unaffected the obligation itself. § Must be based on a serious or substantial breach as to
§ In such a case, doesn't convert to a pure obligation = ask defeat the object of the parties in making the agreement
court to fix period § Always (no exceptions) need to of to court; only judicial
§ If upon will of 3rd party = not void declaration will revoke contract
• Mixed Obligations - depend not only upon will of debtor but also upon o Express Power to Rescind = in a reciprocal contract, expressly
chance and other factors stipulated in the contract that one will have the power to rescind
• Constructive Fulfillment - obligor voluntarily prevents fulfillment of the even without judicial intervention
condition of an obligation, it shall be deemed fulfilled. § In the nature of facultative resolutely condition
• Effects of conditional obligations (retroacts to day obligation was constituted) § Debtor can go to court to question rescission
o To give § Notice from the creditor is the revocatory act which will
§ If unilateral = must deliver accessories rescind obligation
§ If reciprocal = fruits and interests are deemed mutually § Court can only review and determine if rescission was
compensated proper (merely declaratory)
o To do/not to do = courts will determine § At own risk since responsible party shall be sentenced to
• Rules observed in case of improvement, loss or deterioration of thing during pay damages
pendency of suspensive condition: § A stipulation that states that notice will no longer be
1. Lost necessary is VOID
a. No fault = extinguished o In a contract to sell, seller is given a unilateral right to terminate the
b. Debtor's fault = pay damages contract in case of non-payment. Termination is not a rescission but
i. Lost - perishes, goes out of commerce, or an enforcement of the contract
disappears in such a way that its existence is
unknown or can't be recovered. Section 2 - Obligations With A Period
2. Deteriorates • Period - designates a particular time which is certain to happen as the
a. No fault = impairment borne by creditor moment when the obligation will either be effective or be extinguished
b. D's fault = can choose a) rescission, or b) fulfilment (plus o Only maturity or demandability is deferred
indemnity either way) • Day Certain - that which must necessarily come, although it may not b
3. Improved known when.
a. By nature = inure to benefit of creditor • Conditional - uncertainty consists in whether the day will come or not
b. At expense of debtor = no other right than granted to • When courts can fix a period: (once fixed, can't be changed)
usurfructuary 1. Obligation doesn't fix a period but from its nature and
i. Usurfruct = gives right to enjoy property of circumstances, it can be inferred that a period was intended
another with obligation of preserving its form and a. Two step process:
substance unless title constituting it or the law i. Determine that obligation doesn't fix a period
otherwise provides ii. Decide what was probably contemplated by the
• Rescission - declare the contract void at its inception and to put an end to it parties
as though it never was; same as resolution 2. Postative Condition - depends solely upon the will of the debtor as
o Remedy in case of nonfulfillment = specific performance or to fixing the duration thereof
rescission (+damages) 3. When there is a stipulation that the debtor shall pay when his
§ May seek rescission even after choosing fulfillment, if means allow him to
latter becomes impossible 4. Rescissible obligations and the court deems it proper and just to fix
§ May it be done vide versa? a period
§ Does not allow to rescind and at the same time seek • When debtor loses right to make use of period (Art. 1198)
partial fulfillment 1. After contracted obligation, becomes insolvent, unless gives
o Implied Power to Rescind = in a reciprocal contract, power of one guaranty or security (insolvency need not be declared)
to rescind contract in case one does not comply with what is 2. Does not furnish guaranties promised
incumbent upon him
3. By his own acts, impaired said guarantees after establishment, and o Can go against any one or even all debtors
when through a fortuitous even they disappear, unless he o If lost object in bad faith, co-debtors shall be liable but without
immediately gives new ones equally satisfactory prejudice to action against negligent debtor
4. Violates any undertaking, in consideration of which the creditor • Joint Obligation - an obligation binding each of the obligors to the
agreed to period (inducement or encouragement) performance of the entire obligation
5. Attempts to abscond o Presumed to be in equal shares
o Collect and pay only in proportion to what they actually own and
Section 3 - Alternative Obligations owe
• Debtor has no right to choose pre stations which are o Each debtor not responsible for share of insolvent debtor
o Impossible o If division is impossible
o Unlawful § Creditors must act collectively (if prejudicial)
o Could not have been the object of the obligation • If one creditor remitted for others, even if others
• Creditor has no right to choose (except expressly granted) but must be are prejudiced, extinguishment of contract is not
notified of choice invalidated
• Practicable - capable of being done, or simply feasible o Remedy is to collect share + damages
o Not necessarily mean that is proscribed. Maybe possible but can't o Relationship based on mutual trust
be done because of some attendant circumstances (can't assign rights without consent of
• When creditor is expressly given choice = ceases to be alternative from day others
when selection has been communicated to debtor • All debtors must be sued
o Responsibility of debtor until then
a. One thing lost through a fortuitous event = C choose from Section 5 - Divisible and Indivisible Obligations
remaining choices • Refers to nature of object
b. Loss of one thing, fault of debtor = C may do #1 or claim • Joint debtors bound to perform only respective portion of indebtness if
price of that which was lost + damages obligation is indivisible, each debtor must coordinate with the rest for
c. All things lost, D's fault = C may choose any of them and D fulfilment of the obligation
has to pay price of C's choice + damages • Indivisible Obligation - not susceptible of partial performance
o Number of choices of creditor will always be the same, but object • Divisible Obligation - has for its object the execution of a certain number of
will be replaced with its price days of work, accomplishment of work by metrical units or analogous things,
• Facultative - only one pre station has been agreed upon, but the obligor which by their nature are susceptible to partial performance
may render another in substitution • Parties may stipulate if divisible or indivisible
• In obligations to do or not to do, divisibility shall be determined by character
Section 4 - Joint and Solidary Obligations of pre station in each particular case
• Solidary Obligation - obligations incurred by two or more debtors in favour
of two or more creditors, and giving anyone, some or all of the debtors the Section 6 - Obligations with a Penal Clause
satisfaction of the total obligation and not merely the share of each debtor in • Penal Clause - stipulation in writing that states that the penalty shall
the debts or obligations substitute the indemnity for damages and the payment of interest in case of
o Refers to nature of obligation non-compliance (accessory obligation)
o There is solidary liability if: o Damages still paid if refuses to pay penalty or guilty of fraud
a. Obligation expressly stated by stipulation o It can substitute the law on damages and manipulated by the
b. Law of obligation parties.
c. Nature of obligation (abuse of rights) o Proof of actual damage not necessary
o Presumption is joint not solidary o When judges can intervene:
o Must be individually and jointly liable a. Equitable reduce penalty if obligation has been partly or
§ Separately, distinctly, collectively, severally, respectively irregularly complied with
§ Several Obligation - one individual binds himself to b. Reduce if it is iniquitous or unconscionable even if no
perform the whole obligation performance at all (void)
o If "we" only, ambiguous
CHAPTER 4 EXTINGUISHMENT OF OBLIGATIONS a. Legal Subrogation - transfers to person
• Obligations are extinguished by: surrogated credit with all rights thereto
1. Payment or performance appertaining, either against the debtor or against
2. Loss of thing due thrust persons, be they guarantors or possessors
3. Condonation or remission of debt of mortgages
4. Confusion or merger of rights of creditor and debtor d. Expressly allowed in contract = same as (c.) since
5. Compensation considered as debtor agreeing with payment beforehand
6. Novation e. 3rd person pays without intention of being reimbursed =
obligation extinguished regardless of consent of debtor.
Section 1 - Payment or Performance Treated as a donation = requires consent/acceptance
• Payment - not only the delivery of money but a leo the performance, in any a. Even without consent, obligation still extinguished
other manner, of an obligation in so far as the creditor is concerned
• Doctrine of Substantial Performance - when obligation is substantially • When payment to an incapacitated person is valid
performed in good faith, obligor may recover as though there had been a 1. Incapacitated person kept the thing delivered until he becomes
strict and complete fulfilment, less damages suffered by the obligee. capacitated (ratification)
o Not complete performance 2. Payment is beneficial to him
o Pay damages but breach is not material enough to compel obligor a. If minor receives payment from a debtor arising from a
to rescind whole obligation contract, payment will be voidable
o The part unperformed must not destroy the value or purpose of the b. Only to extent that he was benefitted by it
contract and done in good fait • When benefit to the creditor when paid to a 3rd person need not be proven:
o 2 types (exception to the general rule that payment must be made to person who is
a. Waiver of damages authorized to receive it)
b. No waiver of damages 1. After payment, 3rd person acquires creditor's rights
• When creditor accepts performance knowing irregularity and without 2. Creditor ratifies payment
expressing protest or objection = deemed fully complied with 3. If by creditor's conduct, debtor was led to believe that the third
o Substantial compliance connotes waiver of damages arising from person had authority to receive payment (estoppel)
breach resulting from irregularity of obligation • Dation in Payment (Dacion en Pago) - delivery and transmission of
o Receipt of partial payment = acceptance (estopped from later ownership of a thing by the debtor to creditor as an accepted equivalent of
denying) the performance of an obligation
o Accept - take as satisfactory or sufficient or to give assent to or to o A form of novation with respect to the object of the obligation
agree or accede to an incomplete or irregular performance o Extinguishes obligation only to extent of value of thing delivered
• Payment made by 3rd persons o Doesn't necessarily mean total extinguishment of the obligation.
o Creditor is not bound to accept unless there is a stipulation to the Only extinguished when parties, by agreement, express or implied,
contrary consider the thing as equivalent to the obligation
o If it is accepted = extinguishment of obligation with creditor o Requisites
o Following situations if accepted: a. Performance of a pre station in lieu of payment (animo
a. 3rd person pays without consent of D = can only recover solvendi)
to extent that D has been benefited. (determined by law b. Some difference between pre station due and that which
not will of debtor, at time payment was made) was given as a substitute (aliud pro alio)
i. Can't compel creditor to subrogate him in his c. Agreement between parties that obligation is immediately
rights extinguished by reason of performance of that different pre
ii. If 3rd person is interested in obligation, legal station
subrogation is presumed • Pactum Commisorium - parties agree generally in one single contract that,
b. With knowledge of but with objection = same as (a.) in the event that debtor fails to pay the debt, the mortgaged or pledged
c. With knowledge and consent of D, can recover the amount property of the debtor shall automatically be appropriated or owned by the
paid to creditor creditor
o Considered NULL and VOID
o Not valid because there must be foreclosure first of property and § Damages arising from torts
then it must be sold at a public auction § Expropriations by the government
o Elements o There must be an official declaration by competent authorities (CB
a. Creditor-debtor relationship between the parties or DOF)
b. Property used as security (either as mortgage or pledge) o Value of Currency - purchasing power of currency = par value,
c. Automatic appropriation of property legal exchange rate
• Can't compel creditor to receive partial payment or debtor to make partial • Place of payment
payments except o Place designated in obligation
o Expressly stipulated in contract o No stipulation
o If debt is part liquidated and part unliquidated, can pay without § Determinate thing = wherever thing might be at time
waiting for liquidation of latter obligation was constituted
o Creditor accepts partial payment and benefits from it § Any other case = domicile of debtor
• Payment must be in currency stipulated or if not possible, in currency which • If changes domicile in bad faith or after has
is the Legal Tender in the Philippines incurred in delay, additional expenses shall be
o What if legal tender changed within the time obligation was borne by him
constituted and became due? Legal tender at time of constitution or • Domicile - place of habitual residence
at time of payment? Subsection 1 - Application of Payments
o Legal Tender - all coins and notes issued by the BSP • Most Onerous Debt - indebtedness which exacts heavier burden from
§ Only those allowable in transactions in the Philippines among many
§ Exception: creditor accepts any other currency • 2 rules if payment can't be applied in accordance with the rules:
o Promissory note - document where a promise to pay is made by 1. Onerousness (most onerous debt first)
the debtor to the creditor on demand or at a fix determinable future 2. Proportionality = if same nature and burden, can't pinpoint which is
time the most onerous
o Bill of exchange - unconditional order in writing addressed by one Subsection 2 - Payment by Cession
person to another signed by the person giving it, requiring person to • Cession - to formally surrender to another by means of agreement
whom it is addressed to pay on demand or at a fixe determinable o Debtor may assign his property to creditors in payment of debts
future time a sum certain in money to order to bearer o Unless stipulated otherwise, will only release debtor from
o Negotiable instruments are only substitutes for money and not responsibility for net proceeds of the thing assigned
money o Presupposes financial difficulty
§ Not extinguished until cashed but creditor can't say he did o Governed by special laws
not receive the check or when through fault of creditor they o At least as many debts as there are creditors
have been impaired (applicable only to instruments o Must refer to cession of all properties of debtor not exempted by
executed for third persons and delivered by the debtor to law
the creditor and doesn't apply to instruments executed by o Creditors must agree and agree with themselves which debt will be
debtor himself and delivered to creditor) paid first
§ In the meantime, action shall be held in abeyance Subsection 3 - Tender of Payment and Consignation
§ Checks become stale after 6 months from the date of the • Consignation – act of depositing thing due with the court or judicial
check authorities whenever the creditor can’t accept or refuses to accept payment
§ Will not necessarily discharge debtor. • Consignation alone shall produce the same effect as when he refuses
§ Discharged only when creditor does not present check for payment that is due, without just cause, in the following cases:
payment and thereafter bank collapses or can no longer 1. Creditor is absent or unknown, or doesn't appear at place of
meet demands for payment. payment
• Extraordinary Inflation - decrease or increase in the purchasing power of 2. He is incapacitated to receive payment at time it is due
Philippine currency which is unusual or beyond the common fluctuation in 3. Without cause, he refuses to give a receipt
value and could not have been reasonably foreseen or was manifestly 4. Two or more persons claim the same right to collect
beyond the contemplation of the parties at time of establishment of obligation 5. Title of obligation has been lost
o Applies only to contractual obligation and not to:
• Must be made strictly in consonance with provisions on payment
• Tender of Payment – unconditional offer to pay exact amount to satisfy Section 3 – Condonation and Remission of the Debt
debt as payment • Condonation – an act of liberality by the creditor wherein the debtor is
• Requirements for Consignation released from his obligation even without any form of payment. Decides not
1. There is a debt due (debtor-creditor relationship) to enforce debtor’s prestation anymore
2. Creditor to whom tender of payment was made o Essentialy gratuitous
a. Refused to accept o Maybe express or implied
b. Was absent o Subject to rules which govern inofficious donations
c. Incapacitated § Inofficious – thing or amount donated encroaches or
d. Several persons claimed right to payment infringes on the legitime or successional rights of the heirs
3. Previous notice given to interested people (after which file the case of the condoning creditor
here) § Must make debtor pay part of donation which is inofficious
4. Amount due placed at court’s disposal • When condonation is presumed:
5. After consignation, interested person was notified thereof o Delivery of a private document evidencing credit made voluntarily
• Reason for notice by creditor to the debtor
o First notice: give creditor opportunity to reconsider o Private document where debt appears id found in possession of
o Second notice: enable creditor to withdraw goods deposited debtor (presumed to have been delivered by creditor)
• Exception to tender of payment requirement: allow to just consign all future o Pledge is found in the possession of person who owns it
quarterly installments without need of formal tender of payment and service
notices to the creditor who was duly notified Section 4 – Confusion or Merger of Rights
• Confusion – characters of creditor and debtor are merged in same person
Section 2 – Loss of the Thing Due • Creditor can’t collect a debt from himself or pay himself
• Thing is lost in possession of debtor, presumed loss was his fault but does • Benefits guarantors, but if confusion is in person of the guarantor, obligation
not apply in cases of earthquake, flood, storm or other natural calamity is not extinguished, only accessory obligation is extinguished
• Released when prestation becomes legally or physically impossible without • Doesn’t extinguish a joint obligation, except that person’s share
his fault = only applies in obligations to do
o Exception: Rebus Sic Stantibus – service becomes so difficult as Section 5 – Compensation
to be manifestly beyond contemplation of parties = maybe released • Compensation – mode of extinguishment whereby two persons, in their
therefrom, in whole or in part (may not technically be impossible) own right, are creditors and debtors of each other
o Requisites of Rebus Sic Stantibus • Requisites
a. Prestation has become so difficult to render 1. Each one of obligors be bound principally and be at the same time a
b. Service has become manifestly beyond contemplation principal creditor of the other (mutual creditor and debtor to each other)
of parties 2. Both debts consist in a sum of money, or if things due are consumable,
• Subjective impossibility – a promisor’s duty is never discharged by mere they be of the same kind and also of same quality if stated
fact that supervening events deprive him of the ability to perform, if they are a. Fungible = susceptible of substitution
not such as to deprive other persons, likewise, of the ability to render such a 3. Two debts are due
performance 4. Liquidated and demandable (determined and certain)
• Only one remedy: extinguish contract (cannot modify) 5. Over neither be any retention or controversy, commenced by third
• Times when court can intrude in contracts: (exception to rule that court can’t persons and communicated in due time to the debtor
intrude in a contract) a. Due Time – period before legal compensation was supposed
1. Obligation has become legally or physically impossible to take place, considering that legal compensation operates so
2. Service has become manifestly beyond contemplation of parties long as the requisites concur, even without any conscious
3. Penalty clause is unconscionable intent on the part of the parties
4. Fixing a period • If complied with, automatic extinguishment of obligation (at least to the
• If debt proceeds from crime, not exempted to pay for price whatever cause extent that they are mutually compensated) by operation of law.
of loss unless thing was offered back but was refused • 2 Kinds of Compensation

1. Total Compensation – mutual debts of parties are equal o Must be with the consent of the creditor
2. Partial Compensation – debts are not equal, extinguished only to o 2 kinds
concurrent amount (not by operation of law) a. Delegacion – debtor suggests substitution
• Contractual Compensation - parties may agree on compensation of debts b. Expromission – no knowledge or consent of debtor
not yet due o Insolvency of new debtor
• Judicial set-off – one parties to a suit has a claim for damages against the § General rule: old debtor is released from obligation
other, the former may set it off by proving his right to said damages and § Does not apply if Delegacion
amount thereof • Can go after old debtor if insolvency was already
• 3 Cases when one of the creditors assigns his credit to a third person existing and was of public knowledge or debtor
1. If with D’s consent, can’t later on claim compensation (unless expressly knew of insolvency
reserves right to claim) • Invisible Stipulation – new obligation shall be under same conditions in
2. If with D’s knowledge but no consent, can only claim for debts due original obligation unless otherwise stipulated
before cession • Novation of Creditor
3. If without knowledge or consent of D, he can claim only for debts due o Legal Subrogation – takes effect by mandate of law and does not
before he had knowledge and not after (including period after cession proceed from an agreement (not presumed)
took place) § Presumed when:
• When compensation will not apply: i. Creditor pays another creditor who is preferred even
1. Debts arising from a depositum or from the obligations of a depository without debtor’s knowledge
2. Debts arising from the obligations of a bailee in commodatum ii. Third person NOT interested in obligation pays with
3. Debts arising from duty to support express or tacit approval of debtor
4. Debts consisting of a civil liability arising from a penal offense iii. Even without knowledge of debtor, person not
interested pays, without prejudice to effects of
Section 6 – Novation confusion
• 2 Kinds of Novation: o Conventional Subrogation – contractual (All parties must agree)
1. Objective Novation – change in the object or principal conditions of an
existing obligation TITLE II CONTRACTS
2. Subjective Novation – change of either person of the a) debtor or b) CHAPTER 1 – GENERAL PROVISIONS
creditor • Contract
3. Mixed Novation – objective and subjective novation occur at the same o A meeting of the minds
time o Between at least two people
• 2 Functions: o One binds himself with respect to the other to give something or to
1. Extinguish an obligation render some service
2. Create a new one in lieu of old o Legally enforceable
• To effect novation: (never presumed) • Stages of a contract
1. Expressly declare in unequivocal terms 1. Negotiation – period from time prospective contracting parties
2. New obligation be on every point incompatible with the new one indicate interest in contract until time it is perfected
a. Test of incompatibility is whether or not two obligations can 2. Perfection – Concurrence of essential elements thereof. Depends
stand together, each one having its independent existence on the kind of contract
b. If they can’t they’re incompatible a. For consensual – established after concurrence
• Requisites of Novation b. Real – after delivery
1. Previous valid obligation c. Solemn – compliance with certain formalities required by
2. Agreement of all parties to new contract law
3. Extinguishment of old contract 3. Consummation – parties perform their respective undertakings
4. Validity of new one under the contract culminating in the extinguishment thereof
• If terms of lease is lengthened, no novation; if shortened, novation!
• Novation of Debtor

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• Autonomous Nature of Contracts – parties may establish such stipulations, 2. In obligations creating real rights, 3 persons who
clauses, terms and conditions as they may deem convenient, provided they possess object
are not contrary to: a. Person is bound to honor contract entered into by
o Law former owner
§ Only mandatory and prohibitory laws will make a contract b. If mortgaged property was sold, can be
void subsequently foreclosed in case of default of
o Morals original owner
o Good customs 3. Creditors who are protected from contracts intended to
o Public order defraud them
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o Public policy 4. Tort Interference - 3 person who induces another to
§ Consideration of contract has a tendency to injure the violate contract (malice is material). Elements:
public, against public good, or contravene some a. Existence of a valid contract
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established interest of society. b. Knowledge on part of 3 person of existence of
• Innominate Contracts – not specifically governed by any provision in the contract
civil code or special law but which likewise involve the fulfillment or c. Interference w/o legal justification
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accomplishment of some prestation. o Stipulation Pour Autrui –stipulation in favor of a 3 person,
o Divided into kind of prestation it obligates parties to do conferring a clear and deliberate favor upon him, whose
§ Do ut des – mutually give a certain thing acceptance was communicated to obligor before its revocation.
§ Facio ut facias – mutually render a service § Requisites:
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§ Mixed i. Stipulation in favor of 3 person
o Governed by the following: ii. Stipulation must only be part, not whole of contract
a. Stipulation of parties iii. Contracting parties must have clearly and
b. Provisions in law of obligations and contracts under Title I deliberately conferred a favor upon third person, not
and II of the Civil Code a mere incidental benefit or interest
c. Rules governing the most analogous nominate contracts iv. Neither of contracting parties bears the legal
d. Customs of the place representation or authorization of the third party
i. Custom – rule of conduct formed by repetition of • Favored party communicated his acceptance of stipulation to debtor before
acts uniformly observed as a social rule, legally revocation
binding and obligatory and must be proved as a fact • General Rule: Contract is perfected by mere consent
according to rules of evidence o Exception: Real contracts, which require deliver of the object first
• Mutuality of Contracts – contract must bind both contracting parties where § Deposit
its validity cannot be left to the will of one of them § Pledge
o Contract of adhesion – a party prepares the stipulations in the § Commodatum
contract, while the other party merely affixes his signature or his
“adhesion” thereto = not void per se
• Relativity of Contracts – contracts take effect only between parties, their
assigns and heirs. They can only bind the parties who entered into it and
cannot favor or prejudice a third person even if he is aware of such contract
and acted with knowledge thereof
o Transmission of rights and obligations may be agreed upon by the
parties
o Cannot take effect if rights from contract are not transmissible by:
§ Nature
§ Stipulation
§ Provision of law
o Exceptions to relativity of contracts
1. Stipulation Pour Autrui
o Acceptance = absolute and unconditional (identical to terms of
1. Stipulation Pour Autrui (1311)! offer)
§ May either be express or implied
§ If conditional or qualified, considered as a counter-offer
2. In contracts creating real rights, 3rd
persons who possess object of and thus not binding
contract (1312)! § Person making offer must have actual knowledge of
Exceptions acceptance (revocation before knowledge is valid)
(nonparties are
affected)! 3. Creditors are protected in case of
• Offer – manifestation of willingness to enter into a bargain so made as to
contracts intended to defraud them justify another person in understanding that his assent to that bargain is
(1313)! invited and will conclude it.
o Negotiation formally initiated by an offer
Relativity
of 4. 3rd Person who induces another to • Offerer may fix time, place, and manner of acceptance which must be
violate his contract will be held liable complied with
Contracts! Parties! for damages (1314)!
(Binding
• Contract of Agency – person binds himself to render some service or to do
only on:)! something in representation or on behalf of another with the consent or
authority of the later.
1. Principal 1. Land! • Offer becomes ineffective if before acceptance is conveyed (come to the
Parties!
actual knowledge of the offeror), either party:
2. Assigns, Exceptions to o Dies
heirs and Transmissibility! 2. Stipulation!
successors! o Becomes insane
o Sentenced to civil interdiction
o Becomes insolvent
3. Nature!
• Option – contract granting a privilege to buy or sell at a determined price
within an agreed time
o Period is not itself founded or supported by a consideration
§ Free to withdraw before acceptance by communicating
• Authority or Legal Representation
withdrawal to offeree
o If no authority or acted beyond powers, contract will be
§ Right to withdraw must not be exercised whimsically or
unenforceable unless ratified by the person on whose behalf it has
arbitrarily = pay for damages (Abuse of right)
been executed
o If it is a separate consideration
o Ratification must come before revocation by the other party
§ Option is an independent contract by itself
o Must be a valid contract has there been authority (since it can be
§ Withdrawal before acceptance is not a breach of the actual
ratified)
contract but of the option contract, thus can’t compel
specific performance but liable for damages for breach of
CHAPTER 2 – ESSENTIAL REQUISITES OF CONTRACTS
option
• Requisites of a contract:
o Earnest Money – part of purchase price (partial payment) such
1. Consent of contracting parties
that if paid full purchase price, contract is perfected
2. Object certain which is the subject matter or contract
o Option Money/Earnest Deposit – guarantee that buyer won’t back
3. Cause of the obligation which is established
out
• All requisites must concur. Absence of one negates the existence of a
• The following cannot give consent at the time of perfection of contract: (only
contract = NO CONTRACT
annullable, not void)
Section 1 – Consent
1. Unemancipated minors
• Consent – concurrence of the wills of the offerer and the acceptor as to the
a. Fraud must be employed through a positive act of minor to
thing and the cause which constitutes contract
represent age
o Concurrence of offer and acceptance
b. If passive – voidable at option of minor
o Offer = certain
c. If active misrepresentation – there is fraud thus can’t be
annulled by minor (in pari delicto)
2. Insane or demented person, and deaf-mutes who do not know how o Intimidation - compelled by a reasonable and well grounded fear
to write of an imminent and grave evil upon his person or property or that of
a. 3 classes of mental incapacity his spouse, descendants or ascendants
i. Idiot – insane from birth § Consider sex, age and conditions to determine degree of
ii. Lunatic – at one time sane but from some cause intimidation
or other has lost use of his reason § Must not be legal
iii. All forms of mental weakness which do not § Tangible and direct
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render person affected totally incapable of § Void even if came from 3 party
transacting business § Requisites
b. Insanity alleged must have a direct bearing on the i. Intimidation must be determining cause of
agreement consent
c. Being a deaf-mute is not enough, must concur if inability to ii. Threatened act is unjust or unlawful
read and write (prevent fraud of handicapped) iii. Threat be real and serious, there being an
d. Lucid Interval – period of time when insane person acts evident disproportion between evil and
with reasonable understanding, comprehension and resistance which all men can offer
discernment with resect to what he is doing. iv. Produces a reasonable and well-grounded fear
3. During a state of Intoxication, voidable if because person has necessary mean to inflict
a. It appears drunkenness was brought about by opposite threatened injury
contracting party; or o Undue Influence – takes improper advantage of power over will of
b. Fraudulent advantage was taken of it; or another, depriving the latter of reasonable freedom of choice
c. Drunkenness was so complete as to deprive party of his § Consider confidential, family spiritual and other relations,
reason of an agreeing mind mental weakness, ignorance or in financial distress
4. If under hypnosis spell, also voidable § If person who employed this was a public official in his
5. Subject to modifications determined by law official capacity = VOID since contrary to public policy
• If consent is given through mistake, violence, intimidation, undue influence, o Fraud - through insidious words or machinations of one of the
or fraud = voidable contracting parties, the other is induced
o Mistake § Failure to disclose facts when there’s a duty to reveal them
§ Must refer to substance which is the object of the contract is considered fraud
or conditions that moved them to enter into contract § Mere expression of opinion is not fraud unless made by an
§ Must be a mistake of fact (substance, conditions and expert and other party relied on such special knowledge
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identity) § Misrepresentation by 3 person not fraud unless created
§ Identity only if it was the principal cause of contract substantial mistake and same is mutual
§ General rule: there must be mutual mistake of fact in order § Must be serious and not employed by both parties
to make contract voidable • Must not be Dolo Incidente – accidental and
§ If simple mistake in account, give rise to correction collateral fraud
§ If one is unable to read or contract is in language not • Dolo Causante – very cause why other party
understood by him, and said person alleges mistake or entered into the contract
fraud, presumption shifts to person enforcing contract that § Simulated Contracts
terms have been explained • Absolute - parties don’t intend to be bound at all
§ No mistake if party knew the doubt, contingency or risk (VOID)
affecting object o No consideration at all
§ When mistake of law vitiates consent: • Relative – parties conceal their true agreement.
i. Mutual mistake as to legal effect Valid if:
ii. Frustrates real purpose of parties o Doesn’t prejudice a third person
o Violence - serious and irresistible force is employed o Not intended for any purpose contrary to
laws, morals, good customs, public
order or public policy
o Not really real but there’s something real o Except in cases specified by law, will not invalidate contract
about it. o Unless there’s fraud, mistake or undue influence
o A value consideration, however small or nominal, if given or
Section 2 – Object of Contracts stipulated in good faith is, in the absence of fraud, sufficient
• What can be the object of a contract
o All things within commerce of men (including future things) Chapter 3 – Form of Contracts
o Rights which are transmissible • As a general rule:
o Services not contrary to laws, morals, good customs, public order o Form is not important as long as all essential requisites are present
or public policy o Exceptions
• Requisites § Law expressly requires a particular form in order to be
o Must be possible valid or enforceable (solemn contracts)
o Must be determinate as to its kind § Law requires to be proved by some writing or
§ Must at least be generic (apple or mango v. fruit) memorandum of its terms like that of the Statute of Frauds
§ If quantity is not determinate, not an obstacle as long as o Can be
possible to determine without need of new contract § Oral or written
• Future inheritance – any property or right not in existence or capable of § Express or implied
determination at time of contract that a person may in the future acquire by • Purposes of prescribed Form
succession 1. Validity – nonobservance renders contract void
o Can’t be the object of a contract 2. Enforceability – will not permit, upon objection of a party, the
o No vested right since obligations must first be paid before exact contract to be pursued or enforced by action
inheritance can be determined and distributed 3. Greater efficacy (capacity for producing desired effect) – wouldn’t
o Exception: presumptive legitimes adversely affect validity or enforceability of contract between
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o Share in conjugal assets can’t be waived before liquidation themselves but not on 3 parties
Section 3 – Cause of Contracts • Remedy if law requires a particular form, the contracting parties may compel
• Cause – essential or more proximate purpose which the contracting parties each other to comply after perfection of contract
have in view at the time of entering into the contract o Contract first then compel to observe proper form required
• Causes for different contracts o Can file an action to compel the other party
o In onerous contracts - the prestation or promise of a thing or service • The following must appear in a public document (only directory)
by the other 1. Acts and contracts which have for object the creation, transmission,
o In reciprocal contracts – obligation or promise of each is the modification or extinguishment of real rights over immovable
consideration for that of the other property
o In remunerated contracts (payment for work) - the service or benefit 2. Cession, repudiation or renunciation of hereditary rights or of
remunerated conjugal partnership of gains
o In contracts of pure beneficence - mere liberality of benefactor a. Repealed by Family Code
• Generally different from motive b. Waiver of right to conjugal partnership now void
o Motive – particular reason for contracting party which doesn’t affect 3. Power to administer property, or any other power which has for its
the other party and which doesn’t preclude existence of a different object an act appearing or which should appear in a public
consideration document or should prejudice a third person
o Cause is the essential reason for the contract 4. Cession of actions or rights proceeding from an act appearing in a
o Certain cases where cause = motive public document
§ Clear that the motive predetermines the cause 5. All other contracts where amount involved exceeds P500 (but sales
§ Realization of motive has been made a condition upon of goods, chattels or things in action are not governed here)
which contract is made to depend (suspensive condition) • Not all violations of law will invalidate a contract
• Cause is presumed to exist and it is lawful o Only those which are mandatory or prohibitory
• Lesion – inadequacy of cause (doesn’t receiver full equivalent of what he
gives) Chapter 4 – Reformation of Instruments

• Reformation – remedy in equity by means of which a written instrument is o Simple donations inter vivos wherein no condition is imposed (act of
made or construed so as to express or conform to real intention of the liberality)
parties o Wills
• Civil action for equitable declaratory relief granted to parties in a contract § No prior meeting of the minds since act of liberality
• Can’t reform contracts, only the written instruments or series of instrument o When real agreement is void
• There must be a valid contract • If brought an action to enforce, estopped from subsequently asking for
• Exception to rule that if terms are reduced to writing, considered to contain reformation since necessarily acknowledged contract
all terms agreed upon • Maybe ordered at the instance of the following and their successors in
o Exception: when it fails to express true intent and agreement of the interest
parties 1. If mutual mistake = either party
• Requirements: 2. Otherwise = only the injured party
1. Valid contract (meeting of the minds)
2. There’s a written contract Chapter 5 – Interpretation of Contracts
3. Written contract fails to express true intent and agreement of the • Interpretation – making intelligible what was before not understood,
parties ambiguous or not obvious. Meaning of language is ascertained
• Burden of proof rests in person who seeks reformation • Court cannot make a new contract for parties to reqrite their contract under
• Action in personam not in rem the guise of construction
• Cause of action accrues upon knowledge of ground for reformation or date of • To judge intention, contemporaneous and subsequent acts shall be
execution of instrument if the cause for reformation were already known at considered
that time • General rule: literal meaning of stipulations shall control
• Maybe barred by laches • Various stipulations must be interpreted and read as whole not in isolation
• Breach of contract • If literal meaning cannot be ascertained:
o If breach already occurred, action for reformation cannot prosper o Ambiguous – admits to several meanings
o If breach occurred before final termination of reformation case, the § Bearing that import which is most adequate to render
action maybe converted into an ordinary action contract effectual
o A party in bad faith has absolutely no relief or remedy § Go with interpretation that will make it valid rather than
• Prescription is 10 years since written instrument invalid and illegal
• Can reform if mutual mistake causes failure of the instrument to disclose real § Conservation and preservation, not waiver, abandonment
agreement or forfeiture of a right is the rule
o Must be mutual and involve factual matters o General
o Must be a prior meeting of the minds § Shall not be understood to comprehend things that are
o Proof must be of the clearest and most satisfactory character. More distinct and cases that are different from those upon which
than a preponderance of evidence the parties intended to agree
o If already implemented true intention, no need for reformation § Ejusdem Generis
o Exceptions to mutual mistake rule: o Different Significations
§ If unilateral mistake and the other acted fraudulently or § In keeping with nature of object
inequitably in a way that instrument does not show true o Omissions
intention, person defrauded may ask for reformation § Incorporate usage and custom to fill gaps
§ If one party was mistaken and other knew or believed § When not to be used:
instrument did not state real agreement but concealed • Contrary to words
from the former = equivalent to mutual mistake • Contrary to intent
§ Ignorance, lack of skill, negligence or bad faith on part of o Contra Proferentem – against the prefferor
person drafting the instrument or of the clerk or typist = § interpretation must be against party who caused the
deemed mutual obscurity
• No reformation in the following cases: o If impossible to use any of theses rules:

§ Gratuitous contracts – in favor of least transmission of b. Must have a legit debtor-creditor relationship
rights and interests 4. Things under litigation, without knowledge or approval of litigants or
§ Onerous contracts – in favor of greatest reciprocity of of competent judicial authority
interest a. Bother parties to the sale must be in bad faith
§ Cannot ascertain principal object in a way that it can’t be b. Right of First Refusal – in event debtor decides to sell
known the intention or will of parties – null and void property, he must first offer property to creditor
contract i. Failure to implement such is ground for rescission
o Rule 123 of Rules of Court (now Rule 130 of New Rules of Court) of subsequent sale to third person
shall be observed 5. All others specially declared by law
§ Interpret according to legal meaning unless otherwise 6. Payment, when in state of insolvency, for debts which are not yet
stipulated due
§ Intention of parties is to be pursued a. State of Insolvency – debtor whose liabilities already
§ If instrument consists of partly written partly printed form, exceed assets and who can barely pay off his debts
in case of inconsistencies, written will control b. No need for prior declaration of insolvency
§ Construction of party for whom provision was made must c. If declared insolvent + fraud = void under Insolvency Law
be favored d. If insolvent + pays debts not yet due = rescissible
e. Presumptions of fraud:
Chapter 6 – Rescissible Contracts i. Debtor alienates property by gratuitous title when
• Rescission – a relief granted by law on premise that contract is valid for the donor didn’t have sufficient property to pay all
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protection of on of contracting parties and 3 persons, from all injury and debts contracted before the donation
damage contract may cause, or to protect some incompatible and ii. Alienations by onerous title when made by
preferential right created by contract persons against whom some judgment has been
• Valid (legally effective til rescinded) but may subsequently be terminated on rendered in any instance or some writ of
legal grounds attachment has been issued
• Different from implied rescission 1. Need not refer to property alienated or
o Implied = breach of trust obtained by party seeking rescission
o Under Chapter 6 = economic damage as result of inequitable f. May also be proved in manner recognized by law of
conduct by one party evidence
• The following contracts are rescissible: • Accion Pauliana – action to rescind
1. Entered into by guardians and ward suffers lesion by more than ¼ o Action for rescission is subsidiary – can’t be instituted except when
of value of object party suffering damage has no other legal means to obtain
a. If act of ownership or disposition reparation
i. No court approval, void § Must be a direct attack
ii. If with approval, regardless of lesion, valid § Must exhaust all judicial remedies first (not a summary
b. If act of administration, court approval not necessary trial)
i. If made useless purchase and ward suffered, o Presupposes the following:
rescissible 1. Judgment
c. Can’t take place if approved by courts 2. Issuance by trial court of a writ of execution for satisfaction of
2. Entered by administrator of absentee (same as #1) judgment
a. Provisional Absence – person disappears without 3. Failure of sheriff to enforce and satisfy the judgment of the
leaving an administrator, friend may appoint a court
representative 4. Creditor has exhausted property of debtor
b. 2 Years if no news • Need not be rescinded totally since law provides only to extent necessary to
c. 5 Years if left a person in charge cover damages caused
3. Undertaken in fraud of creditors where C can’t collect from D • Restitution is required = restore status quo
anymore o Return object and fruits, price and interest
a. Must be proven by preponderance of evidence
o If in legal possession of 3rd party in good faith – rescission cannot § Must show detriment which positively would result to him
take place, indemnify for damages from contract in which he had no intervention
§ Purchaser in good faith – buys property of another w/o § Nullification must be absolutely necessary
notice that some other person has right or interest in § No right, no detriment
property and pays full and fair price at time of purchase or o Guilty party and incapable party cannot file for annulment (estoppel)
before he has notice of claim o Capacitated party can only file for enforcement not annulment of
o Object can’t be restored because of loss – damages from person contract with incapacitated party
responsible for loss § If active misrepresentation – liable to pay liability in
o If acquired in bad faith things alienated in fraud of creditors - contract
indemnify for damages suffered if impossible to return § If passive – liable only to extent that he has been benefited
• Prescription of action = 4 years § Cant even file a case against minor
o Begins to run after aggrieved party unsuccessfully exhausted all § Can only recover via counterclaim in a complaint for
possible remedies to enforce obligation or to recover what has been annulment filed by minor later on
lost • Restitution
o Thus: o Restore object with fruits and price with interest except in cases
a. For persons under guardianship – begins from incapacity provided by law
terminates o In obligation to render service, value will be basis for damages
b. Absentees – time absentee learns of contract o Incapacitated person is not obliged to return except in so far as has
c. In fraud of creditors – time of discovery of fraud been benefitted
d. Things under litigation – time of knowledge of transaction o If object is lost through his fault, must return fruits and the value of
thing at time of loss + interest from same date
Chapter 7 – Voidable Contracts o If person filing case loses object through fault or fraud, action for
• The following are voidable/annullable (no damage necessary) annulment shall be extinguished
1. One of parties is incapable of giving consent to contract § Except if such party was incapacitated,
2. Consent is vitiated by mistake, violence, intimidation, undue influence or • Except if through fraud or fault
fraud. § As long as one does not restore what he is bound to return,
• Binding until annulled and susceptible to ratification (not retroactive) can’t compel the other to comply
o Retraction (not annulment) is retroactive – as if no contract at all
• Prescriptive Period: 4 years Chapter 8 – Unenforceable Contracts
o Shall begin: • The following are unenforceable unless ratified:
§ In case of intimidation, violence or undue influence – from 1. Entered into in the name of another who has no authority or legal
time defect of consent ceases representation, or acted beyond his powers
§ Fraud – time of discovery 2. Those that do not comply with the Statute of Frauds. An agreement
§ Incapacitated person – time guardianship ceases under this shall be unenforceable unless some note thereof be in writing
o Not interrupted by extra-judicial demand by creditor and subscribed by the party charged. Evidence can’t be received
o Valid unless annulled without writing or secondary evidence of its contents (exclusive
• Ratification extinguishes action to annul (only injured party can ratify) enumeration)
o Ratification – act of curing defect which made contract annullable a. Agreement by its terms is not to be performed within a year
§ Express from the making of agreement (including if will not be
§ Tacit completed within a year)
o Completely erases infirmity from inception (retroactive) i. Exceptions (will be removed from statute of frauds)
o May be effected by guardians 1. One party fully completed his undertaking
o Does not require conformity of guilty party (unilateral act) within one year and the other could finish
• Personality to Sue beyond one year =
o General rule: only parties principally or subsidiarilly bound can file 2. Stipulated that contract shall be executed
for annulment of contract (because of relativity of contracts) immediately but was reset to another date by
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o Exemption: 3 person who is prejudiced in his rights by contract
agreement of parties so that it can be o For certain executory acts to be enforceable, only evidence that can
finished beyond a year prove such is a written proof of the agreement
3. Initially should’ve been completed within the o To prevent fraud or perjury
year but didn’t due to postponement agreed o General Rule: any kind of performance removes contract from SoF
upon by parties because only applies to executory contracts
b. A special promise to answer for debt, default or miscarriage of § Executory – after perfection, before consummation
another § No partial performance until there’s a definite and
i. Special Promise – limited to express and tacit complete agreement between the parties
promises in face made and doesn’t apply in cases § Exception: in 2(a), must be full performance, not just
where duties are created by law without any partial
promissory assent o Need not be contained in a single document so long as papers are
ii. Must be made to promisee not the debtor connected
iii. Must be in a sense, the guarantor (if debtor is o Based on equitable estoppel thus if oral agreement is oppressive,
released from duty it would be novation) enforcement would run counter to purpose
iv. In the nature of a collateral or subsidiary obligation o SoF may only be invoked in a case for violation of contracts or for
and not an original one nor joint specific performance
1. In solidary obligations, will depend whether • Ratification
promisor knew that only one will truly be o Contracts falling under the Statute of Frauds are ratified by failure to
benefited by payment object to presentation of oral evidence to prove the same, or by
2. If yes, with SoF because others are only acceptance of benefits under them
lending credit as security for original debtor’s § Cross-examination on contract is deemed a waiver of
debt defense
3. Original – promisor becomes primarily liable § When benefits are already obtained from agreement
for payment of debt o If both parties are incapacitated (express or implied ratification)
4. Collateral – merely a surety § One parent or guardian can ratify = same effect as if only
v. Indemnity Agreement – promises to pay obligation one were incapacitated (voidable)
of another once debt becomes due (not within SoF) § Both ratify = valid from inception
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c. Agreement made in consideration of marriage, other than • Can’t be assailed by 3 persons – not parties and contract can’t be executed
mutual promise to marry anyway
i. Ante nuptial agreements, if not in writing will be void,
not just unenforceable Chapter 9 – Void and Inexistent Contracts
d. Agreement for sale of goods, chattels or things in action, at • 2 Kinds of “Void” Contracts:
price less than P500, unless buyer accept and receives them, 1. Inexistent Contract – a necessary element is missing
or pay at time some part of purchase money 2. Complete but Ostensible Contracts
i. If sale is made by auction and entry is made in sales • The following are inexistent and void ab initio
book = sufficient memorandum, removed from SoF 1. Cause, object or purpose is contrary to law, morals, good customs,
e. Agreement for lease for period longer than one year, or sale of public order or public policy
real property or of an interest therein a. Good customs – generally accepted principles of morality
i. Sale must be in writing but need not be notarized to which have received some kind of social and practical
be effective between parties confirmation except in some private institutions
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ii. Notarization necessary only to bind 3 persons 2. Absolutely simulated or fictitious
f. Representation as to the credit of a third person 3. Cause of object did not exist at time of transaction
i. Since intent or representation is difficult to prove and 4. Object is outside the commerce of men
susceptible to error, must be in writing 5. Contemplates an impossible service
3. Both parties are incapable of giving consent to a contract 6. Intention of parties relative to principal object can’t be ascertained
• Statute of Frauds 7. Expressly prohibited or declared void by law
• General Rule: Pari delicto will not apply
o Exception: Void but ostensible contracts (illegal contracts) o Law sets minimum wage for laborers and contract stipulates laborer
o Exception to Exception: (may still recover) to accept lower wage, entitled to recover deficiency
§ Illegal purpose but repudiated before accomplishment • In divisible contracts, if illegal terms can be separated, legal ones may still
• Consideration = public interest be enforced
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• Must be before purpose is accomplished and • Defense of illegality of contracts not available to 3 persons whose interests
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before damage to a 3 party are not directly affected
§ One party in illegal contract is incapacitated
• Consideration = interest of justice
§ Not illegal per se but merely prohibited, designed for
protection of plaintiff Damages Ratificat Restitution
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3 Parties Pari
• Consideration = public policy ion Delicto
• Ratification: none Rescissible ✔ ✔ ✔ ✔ ✔
• Prescription period: none (Valid (Those who are
o No need to judicially file an action to make contract void but prejudiced,
o File merely to declare contract as void prejudici though generally
o Doctrine of laches doesn’t apply al) just between
parties)
• Restitution
o If illegal or unlawful cause – innocent party can get what he gave Annullable ✖ ✔ ✔ ✔ ✔
and not be required to fulfill his part in obligation (Specifically (Except if
• Void Ostensible Contracts (Pari delicto will apply) provided by law) incapacitate
o Nullity proceeds from illegality of the cause or object of contract and d)
act constitutes a criminal offense, both parties in pari delicto, will Unenforceab ✖ ✔ ✖ ✖ ✔
have no action against each other and both shall be prosecuted (Art. le (Still in (No contract to
executory stage assail)
1411a)
= no contract to
o When act which the unlawful cause consists doesn’t constitute a assail)
criminal offense and both parties are in fault, neither may recover Void ✖ ✖ Ostensible ✖ ✔ If O✔
what he has given by virtue of the contract, or demand performance (Nothing No (Only those If N✖
of the other’s undertaking (Art. 1412(1)) (not criminal but still to ratify) Contract✔ whose interests
unlawful) are affected)
o Applies to contracts with illegal consideration or subject matter
• Usurious Interests
o Interest in excess of that allowed by usury laws may be recovered
by debtor with interest from date of payment
TITLE III NATURAL OBLIGATIONS
§ Entire interest is technically in excess since law deosn’t • 2 Kinds of Obligations
allow divisibility 1. Civil
§ The whole interest will be revoked and not subtracted a. Based on positive law
o Principal should still be paid but interest paid can be recovered plus b. Confers a right of action to compel performance
interest. 2. Natural
§ To prevent unjust enrichment a. Based on equity and natural law
§ For creditor: no interest + penal offense b. No right of action
• When person can be allowed to recover what has been improp c. Can’t compel to fulfill, but if there’s voluntary performance,
• erly paid: cannot revoke what has been done.
o Price of article is determined by statute or law and paid maximum d. They authorize retention of what had been rendered or
amount delivered
o Law fixes or authorizes fixing of max hours of labor and laborer • Some natural obligations where person can no longer take back what was
works longer, may demand additional compensation (overtime pay) given:
o Civil action prescribed but still paid
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o Without knowledge or against will of debtor, 3 person pays D’s o Person not the owner sells or alienates and delivers thing, and later
prescribed debt, still paid seller acquires title thereto, title is passed to buyer by operation of
o Minor not legally bound to return what was received, returned it law
o Minor not legally bound to pay obligation, paid it (no right to recover o Person in representation of another sell or alienates thing, former
if creditor spent it in good faith) can’t subsequently set up own title against buyer (asks agent to
o Failed civil action, still complied sell)
o Ascendant’s property not enough to pay debt, heir paid for deficit o Lessee or bailee estopped from asserting title to thing leased or
o Will declared void due to formalities, still complied with legacy in will received as against lessor or bailor (only temporary possession)
o Allowed another to assume apparent ownership of personal
TITLE IV ESTOPPEL property for purpose of transferring ti, can’t, if he received the sum
• Through estoppel, an admission or representation is rendered conclusive for which a pledge has been constituted, set up his own title to
upon person making it and cannot be denied or disproved as against person defeat the pledge of the property, made by the other to a pledgee
relying thereon who received the same in good faith and for value.
• Does not apply: • Effective only between parties and successors-in-interest = must be mutual
o To government suing in its official capacity as sovereign or and reciprocal
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asserting governmental rights • When contract between 3 persons concerning immovable property, one is
o If law or public policy will be violated mislead with respect to ownership or real right over the real estate, the latter
• Applies to questions of fact only, not law is precluded from asserting his legal title or interest therein provided all of
• 2 Kinds of Estoppel these requisites concur:
1. By Deed – as a result of language in document/contract, bars 1. Fraudulent representation or wrongful concealment of facts known
enforcement of a claim against a party who acted in reliance upon to party estopped
written terms 2. Party precluded intended that other should act upon facts as
a. Technical in nature misrepresented
b. Based one equitable considerations 3. Party misled must be unaware of true facts
c. Compel parties to fulfill their contracts 4. Party defrauded acted in accordance with misrepresentation
d. Requisites
i. Representation or concealment of material facts
ii. Representation done with knowledge of facts TITLE V TRUSTS
iii. Other party ignorant of the truth CHAPTER 1
iv. Made with intention that the other would act upon it • Trust – equitable or beneficial right held for the beneficiary by another
2. Equitable Estoppel or Estoppel in Pais – because of something, person with who resides the legal title or ownership, recognized and
which he has done or omitted to do, party is denied right to plead or enforced by the courts. 2 Kinds:
prove an otherwise important fact. o Express Trusts – created by direct and positive acts of parties by
a. Barred by fake misrepresentation or concealment made some writing or deed, or by words evincing intention to create trust.
b. Requisites § Prescription generally does not run because possession is
i. Conduct amounting to false representation or not adverse
concealment of material facts or at least calculated to § Prescription runs here where:
convey impression that facts are otherwise than, and • Trustee performed unequivocal acts of
inconsistent with, those which party subsequently repudiation amounting to an ouster of the trust
attempts to assert • Positive acts of repudiation have been made
ii. Intent, or at least expectation that this conduct will be know to the trustor
acted upon or at least influenced other party • Evidence is clear and conclusive
iii. Knowledge, actual or constructive of actual facts o Implied Trusts – without being expressed are deducible from the
• Some examples of estoppel nature of the transaction as matters of intent, or which are
superinduced on the transaction by operation of law as matters of
equity, independently of particular intention of parties.

§ Resulting Trust – raised or created by act or construction • Some cases of implied trusts
of law. o Property is sold and legal estate is granted to one party but the
• In its more restricted sense, raised by implication price is paid by another for purpose of having the beneficial interest
of law of property. If person to whom title is conveyed is child of one
• Presumed to always have been contemplated by paying price, no trust is implied it being presumed that it is gift for
parties the child
• Found in nature of transaction but not expressed o Donation made to a person but appears that although legal estate
in deed transmitted to done, he nevertheless is either to have no beneficial
§ Constructive Trusts – raised by construction of law or interest or only part thereof (Resulting trust)
arising by operation of law o Price of sale of property is loaned or paid by one person for benefit
• Not created by any words, either expressly or of another and conveyance is made to lender or payor to secure
impliedly evincing a direct intention to create a payment of debt
trust, but by construction of equity in order to o Land passes by succession to any person and causes legal title to
satisfy the demands of justice. be put in name of another (benefit of true owner)
• Does not arise by agreement or intention but by o 2 or more agree to purchase property and by common consent
operation of law legal title is in one’s name for benefit of all (in proportion to interest
• Not a trust in the technical sense of each)
§ Prescription may supervene o Property conveyed to person upon declared intention to hold it for
§ Maybe barred by latches or transfer it to another or the grantor
• Trustor – establishes trust o If absolute conveyance of property is made to secure performance
• Trustee – confidence is reposed as regards property for benefit of another of obligation of grantor toward grantee. If fulfillment of obligation is
person offered by grantor when it becomes due, may demand
• Beneficiary – person whose benefit the trust has been created reconveyance to him
• Generally involves 3 people but can sometimes only be 2 (trustor and o Any trustee, guardian or any holding fiduciary relationship uses
beneficiary as 1 person) trust funds for purchase of property and causes conveyance to be
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made to him or a 3 person (in favor of owner of funds)
o Property acquired through mistake or fraud, person obtaining it,
CHAPTER 2 EXPRESS TRUSTS considered trustee (benefit of person whom property comes)
• Parol Evidence – oral evidence
o Express trusts concerning immovable must be proved by written TITLE XVII EXTRA-CONTRACTUAL OBLIGATIONS
evidence and not parol evidence CHAPTER 1 – QUASI-CONTRACTS
• If trustee appointed declines designation, clear intention must be • Quasi-contracts – judicial relationship created so that no one shall by
implemented unjustly enriched at expense of another.
o Trust will not fail o Not an implied contract since no meeting of the minds
o Courts will appoint trustee o 2 Types:
o If appointment is material, trustor can provide that refusal of trustee § Obligation incident to officious management of affairs of
to accept shall result in the failure or nullification of the same other persons
• Acceptance by beneficiary is necessary § Recovery of what has been improperly paid
o If imposes no onerous condition upon beneficiary, acceptance is Section 1 – Negotiorum Gestio
presumed • Negotiorum Gestio - type of voluntary and spontaneous agency or
o Onerous condition – required to perform to make trust effect or is interference by a person, called a negotiorum gestor, in the affairs of another,
one which should be done for so long as trust exists in his absence.
o Person who is given a gift normally accepts it • Obliged to continue until termination of affair and its incidents or require
person concerned to substitute him if owner is in position to do so
CHAPTER 3 – IMPLIED TRUSTS • Will not arise when:
• Maybe proven by oral evidence

1. Property or business is not neglected or abandoned (provisions on 2. Property or business is intact and ready to be returned to
unauthorized contracts) owner
2. Manager has been, in fact, tacitly authorized by owner (rules on
agency) • Management is extinguished
• Circumstances when one may undertake to carry out business for another o When owner repudiates it or ends it
1. They relate to determined things or affairs and that there be no o When manager withdraws subject to Art. 2144
administrator or rep of owner in charge of management § Must require owner to substitute him if owner is in position
2. Foreign to all idea of express or tacit mandate on part of owner, to do so
may happen even without knowledge § If not, must continue and withdraw only upon termination
3. Actor be inspired by beneficient idea of averting losses and of affair and its incidents
damages to owner through abandonment of things that belong to o By death, civil interdiction, insanity or insolvency of owner or
him or of the business which he is interested in – not for profit manager
• Liabilities:
o Must perform duties with diligence of a good father of a family Section 2 – Solutio Indebiti
§ Pay damages suffered by owner due to his fault or • Solutio Indebiti – if something is received when there’s no right to demand
negligence it, and was unduly delivered through mistake, obligation to return it arises
§ Courts may modify indemnity according to circumstances • 2 Requisites
o If delegated to another duties, liable for acts of delegate without o No right to collect these excess sums
prejudice to delegate’s obligation toward owner o Amounts have been paid through mistake by defendants
o If 2 or more managers, solidary liability unless management was • If not by mistake but through negligence, will not apply
assumed to save thing or business from imminent danger • May apply to payments by reason of mistake in construction or application of
o Except if assumed management to save business from imminent a doubtful or difficult question of law
danger, liable for fortuitous events if: • May recover if payer was in doubt whether debt was due and it was in fact
1. He is manifestly unfit to carry on management not due
2. By his intervention, he prevented a more competent • Solidary responsibility of 2 or more payees, when there has been payment of
person taking up management what is not due
o Liable for any fortuitous event if: o Debtor can collect whatever amount from either creditor, regardless
1. Undertakes risky operations which owner was not of who she made the payment to
accustomed to embark upon • Acceptance of Premature payment
2. Preferred his own interest to that of owner’s o If in bad faith, shall pay for:
3. Fails to return property after owner’s demand § Legal interest if money is involved (from time he accepts
4. Assumed management in bad faith payment up to time he returns it upon debtor’s demand),
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o Liable for contracts entered into with 3 persons even if acted in or
name of owner. No right of action between owner and third persons. § Fruits received or which should have been received if thing
Will not apply if: produced fruits
1. Owner expressly or tacitly ratified management o If in good faith
2. Contract refers to things pertaining to owner of business § Responsible only for impairment or loss of thing or its
• If ratified by owner - defect is cured and law on agency will apply. accessories and accession insofar as he has been
• Even if not ratified, owner who enjoys advantages of same, liable for: benefited
o Those that incurred in his interest § If alienated it, return price or assign action to collect sum
o Reimburse manager for necessary and useful expenses • If believed in good faith that payment was made of a legitimate and
o Reimburse for damages latter suffered in performance of duties. subsisting claim, destroyed document or allowed it to prescribe, or gave up
o Same if management was done to prevent loss although no pledges, or cancelled guaranties for his right = exempt from restoring
additional benefit accrued to him o He who paid unduly may proceed only against true debtor or
o Same even if no benefit nor was there imminent danger provided guarantors with regard to who action is still effective
that:
1. Officious manager acted in good faith, and
• Mistake in payment is presumed if something which had never been due or
had already been delivered was delivered
o Defense: delivery was made out of liberality
o Evidence: valid deed to donation
Section 3 – Other Quasi-Contracts
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• 3 person furnishes support without knowledge or person obliged to do so
o Right to claim for former
o Unless gave out of piety and no intention of being repaid
o Must prove:
§ Support furnished a dependent of one bound to give
support but fails to do so
§ Support supplied by stranger
§ Support given without knowledge of person bound to
support
rd
• 3 person pays funeral expenses without knowledge of relatives obliged to
support deceased
o Relatives must reimburse if person asks
o Order of support
§ Spouse
§ Nearest descendant
§ Nearest ascendant
§ Brothers and sisters
• Person obliged to support an orphan, insane or other indigent person
rd
unjustly refuses, 3 person may support and seek reimbursement
o Applies also to minors
• Through an accident person is treated while not in condition to give consent,
liable to pay person aiding him unless it was rendered out of pure generosity
• During a calamity, property is saved from destruction by another
• Government may undertake necessary work when person fails to comply
with health or safety regulations concerning property
• When by a fortuitous event movables separately pertaining to two or more
persons are commingled or confused, rules on co ownership are applicable

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